[00:00:00] Speaker 00:
Good morning.

[00:00:01] Speaker 00:
Leslie Hurst, counsel for plaintiff and appellant.

[00:00:04] Speaker 00:
I'd like to reserve four minutes for rebuttal.

[00:00:07] Speaker 00:
There are two independent claims at issue.

[00:00:09] Speaker 00:
One is that Supercell violates the unfair prong of California's unfair competition law at UCL.

[00:00:16] Speaker 00:
The gist of the unfair claim is that Supercell uses loot boxes as a predatory monetization scheme, that they design loot boxes like slot machines with all the psychological triggers

[00:00:30] Speaker 00:
that slot machines have and that the business practices cause substantial harm to consumers.

[00:00:41] Speaker 00:
The claim is that loot boxes are an illegal gambling device under California law.

[00:00:46] Speaker 00:
And the unfair claims and the unlawful claims are independent and separate.

[00:00:52] Speaker 04:
And I'd like to start with that because... Could you maybe start with where we have to start with standing, both Article 3 and statutory?

[00:01:01] Speaker 00:
Well, Article 3 standing is the money, they lost economic harm.

[00:01:08] Speaker 00:
money went from the plaintiff's pockets to supercells.

[00:01:12] Speaker 03:
It's not enough that money went from one pocket to another.

[00:01:17] Speaker 03:
I'm trying to figure out why the economic harm you allege results from any of the state law violations that you allege.

[00:01:27] Speaker 03:
In other words, let me pose this for you.

[00:01:30] Speaker 03:
It appears that everybody knew exactly what the deal was here.

[00:01:33] Speaker 03:
You're not alleging that somehow it was hidden that there were

[00:01:38] Speaker 03:
This is the one with loot boxes, I guess, right?

[00:01:40] Speaker 03:
That there were loot boxes or what they did.

[00:01:42] Speaker 03:
So it's, I guess I'd ask the question this way.

[00:01:47] Speaker 03:
Let's assume there was an illegal casino out on the freeway and it had a big sign over it said, illegal casino.

[00:01:55] Speaker 03:
And your clients went to the illegal casino and they played and there was no cheating and there was no misrepresentation about the games and they lost.

[00:02:04] Speaker 03:
Would they have article three standing to challenge the illegality of the casino?

[00:02:08] Speaker 00:
Not necessarily there because you said illegal casino.

[00:02:11] Speaker 00:
Here, certainly the players, the loop boxers, these are kids as young as nine.

[00:02:19] Speaker 03:
Well, but they're not, see, what we have in this case is a putative class action, correct?

[00:02:26] Speaker 00:
Yes, we do.

[00:02:26] Speaker 03:
Brought by two people who are not kids as young as nine.

[00:02:30] Speaker 03:
So I'm focusing on the standing of the

[00:02:34] Speaker 00:
Two named plaintiffs.

[00:02:35] Speaker 03:
Of the two named plaintiffs.

[00:02:37] Speaker 03:
There may be separate lawsuits from a kid as young as nine who says I was fooled into playing this game and I've got a different claim, but that's not your client's claim.

[00:02:46] Speaker 00:
But still, I would say our clients did not know it was illegal gambling.

[00:02:50] Speaker 00:
They knew they were playing games of chance.

[00:02:52] Speaker 03:
Well, they knew exactly what they were doing.

[00:02:57] Speaker 03:
They knew they were playing a game that gave them an opportunity to buy stuff from the loot box and use it in the game.

[00:03:06] Speaker 03:
And so I'm trying to figure out, it seems to me they got what they bargained for.

[00:03:11] Speaker 03:
So why is there economic harm at all?

[00:03:14] Speaker 00:
Because I believe you're using really a benefit of the bargain analysis to determine standing.

[00:03:21] Speaker 00:
And that's not the way it works.

[00:03:22] Speaker 03:
How would they, well, I'm not sure what way it works.

[00:03:24] Speaker 03:
So how would they be better off if this game were regulated?

[00:03:29] Speaker 03:
Let's assume that this was a, let's assume that they went to the state and they got permission to run this game.

[00:03:35] Speaker 03:
How would your clients have been the slightest bit better off?

[00:03:40] Speaker 00:
Because that would not be the result necessarily of them complying with the law.

[00:03:46] Speaker 00:
The standard for UCL standing

[00:03:49] Speaker 03:
Well, see, we're asking about Article III standing.

[00:03:51] Speaker 03:
But let's assume for a moment you have state law standing, because in California, as I recall, anybody can sue for anything.

[00:04:00] Speaker 00:
No, not, not.

[00:04:00] Speaker 03:
Yeah, but let's think about Article III standing.

[00:04:05] Speaker 03:
How were they harmed?

[00:04:07] Speaker 03:
Their harm has to result from the alleged wrong.

[00:04:10] Speaker 03:
How were they harmed by the alleged wrong here?

[00:04:12] Speaker 00:
They were harmed by that wrong because if Supercell had complied with the law,

[00:04:19] Speaker 00:
really these products would not have been on the market super loot boxes would not have been part of the game they would not have spent money or property they would not have lost money when they would not have lost james they bought with money if supercell had complied with the law but where because they would not have been on the market

[00:04:37] Speaker 04:
I guess I didn't see at least in the allegations anything suggesting that they didn't understand that they were getting what they paid for.

[00:04:48] Speaker 04:
What they were buying with, I guess first of all, do you agree that the thing that they were buying, the subject matter, the product here, are the loot boxes and not the prices?

[00:05:01] Speaker 00:
Yes.

[00:05:02] Speaker 00:
Yes.

[00:05:02] Speaker 04:
Yes.

[00:05:03] Speaker 04:
Okay.

[00:05:04] Speaker 04:
So, and they're, so they're buying the loot boxes with, and they're getting whatever the loot boxes have in them, and they know that.

[00:05:16] Speaker 00:
But they were buying something that was illegal and should not have been available, and I think I would point to the- Okay, I guess that's part of, I suppose, one threshold question here in terms of the-

[00:05:30] Speaker 04:
there's some discussion, we'll have to work out this question of the unlawful claim.

[00:05:34] Speaker 04:
But for standing, I think we're, to the extent that Judge Hurwitz isn't getting onto your unlawful claim, I think we're asking, how is buying something that knowing is illegal?

[00:05:46] Speaker 04:
I mean, what's your case for standing on that?

[00:05:49] Speaker 04:
Let's set aside the merits.

[00:05:51] Speaker 00:
I think the France case does that.

[00:05:54] Speaker 00:
this court's case where it was a drug that was illegal because it did not have FDA approval.

[00:06:01] Speaker 00:
Like here, the loot boxes are illegal because they're not permitted by California law.

[00:06:06] Speaker 00:
And there, the plaintiff didn't say that the drugs that were not approved by the FDA were unsafe.

[00:06:13] Speaker 00:
She did not say she had physical harm from them.

[00:06:15] Speaker 00:
The harm was she spent money for an illegal drug that should not have been on the market.

[00:06:21] Speaker 04:
So your standing does, I guess, as it sometimes does, appear to rise and fall with the merits of whether these were illegal gambling devices like slot machines.

[00:06:31] Speaker 00:
I would see it as two separate analysis, because on a motion to dismiss, our allegations that these are unlawful are taken as true.

[00:06:39] Speaker 04:
Taking the allegation- That can't be, right?

[00:06:43] Speaker 04:
We can't take as true.

[00:06:45] Speaker 04:
We ordinarily don't take as true law.

[00:06:50] Speaker 04:
On a motion to dismiss, we ask whether it is in fact unlawful, because that's part of your elements of your claim.

[00:06:56] Speaker 00:
Then I would say yes.

[00:06:57] Speaker 00:
If they're not unlawful, then they would not be standing under the unlawful prong of the UCL.

[00:07:04] Speaker 03:
If they're not unlawful, doesn't your entire claim fail?

[00:07:08] Speaker 00:
Yes, which is the point I was trying to make.

[00:07:10] Speaker 00:
I see them as two separate analysis.

[00:07:12] Speaker 00:
If they're not unlawful, then we fail to state a claim.

[00:07:16] Speaker 03:
Whether under the unfair prong or the unlawful prong.

[00:07:20] Speaker 00:
Under the unlawful prong.

[00:07:21] Speaker 03:
Well, let's assume that these are perfectly lawful games.

[00:07:25] Speaker 03:
What's your unfair claim then?

[00:07:27] Speaker 00:
The unfair claim doesn't go to whether they're unlawful gambling.

[00:07:30] Speaker 00:
It goes to the business practices and conduct.

[00:07:34] Speaker 03:
Well, and that gets back to the question I think that Judge Johnstone was asking.

[00:07:39] Speaker 03:
I don't see any allegations in the complaint that there wasn't full disclosure.

[00:07:45] Speaker 03:
to your clients about how the loot boxes worked and what you got in return for buying them.

[00:07:54] Speaker 03:
What you're saying is it ought to be illegal, but it's not.

[00:07:56] Speaker 00:
No, no, I'm not.

[00:07:58] Speaker 00:
For the unfair prom, for the unfair conduct, I'm not saying that that is not dependent on them being unlawful.

[00:08:05] Speaker 00:
That is separate and much broader conduct.

[00:08:07] Speaker 03:
I understand.

[00:08:08] Speaker 03:
But I'm trying to figure out what's unfair here.

[00:08:10] Speaker 03:
Let's assume we have a legal game in which everybody understands when they play it.

[00:08:15] Speaker 03:
what the rules are.

[00:08:17] Speaker 00:
and the unfair context.

[00:08:19] Speaker 00:
What's unfair?

[00:08:20] Speaker 00:
What's unfair is the predatory monetization scheme.

[00:08:24] Speaker 03:
I don't understand.

[00:08:27] Speaker 03:
Predatory monetization scheme is a conclusion.

[00:08:30] Speaker 03:
So let's deal with the facts.

[00:08:31] Speaker 03:
The facts are we make money out of selling you the loot boxes.

[00:08:37] Speaker 03:
You know that.

[00:08:38] Speaker 03:
We know that.

[00:08:39] Speaker 03:
You know what's possibly in them.

[00:08:41] Speaker 03:
You know what the cost of them is.

[00:08:43] Speaker 03:
So why is there a predatory monetization scheme?

[00:08:49] Speaker 00:
because when you sign up for loot box, when you sign up for the games themselves, they're free.

[00:08:55] Speaker 00:
then very quickly the play of the games is inhibited unless you get loot box prizes.

[00:09:02] Speaker 03:
You don't have to buy a loot box, right?

[00:09:04] Speaker 00:
You don't have to buy a loot box, but otherwise the game is very, it's really not very functional.

[00:09:10] Speaker 00:
The other unfair conduct is in the structure of the loot boxes themselves.

[00:09:16] Speaker 00:
Regardless of whether they're gambling, they are still designed

[00:09:19] Speaker 04:
Are they, I guess, don't we have to ask for, still talking about standing here, are loot boxes goods or services under the statute?

[00:09:30] Speaker 04:
Because in this case they have to be tangible.

[00:09:33] Speaker 00:
That is for the Consumer Legal Remedies Act.

[00:09:37] Speaker 00:
I think that they're services, not goods.

[00:09:39] Speaker 00:
We don't allege they're goods.

[00:09:40] Speaker 00:
They're services.

[00:09:41] Speaker 00:
But that's a requirement only under the CLRA, not the UCL, unlawful or unfair claim.

[00:09:48] Speaker 00:
So that's a separate CLRA issue.

[00:09:50] Speaker 04:
Okay.

[00:09:51] Speaker 04:
You want us to focus on the UCL.

[00:09:53] Speaker 00:
Yes.

[00:09:54] Speaker 00:
And for the unfair prong, it is the way the games are structured so that there's these psychological triggers that keep the players buying again and again and again.

[00:10:04] Speaker 00:
The loss is disguised as wins.

[00:10:07] Speaker 00:
And it's those that construct of behavior in the complaint that we say is unfair.

[00:10:13] Speaker 00:
irrespective of whether it violates California gambling laws.

[00:10:16] Speaker 01:
Counsel, there are thousands of items on the internet where it's free, it's free, and all of a sudden you start, well, there's impediments.

[00:10:24] Speaker 01:
You have to watch some ads to get out of the new content.

[00:10:26] Speaker 01:
You have to watch some ads to play the next version of the game.

[00:10:28] Speaker 01:
How's this different?

[00:10:29] Speaker 01:
You're saying that you start for free playing the game, all of a sudden, oh, you have to go through another different process, and maybe loot boxes are thrown in.

[00:10:37] Speaker 01:
How's this different than all kinds of things going on the internet?

[00:10:40] Speaker 01:
I would really need to know what you're comparing it to, but the way... Well, like I said, games on the internet are there for free, and all of a sudden you can't go to the next level unless you watch ads for 30 seconds or a minute or two minutes, whatever it is, and you have to watch these ads, and then from there it goes on.

[00:10:55] Speaker 01:
How is that different than this scenario?

[00:10:57] Speaker 01:
We buy these loot boxes instead of wasting your time watching ads.

[00:11:00] Speaker 00:
The unfair conduct under the UCL is there's a number of tests, and one is a balancing test where you look at the potential benefits of loot boxes to the harm to consumers.

[00:11:13] Speaker 00:
And it's a factual question.

[00:11:15] Speaker 00:
It really requires a factual determination, not an emotion to dismiss.

[00:11:19] Speaker 00:
And here we clearly have alleged that they are very harmful.

[00:11:23] Speaker 00:
And we don't just allege it.

[00:11:24] Speaker 00:
We have

[00:11:26] Speaker 00:
12 different scientific tests which say, you know what, playing these loot boxes causes real social and psychological harm to the players.

[00:11:34] Speaker 00:
Well, let's look at the harm.

[00:11:35] Speaker 04:
So you don't allege that you, at least the two named plaintiffs here, misunderstand loot boxes.

[00:11:43] Speaker 04:
That the loot boxes are a chance to get gems or money or, well, rare players or whatever.

[00:11:56] Speaker 00:
They do not misunderstand that.

[00:12:00] Speaker 04:
I'm trying to pin down what you're not claiming as harms.

[00:12:04] Speaker 04:
You also don't allege that they are paying inflated prices, whatever that might mean, for the loot boxes that they would otherwise buy, right?

[00:12:14] Speaker 04:
Your clients don't have any, don't allege any psychological harm or problem gaming or that they don't like the prizes that they get at the end.

[00:12:27] Speaker 04:
With those off the table, what's the harm?

[00:12:30] Speaker 00:
The harm to the plaintiffs under the unfair prong would be the repetitive purchases, which we do allege.

[00:12:37] Speaker 00:
And do they know that these repetitive purchases are induced and that they are manipulated into them by the very structure of the loot boxes?

[00:12:45] Speaker 04:
Where in your complaint would you suggest that there's

[00:12:50] Speaker 04:
duress or inducement that somehow is unfair.

[00:12:54] Speaker 04:
Where should we go in your complaint to find that unlawful inducement or unfair inducement?

[00:12:59] Speaker 00:
You know, there is the entire section where we talk about the design of the loot boxes and their structural similarity to slot machines, and that is that we talk about the psychological triggers built into the games that the players don't know about.

[00:13:16] Speaker 00:
Or necessarily understand and that is the chasing the losses disguised as wins the use of gyms with their with the It's the odd pricing.

[00:13:29] Speaker 04:
How is that different from a deck of Pokemon or baseball cards?

[00:13:37] Speaker 00:
I don't know baseball cards or Pokemon.

[00:13:40] Speaker 00:
I think it's quite different.

[00:13:41] Speaker 04:
Well, I think one of the reasons people buy, or a box of Cracker Jacks, right, I think one of the reasons people buy them is that you open them up and you hope that you're gonna get, you know, a great rookie card that might be really valuable.

[00:13:52] Speaker 04:
It's the value that they're chasing.

[00:13:54] Speaker 00:
No, well, Cracker Jacks, I think you're just, you're wrong in the Cracker Jacks for sure.

[00:13:59] Speaker 00:
On the Cracker Jacks, you buy a box of Cracker Jacks, everybody gets a prize.

[00:14:04] Speaker 04:
There's no chance that... But everyone gets a prize here.

[00:14:07] Speaker 04:
Is there, there's no allegation that every loot box contains some prize.

[00:14:11] Speaker 00:
But the prizes here are of different objective value.

[00:14:16] Speaker 04:
Well, none of them are really of any economic value because there's no resale, notwithstanding your allegations.

[00:14:21] Speaker 04:
They're amusement value.

[00:14:23] Speaker 04:
They're different amusement value.

[00:14:24] Speaker 00:
And amusement has objective value.

[00:14:28] Speaker 00:
I think the case law from over the last hundred years, amusement has an objective

[00:14:34] Speaker 00:
What do they call it?

[00:14:36] Speaker 04:
Commercial ... Well, under California ... Again, I think the predicate statutes that you're leading with on the unlawful piece are penal statutes.

[00:14:44] Speaker 04:
These are crimes.

[00:14:46] Speaker 04:
Would it be a little odd that the California legislature has, unbeknownst to anyone in the past couple decades, made a crime of, I think what Chief Judge Morris says, or pervasive free gaming apps on the

[00:15:00] Speaker 00:
Not at all.

[00:15:01] Speaker 00:
When the California legislature enacted these statutes, they based it upon the New York law.

[00:15:07] Speaker 00:
The statutes were almost verbatim with the New York law and their penal statutes also on gambling.

[00:15:13] Speaker 00:
At the very time the California enacted these statutes, New York was saying, along with Supreme Courts from Maine to Alaska, that if you pay money

[00:15:23] Speaker 00:
in a game of chance and your prize is amusement, that's a thing of value and that violates gambling laws.

[00:15:29] Speaker 00:
So it's not a surprise.

[00:15:30] Speaker 04:
In order for it to fall under these slot machine statutes, it has to be a device, does it not?

[00:15:35] Speaker 00:
Yes, it does.

[00:15:36] Speaker 04:
So that would make a crime of everyone who has a phone.

[00:15:39] Speaker 04:
Because what's the device?

[00:15:41] Speaker 00:
The device is the software which makes the phone operate as a game of chance.

[00:15:47] Speaker 04:
But every slot machine is software.

[00:15:49] Speaker 04:
I think there's a law that says that.

[00:15:51] Speaker 04:
Is there any law that says that software alone can be a device under California law?

[00:15:56] Speaker 00:
And no, but the California Supreme Court has looked at when software is imported into a computer that, yes, and you go to the computer, it's like a computer store, and you can, on that computer, you can play the gambling games where the computer owner doesn't

[00:16:19] Speaker 00:
The computer itself isn't the game of chance.

[00:16:22] Speaker 00:
It's imported with software.

[00:16:24] Speaker 00:
And the California Supreme Court, that's in the Green v. Grewal case, says the combination of this software with the hardware, yes, that's a gambling device.

[00:16:34] Speaker 00:
If it wasn't,

[00:16:36] Speaker 00:
then any gambling device, they say people would be surprised if simply importing software onto a machine that makes that a game of chance, of course that's a gambling device.

[00:16:49] Speaker 00:
Otherwise nothing would be a gambling device.

[00:16:51] Speaker 04:
So what makes that not a crime then for the owner of the device?

[00:16:57] Speaker 00:
I think because the real game of chance is in the software.

[00:17:01] Speaker 00:
It is in the software.

[00:17:02] Speaker 00:
It's simply a new way.

[00:17:03] Speaker 00:
It's simply the next step of the Grewal case where the software that is the game of chance, instead of being imported into a computer in a store, it is now downloaded into a computer held in your hand.

[00:17:18] Speaker 00:
That's the only difference.

[00:17:21] Speaker ?:
OK.

[00:17:28] Speaker 00:
Anything else on Stan?

[00:17:30] Speaker 03:
Well, I guess I've got a larger picture question, and I know what your answer will be to this since you lost it to district court, but I'm trying to figure out why we should have seven or eight district judges in the Northern District of Arizona worrying about related questions when we could just ask the California Supreme Court whether or not these are games of chance.

[00:17:52] Speaker 03:
What's your view on that?

[00:17:54] Speaker 00:
You're right.

[00:17:55] Speaker 00:
The answer is yes.

[00:17:56] Speaker 03:
But you filed your complaint in federal court.

[00:17:59] Speaker 00:
Well, that's under CAFOR.

[00:18:00] Speaker 00:
We're required to.

[00:18:02] Speaker 03:
Well, no, you're not required to.

[00:18:03] Speaker 03:
It could have been removed.

[00:18:06] Speaker 00:
It could have been.

[00:18:06] Speaker 03:
But you chose the federal forum and not the state forum.

[00:18:09] Speaker 00:
I think because inevitably it would be removed because under CAFOR it's been removed.

[00:18:13] Speaker 00:
I don't know.

[00:18:14] Speaker 03:
The other side seems fairly confident in their state law arguments.

[00:18:17] Speaker 03:
Maybe they would have been happy to have a state law judge decide them.

[00:18:21] Speaker 03:
I'm troubled as a matter of

[00:18:25] Speaker 03:
Judicial economy for what it's worth by seeing that there are seven or six or seven different cases kicking around the state courts all of which federal courts all of which play on the same theme about about games and and My guess is the California Supreme Court would tell us that these are not illegal Gaming devices if they were asked so I'm we did file a motion to certify to the California Supreme Court and I think here Yes, not in the district court

[00:18:55] Speaker 00:
No, here.

[00:18:56] Speaker 03:
No, once you lose, I understand why everybody then wants to certify.

[00:19:00] Speaker 03:
I'm wondering why you didn't ask the district court to certify.

[00:19:03] Speaker 00:
I don't have an answer to that.

[00:19:06] Speaker 03:
Thank you.

[00:19:07] Speaker 00:
I'll reserve the rest of my time.

[00:19:09] Speaker 04:
OK, we'll save at least two minutes.

[00:19:17] Speaker 04:
Mr. Tice.

[00:19:19] Speaker 02:
Good morning, Your Honors.

[00:19:20] Speaker 02:
May it please the court, Ryan Tice on behalf of Opele Supercell.

[00:19:26] Speaker 02:
I'd like to start where you all started, standing.

[00:19:30] Speaker 02:
Their standing claim rises and falls with the claim of illegality.

[00:19:34] Speaker 02:
That was just conceded.

[00:19:36] Speaker 02:
That means there's no standing for the unfair claim.

[00:19:39] Speaker 03:
Well, I don't think she concedes that.

[00:19:41] Speaker 03:
That's what I'm trying to, maybe you can help us with it.

[00:19:44] Speaker 03:
She says on the unfair claim, even if this is a legal

[00:19:50] Speaker 03:
I don't want to use the word device because that's a legal conclusion.

[00:19:54] Speaker 03:
Even if this is a legal thing, it's operated in an unfair manner because of all the reasons she said.

[00:20:02] Speaker 03:
Tell me why the legality of the operation decides both prongs of the claim.

[00:20:11] Speaker 02:
Because that's their argument.

[00:20:12] Speaker 02:
When you put the illegality aside and you focus just on the unfair claim,

[00:20:17] Speaker 02:
It is just general notions of unfairness, deceit.

[00:20:20] Speaker 02:
And I think you hit it on the head, Your Honor, when you said, point me into the complaint where it's those unfairness things that caused harm to the particular plaintiffs in this case.

[00:20:30] Speaker 02:
If you look at the excerpt of record 27 and 28 is the allegations concerning these plaintiffs.

[00:20:37] Speaker 02:
They don't even identify what they got, whether they were subjectively unhappy,

[00:20:42] Speaker 02:
that they didn't use the things, but they weren't deceived into buying these things because of the so-called unfairness.

[00:20:51] Speaker 02:
There's no time.

[00:20:52] Speaker 02:
So just citing studies or third-party research that says, oh, there are some ills associated with loot boxes.

[00:21:01] Speaker 02:
These particular plaintiffs have not identified that they were duped into buying them because of some unfair practice.

[00:21:08] Speaker 02:
Like you said, they weren't under duress.

[00:21:11] Speaker 02:
They knew what they were buying.

[00:21:12] Speaker 02:
This is exactly like the Chasset and Fleer case dealing with trading cards.

[00:21:19] Speaker 02:
The allegation was that the trading cards were illegal and it was unfair because

[00:21:25] Speaker 02:
They had this chase card, a card that had some rare value, and everyone was buying those.

[00:21:30] Speaker 02:
And the Ninth Circuit said, you knew what you were buying, you got what you bought, and there's no standing.

[00:21:37] Speaker 02:
The exact same issue should follow here.

[00:21:40] Speaker 02:
Now, my colleague identifies France.

[00:21:44] Speaker 02:
That was an FDA non-approved drug.

[00:21:47] Speaker 02:
The purchaser got a defective product, didn't get what they intended to buy.

[00:21:53] Speaker 03:
They got an unsafe drug, not a drug that was on the market that should have been... And there's enough damage, in your view, because they didn't get what they contracted for, even though they suffered no harm from that?

[00:22:06] Speaker 02:
Well, I think... Because they lost the money, is that your... Well, yeah, it's fundamentally different.

[00:22:10] Speaker 02:
They did not get the benefit of the bargain.

[00:22:11] Speaker 03:
If she had known that the drug was...

[00:22:15] Speaker 03:
not approved, would there be a cause of action?

[00:22:19] Speaker 02:
I think that is a different story and I think that's a different question.

[00:22:23] Speaker 02:
I think that would be a tougher claim for her to say that that practice was unfair and that she suffered a harm with full knowledge of what she got.

[00:22:32] Speaker 03:
I want to try to unpack or pack or unpack the two.

[00:22:36] Speaker 03:
Let's assume illegality for a moment.

[00:22:38] Speaker 03:
So let's assume that you go to a guy selling marijuana on the street

[00:22:45] Speaker 03:
and he's not allowed under state law to sell marijuana in the street.

[00:22:47] Speaker 03:
He has to sell it through dispensaries or whatever.

[00:22:50] Speaker 03:
And you buy it, and you get good marijuana, and you've got no harm from it.

[00:22:55] Speaker 03:
Do you have a claim under the UCL?

[00:22:58] Speaker 02:
Well, I don't believe so, because you're... It's illegal.

[00:23:02] Speaker 03:
So is the illegality enough to give you a claim under the UCL?

[00:23:05] Speaker 02:
It is not, because you have to show something separate.

[00:23:09] Speaker 02:
The illegality is with the former mechanism for which he purchased it.

[00:23:13] Speaker 02:
You still got the end result.

[00:23:15] Speaker 02:
And that's in the insurance cases, right?

[00:23:17] Speaker 02:
An illegal insurance purveyor that's unlicensed is illegal for him or her to sell insurance.

[00:23:25] Speaker 02:
You still get insurance, so there's no harm.

[00:23:28] Speaker 02:
You still got the insurance.

[00:23:29] Speaker 02:
In your analogy, you still got the marijuana.

[00:23:31] Speaker 02:
Unless you're claiming a deficiency or defectiveness with the marijuana, the illegality doesn't cause the harm, because you still got the benefit of the bargain.

[00:23:41] Speaker 03:
So the illegality prong.

[00:23:44] Speaker 03:
Standing under the, liability under the illegality, but whether it's, using the word standing is a little confusing because California uses standing to demonstrate whether or not you can recover under the statute.

[00:23:57] Speaker 03:
But whether you call it standing or not, the illegality of the operation is not sufficient to establish liability under the UCL, CLRA under your view.

[00:24:08] Speaker 02:
You mean sufficient to establish standing?

[00:24:11] Speaker 03:
Well, I see you standing.

[00:24:13] Speaker 02:
I don't care.

[00:24:14] Speaker 02:
Statutory standing, effectively.

[00:24:16] Speaker 02:
Yeah, you're statutory standing.

[00:24:17] Speaker 02:
Yeah, yeah.

[00:24:18] Speaker 02:
So in that case, the answer would be no.

[00:24:20] Speaker 02:
And the law is pretty clear on that, right?

[00:24:23] Speaker 02:
Prop 64 was the voters restraining the UCL requiring a separate element.

[00:24:29] Speaker 03:
So now let me ask you an Article III question.

[00:24:32] Speaker 03:
Let's assume for a moment that it was sufficient to establish

[00:24:38] Speaker 03:
statutory standing.

[00:24:41] Speaker 03:
We still have to worry about our Article 3 jurisdiction.

[00:24:44] Speaker 03:
So let's assume that illegality is enough to establish statutory standing, but you got what you paid for.

[00:24:53] Speaker 03:
Is there Article 3 standing?

[00:24:55] Speaker 02:
The same reason.

[00:24:56] Speaker 02:
You still got the benefit of the bargain.

[00:24:57] Speaker 03:
You're back in the... Well, see, but I'm saying under state law, the benefit of the bargain isn't enough to defeat your standing.

[00:25:04] Speaker 03:
I'm trying to figure out whether it's enough under federal Article III to defeat your standing.

[00:25:09] Speaker 02:
I believe it is.

[00:25:10] Speaker 03:
None of the briefs address this.

[00:25:12] Speaker 02:
It does not.

[00:25:12] Speaker 02:
It doesn't distinguish between Article III and statutory standing.

[00:25:16] Speaker 02:
But I think the Chase and the Chassett case

[00:25:21] Speaker 02:
Dealing with trading cards is virtually identical to this.

[00:25:24] Speaker 02:
The only difference is that it was a Rico claim, not a UCL claim, but there was still no standing because there was no harm when you got the benefit of the bargain.

[00:25:31] Speaker 02:
And that's been extended into the UCL context as well.

[00:25:34] Speaker 02:
That's the birdsong case.

[00:25:36] Speaker 02:
in the Morrison case that was cited by the district court and not in the papers.

[00:25:40] Speaker 04:
Is there a difference there then in some of these cases tease them apart and some of them don't between Article III and statutory standing?

[00:25:48] Speaker 04:
17204 right before it says standing, lost money or property says has suffered injury in fact and has lost money or property.

[00:26:00] Speaker 04:
Is there a difference from your point of view between Article III and statutory standing?

[00:26:07] Speaker 02:
That's a good question.

[00:26:08] Speaker 02:
Here, I don't think it matters because you can't satisfy under either because there is no economic harm, right?

[00:26:14] Speaker 02:
There's no injury and none of the plaintiffs allege any injury.

[00:26:18] Speaker 02:
The only thing they allege is the illegality of the thing, right?

[00:26:22] Speaker 04:
They said they lost money on it.

[00:26:25] Speaker 02:
Well, they didn't lose money because they got something for it.

[00:26:29] Speaker 02:
right so you can't collapse the nature of the claim or liability into standing just because something is illegal and you purchase it doesn't make doesn't automatically give you an injury right if you found that there would be standing in every case

[00:26:47] Speaker 02:
on the premise of illegality, both statutory and Article 3, and you would essentially dispense with the standing requirement, which you all started with and is a necessary requirement.

[00:26:57] Speaker 02:
And they don't allege under either satisfaction of the standing requirement because they allege no harm, right?

[00:27:05] Speaker 02:
Going back to what your Honors discussed is they don't

[00:27:09] Speaker 02:
alleged that they got less than what they bought for or there was a defect in the product.

[00:27:13] Speaker 02:
They went into this adult's full knowledge of what they were bargaining for and they got it.

[00:27:19] Speaker 04:
Does that matter?

[00:27:20] Speaker 04:
So one of our colleagues in the Northern District decided a case involving Roblox and Robux involving similar claims but with minors.

[00:27:31] Speaker 04:
Should that matter?

[00:27:33] Speaker 02:
I think it does matter because that case is fundamentally different and the roadblocks were tradable and usable outside.

[00:27:41] Speaker 02:
So there was a monetary value to the roadblocks.

[00:27:44] Speaker 04:
That matters maybe for standing.

[00:27:46] Speaker 04:
Does it matter for the substantive claim?

[00:27:49] Speaker 02:
Oh, I think it does matter for the substantive claim even more so.

[00:27:52] Speaker 02:
It's fundamentally different than the facts that we have here.

[00:27:56] Speaker 02:
There's nothing usable

[00:27:58] Speaker 02:
outside of the game, it's virtual items and it's amusement within the games.

[00:28:02] Speaker 02:
In the Roblox case, it was Robux, I think it was something like that, but those are tradable outside, no prohibition on it, and you can trade those for dollars, and you can trade them in for dollars, so they were equivalent to money, they had a monetary value.

[00:28:19] Speaker 03:
That may have some bearing on the illegality, but how does it bear on the

[00:28:27] Speaker 03:
on standing.

[00:28:29] Speaker 03:
In other words, they got what they, in your view, they got what they paid for.

[00:28:34] Speaker 03:
They knew what they were.

[00:28:36] Speaker 03:
They weren't fooled into thinking they were something else.

[00:28:39] Speaker 03:
They got what they paid for.

[00:28:41] Speaker 03:
So wouldn't they have stand, why did they have standing and the people in this case don't?

[00:28:46] Speaker 02:
This goes back to your point that they were miners.

[00:28:48] Speaker 02:
cannot necessarily make the determination of knowing what they're buying, and they can disaffirm those agreements.

[00:28:53] Speaker 04:
That seems a strange thing for standing to turn on, though, does it?

[00:28:57] Speaker 04:
I mean, again, it goes to maybe the unfairness or the substance of it, but the question, I guess to make it more precise, what is the injury that the miners suffered in the Robux case that the named plaintiffs here have not suffered for purposes of standing?

[00:29:18] Speaker 02:
So I think they don't understand the transaction in the same way that the adults in this situation understand the transaction and what they were getting.

[00:29:28] Speaker 02:
I think that's the fundamental difference.

[00:29:31] Speaker 02:
And it's not just the illegality in the roadblocks case.

[00:29:36] Speaker 02:
It is they were deceived and not told about what it is they were doing.

[00:29:41] Speaker 02:
And they were miners and could not make that determination.

[00:29:44] Speaker 01:
Well, counsel, what are the plaintiffs get in this case?

[00:29:47] Speaker 01:
They're buying these gyms, which are kind of a form of virtual currency, right?

[00:29:52] Speaker 02:
They are not, so once you buy gems, they are no longer, they're only usable in the game, so they don't have a monetary value outside of the game.

[00:30:01] Speaker 04:
Well, there's kind of a gray market, is there not?

[00:30:03] Speaker 02:
There is not a gray market for gems.

[00:30:06] Speaker 02:
There is an alleged gray market for accounts.

[00:30:10] Speaker 02:
First off, plaintiffs do not allege they have tried to sell their accounts on the gray market, so that should end the inquiry.

[00:30:18] Speaker 02:
But further than that, the Ninth Circuit has already ruled

[00:30:21] Speaker 02:
directly on that point in cater that says if you have terms that prohibit the resale of accounts or anything outside of the market that controls and that was the holding of cater it's also the holding in the fourth circuit in the machine zone case so the fact that there may be a gray market but it's prohibited here it doesn't count it doesn't

[00:30:42] Speaker 02:
kind of take them outside of the game.

[00:30:45] Speaker 04:
So to come back to standing, let me know if you are, but if they realedge and have two minor plaintiffs standing,

[00:30:59] Speaker 04:
I'm just trying to understand exactly what part of the injury, we talked a little bit about, well, they weren't transferable, and then we said, well, that was probably substance, and then we talked a little bit about, well, they didn't know what they were getting.

[00:31:10] Speaker 04:
Well, then if Ms.

[00:31:13] Speaker 04:
Hurst comes back with two minor named plaintiffs standing then in your game?

[00:31:20] Speaker 02:
Well, I still think they wouldn't have particular standing in our case.

[00:31:25] Speaker 02:
But we'd have to look at the nature of the allegations.

[00:31:28] Speaker 02:
We're confronted with the allegations.

[00:31:29] Speaker 03:
But I'm trying to, in my own mind, either pack or unpack the illegality issue from the standing issue.

[00:31:37] Speaker 03:
So let's assume the game is perfectly legal.

[00:31:39] Speaker 03:
It doesn't fall into the California prohibition of slot machines.

[00:31:49] Speaker 03:
Features make it such that young people will be fooled into, you know, putting a lot of money into it and will become addicted, et cetera, as allegations have been made in other cases.

[00:32:02] Speaker 03:
Assuming those are the allegations in a case, is it your position that the fact that the game is legal prevents liability under the UCL?

[00:32:12] Speaker 02:
under the illegality prong for sure.

[00:32:15] Speaker 03:
But you could still sue under the unfair prong, could you not?

[00:32:19] Speaker 02:
You could potentially.

[00:32:20] Speaker 02:
It would depend on the allegations of the particular claims.

[00:32:23] Speaker 03:
And would there be standing for somebody who made those claims to bring it?

[00:32:26] Speaker 03:
They might fail, obviously, but would there be standing for them to bring those unfairness claims?

[00:32:31] Speaker 02:
Well, potentially, if they tied

[00:32:35] Speaker 02:
the reason or the harm, their loss of money.

[00:32:38] Speaker 03:
It's not the illegality, but the design of the game.

[00:32:42] Speaker 02:
Right.

[00:32:43] Speaker 02:
Yeah, it would have to be in that end to give them standing.

[00:32:46] Speaker 02:
But I think the other problem, and we'll get into this, is I don't think you could bring a claim under the unfair prong, given kind of that the California legislature has regulated the entirety of gambling.

[00:33:00] Speaker 02:
It's not like the cases where

[00:33:02] Speaker 02:
It's some small subset.

[00:33:04] Speaker 02:
It is kind of the entire field of gambling.

[00:33:07] Speaker 03:
So, see, but now you're getting back to my difficulty.

[00:33:11] Speaker 03:
Assuming that it's a legal, it's legal.

[00:33:13] Speaker 03:
Legal, yes.

[00:33:14] Speaker 03:
It is legal.

[00:33:16] Speaker 03:
Now you're saying, because California has regulated the entire field, that everything that it allows cannot be a violation of the UCL.

[00:33:26] Speaker 02:
It's a little bit more nuanced to that, right?

[00:33:29] Speaker 02:
So there's a couple reasons.

[00:33:31] Speaker 02:
It is, regulates the entire field and permits the specific conduct here in two ways.

[00:33:38] Speaker 02:
In Geyer, before the statutes were amended, 330B was added, 331 was amended.

[00:33:46] Speaker 02:
The question before Geyer was, was amusement a thing of value?

[00:33:50] Speaker 02:
the statute was amended, and they didn't include amusement as one of the prohibited categories.

[00:33:54] Speaker 03:
That goes to the illegality prong.

[00:33:56] Speaker 03:
I understand that California didn't choose to regulate this type of game, and it chose to regulate others, and that's a good argument why it's not illegal.

[00:34:07] Speaker 03:
So I'm assuming that it's legal, but I'm still trying to figure out why someone couldn't complain.

[00:34:14] Speaker 03:
These defendants, these plaintiffs don't.

[00:34:17] Speaker 03:
that it's legal, but it's so misleading that it leads me to become addicted and spend much more money than I would have merely for the amusement value of the game.

[00:34:30] Speaker 03:
And why that wouldn't be

[00:34:33] Speaker 03:
wouldn't state a claim under the UCL.

[00:34:36] Speaker 03:
It might not win, but it would state a claim.

[00:34:38] Speaker 02:
Well, because the fact that it is not illegal, and we believe it is permitted by the statute, would render... So you really are saying that legality kills all unfairness claims.

[00:34:53] Speaker 02:
Not all unfairness, the claims in this particular case for two reasons.

[00:34:57] Speaker 02:
First, amusement was passed on by the legislature in the amendment after Gayer.

[00:35:03] Speaker 02:
So they were fully familiar with the argument that amusement, the argument that amusement was a thing of value.

[00:35:09] Speaker 02:
Gayer, the California Appellate Court, rejected that.

[00:35:12] Speaker 02:
The legislature amended, did not make amusement illegal.

[00:35:17] Speaker 02:
Subsequent to that, they did add a provision that permitted games that are predominantly of skill.

[00:35:24] Speaker 02:
And we have made that argument in the lower count, found that in the original order, but this is predominantly against it.

[00:35:28] Speaker 02:
So that's also permitted.

[00:35:29] Speaker 03:
As long as it's a game of skill, even if it's designed in a way to fool people into doing things and is addictive and makes them spend money that they wouldn't have spent had it not been designed in this misleading way, there is no violation of the UCL.

[00:35:46] Speaker 02:
I'm not going to categorically exclude that.

[00:35:49] Speaker 03:
Well, that's why I'm having difficulty.

[00:35:50] Speaker 03:
I think what you were saying in the beginning, and I understood it, was that in this case, their only claim of unfairness is illegality.

[00:36:01] Speaker 03:
And therefore, unfairness rises or falls with their legality claim.

[00:36:07] Speaker 03:
But I'm trying to figure out whether or not legality is a necessary element of unfairness.

[00:36:15] Speaker 03:
And I don't see how it can be.

[00:36:16] Speaker 02:
I agree with you, Your Honor, on that piece.

[00:36:19] Speaker 02:
I think there's somewhere in the middle.

[00:36:21] Speaker 02:
When the alleged unfairness is the ills of slot machines and gambling that the California legislature deals with, then that would fall with the illegality just like it should here.

[00:36:33] Speaker 02:
But if you're talking about unfairness divorced from the ills of gambling,

[00:36:38] Speaker 02:
for example, some predatory scheme in how you do the transaction.

[00:36:43] Speaker 02:
I think your honor would be right that that wouldn't be precluded by the mere illegality.

[00:36:47] Speaker 02:
What here we have is, and the district court found this, is that there's complete overlap between the illegal claim and the unfairness claim.

[00:36:55] Speaker 02:
And the ills of

[00:36:57] Speaker 02:
gambling or slot machines are the basis for the unfairness, not something indifferent apart from that.

[00:37:06] Speaker 04:
I guess I take your point there.

[00:37:08] Speaker 04:
To come back to the unlawfulness claim, a couple questions about the thing of value.

[00:37:14] Speaker 04:
Do you have a response to your friend's citation of the Green case as to how we handle amusement?

[00:37:23] Speaker 02:
So I think amusement,

[00:37:26] Speaker 02:
does not fall within the category of thing of value.

[00:37:31] Speaker 02:
The thing of value has to be something that is monetary or tradable given the history of the statute, the plain text of it, the cases interpreting it, and subsequent efforts to legislate loot boxes.

[00:37:42] Speaker 02:
When you look at that all together,

[00:37:45] Speaker 02:
it is statutory construction, it is clear that it doesn't cover amusement.

[00:37:53] Speaker 04:
So the second point is whether you have any comment on our dialogue about the device question.

[00:38:00] Speaker 04:
Sure.

[00:38:01] Speaker 04:
Because of course, as plaintiffs, they need to hit all their markers in terms of satisfying these elements.

[00:38:09] Speaker 04:
What's your response to their argument about device?

[00:38:13] Speaker 02:
So software alone is not a device.

[00:38:17] Speaker 02:
They make the argument that when you couple it with a phone, it then becomes a device.

[00:38:23] Speaker 02:
Supercell is only the purveyor of the software.

[00:38:26] Speaker 02:
And they had previously sued the device makers, Apple and Google, on the same claims.

[00:38:31] Speaker 02:
That is the device maker.

[00:38:32] Speaker 02:
That's where it's combined.

[00:38:33] Speaker 02:
And the user has the device.

[00:38:36] Speaker 02:
So it is not a device just to say the software is a device.

[00:38:39] Speaker 02:
The cases they cite,

[00:38:41] Speaker 02:
It was the device purveyor that was the one that was subject to the gambling laws, not just purely the software.

[00:38:52] Speaker 02:
the gambling authority talks about that internet cafes, it is those devices that give rise to the violation.

[00:39:00] Speaker 02:
And I think going back, this is a criminal statute, a device, a slot machine is a physical device, not software, there's not a single case that extends the gambling laws, just a software.

[00:39:12] Speaker 02:
I think another important point on that piece is, if you listen to their argument on game of skill and why it's not a game of skill, they say you can slice off

[00:39:21] Speaker 02:
the box or the chest but they don't claim the box or the chest is just the device and they cite a whole bunch of cases where the courts found that you could slice off you can't you can't append an otherwise illegal game to the

[00:39:35] Speaker 02:
to the thing under scrutiny.

[00:39:37] Speaker 02:
Those are 319 cases, didn't deal with device.

[00:39:40] Speaker 02:
So they don't get it both ways.

[00:39:41] Speaker 02:
They don't get to say that the software for Brawl Stars and the Clash Royale is the device, but then say they can carve out a little piece of that for a game of skill in it.

[00:39:55] Speaker 02:
We can only look at just the loot box or the box, right?

[00:40:01] Speaker 02:
First off, it's not a device.

[00:40:02] Speaker 02:
Second off, they can't speak out both sides of their mouth and say, the device is the whole software, and then slice off something they don't even call a device.

[00:40:09] Speaker 02:
If you're going to find it's a device, it's the whole game, and then we would win on the game of skill, and it's a predominant game of skill.

[00:40:19] Speaker 02:
I have 52 seconds, yes.

[00:40:20] Speaker 02:
I'm going to maximize my time here.

[00:40:23] Speaker 02:
I'd like to ask the certification question.

[00:40:25] Speaker 02:
They chose to file in this court.

[00:40:27] Speaker 02:
They have a nationwide class.

[00:40:29] Speaker 02:
They didn't ask the district court.

[00:40:31] Speaker 02:
I think principles of fairness and just not delaying this warrant, you all deciding this and affirming the district court, certification would only serve to delay.

[00:40:43] Speaker 02:
And it would be against California's public policy that courts in California don't resolve disputes over gambling.

[00:40:50] Speaker 02:
And that's what you would ultimately be asking the California Supreme Court to do, which they have indicated they have no interest

[00:40:57] Speaker 02:
in doing.

[00:40:57] Speaker 02:
But it's the City of Idaho Falls case, where if you file in federal court in the first instance, you don't really get that second bite in the apple.

[00:41:06] Speaker 02:
And the presumption is against certification.

[00:41:09] Speaker 02:
They could have filed in state court.

[00:41:10] Speaker 02:
They chose not to.

[00:41:11] Speaker 02:
And in reply, the only cases they cite were remand cases.

[00:41:15] Speaker 02:
They did not sign a single case for certification where they filed in federal court as they did here.

[00:41:21] Speaker 04:
Thank you, Your Honor.

[00:41:27] Speaker 04:
Ms.

[00:41:27] Speaker 04:
Hearst, we'll give you two minutes.

[00:41:30] Speaker 00:
Four quick points on the unfair prong being having an unfair claim regardless of whether it's illegal.

[00:41:38] Speaker 00:
We have three presidential cases.

[00:41:41] Speaker 00:
That's the Celtic case.

[00:41:42] Speaker 00:
Even though the conduct was not illegal under the Unfair Practices Act, the California Supreme Court says you have an unfair claim.

[00:41:50] Speaker 00:
Then this court in Epic Games, that's the Ninth Circuit precedent, said, okay, even though the games, I mean, even though the business practices did not violate the Sherman Act, you still had a UCL unfair claim.

[00:42:04] Speaker 00:
The last one is the Keppel case.

[00:42:05] Speaker 00:
That's a U.S.

[00:42:06] Speaker 00:
Supreme Court case.

[00:42:08] Speaker 00:
And there, the court said, even if it's not illegal gambling, it is still an unfair practice under the FTCA.

[00:42:16] Speaker 00:
And the UCL is based on the FTCA.

[00:42:18] Speaker 00:
So that is persuasive precedent standing under the unfair act, under the unfair claim.

[00:42:29] Speaker 00:
The court keeps talking and there's words like they weren't The plaintiffs were not deceased plaintiffs knew what they were buying.

[00:42:37] Speaker 00:
They weren't fooled That's just not the test under the UCL unfair prong the test is did they spend money as a result of the alleged unfair business practice and here we did allege that we allege they spent money on these loot boxes because of the unfair practices which had to do with

[00:42:57] Speaker 00:
the way they were constructed, the way they were structured, the losses disguised as wins, the chasing, etc.

[00:43:03] Speaker 00:
So we did let alleged standing under the unfair prong of the UCL, and I think that Article 3 standing, it's the

[00:43:15] Speaker 00:
Injury, in fact, is the same standard that is used for statutory standing under the UCL.

[00:43:22] Speaker 00:
Third, switching back to the illegality and whether amusement can be a thing of value, please do look at the statutes.

[00:43:31] Speaker 00:
Do look at the statutes because they cover intangible items that do not have a monetary value.

[00:43:38] Speaker 00:
For instance, they cover tokens, they cover game credits, they cover game allowances, and those are things that you can't cash them out, you can only use them in the game, they only give you amusement, and yet those things are things of value according to the California Bureau of Gambling Control.

[00:43:59] Speaker 00:
And under case law, for instance, we cite a case from Maine, a case, a Supreme Court case from Milwaukee, and a Supreme Court case from Tennessee, where the, where amusements are all things you can't cash out and they're still things of value.

[00:44:13] Speaker 00:
Finally, briefly, under the, the RICO cases, this goes to standing under the unlawful prong

[00:44:20] Speaker 00:
Those cases just don't apply.

[00:44:22] Speaker 00:
Those cases even assume that you're going to have standing under state law, but RICO is just different.

[00:44:28] Speaker 00:
RICO is a different higher burden, and those cases just don't apply and aren't relevant to standing analysis under the unfair prong.

[00:44:37] Speaker 04:
Okay?

[00:44:37] Speaker 04:
Thank you very much, Ms.

[00:44:38] Speaker 00:
Ramsey.

[00:44:40] Speaker 04:
Thank you.

[00:44:40] Speaker 04:
Thanks to both counsel.

[00:44:41] Speaker 04:
This case will be submitted, and we are adjourned.