Apple Faces Civil RICO Class Action Over Gambling Apps

The new year has brought a new lawsuit against Apple, this time for casino and slot machine apps offered through its App Store. A proposed class action, filed in California federal court, alleges that the tech giant is engaged in an “illegal internet gambling enterprise” that constitutes illegal racketeering activity under the Racketeer Influenced and Corrupt Organizations Act (commonly referred to as RICO).

A RICO claim in a civil action essentially amounts to allegations that the defendant committed criminal conduct that harmed the plaintiff. In this context, it is alleged Apple acted illegally by hosting the gambling apps and taking a percentage of the profits. This lawsuit comes on the heels of online gambling’s increased popularity—and addiction—which developed during the COVID-19 pandemic.

Not So “Free-to-Play”

In Nelson, et al., v. Apple Inc., the two lead plaintiffs, on behalf of themselves and proposed class members, claim Apple is illegally hosting and facilitating casinos through its App Store. By way of background, as the complaint explains, over the last decade the world’s leading slot machine manufacturers have teamed up with tech companies to create “social casino” apps that allow the user to play slot machine-style games from their phones, computers, and other devices.

Apple, along with Facebook and Google (the latter two are not implicated in this complaint), has operated a “free-to-play” model of gambling, meaning the initial download of the game is free, but “in-app purchases” are subsequently sold. When a user plays a slot machine game, they must purchase virtual chips in order to gamble. Chip prices can vary, with some popular gaming apps charging anywhere between $39.99 to as much as $499.99 for chip packages. The more chips a user buys, the more in-app funds they have to continue playing.

However, unlike slot machines found in a real-life casino, users cannot cash out their winnings for actual money. The chips may only be used for more gaming. It is estimated that users purchased (and gambled away) $6 billion worth of social casino chips during last year alone.

Profits Entwined with Apple

The complaint also outlines the argument that slot machine apps cannot exist on their own. For these apps to grow user bases and ultimately profit, they must rely on hosting platforms. And as a part of the App Store, these social casino apps remain under Apple’s influence for large-scale distribution and promotion. In exchange for collecting money (as well as personal data) on casino app users, Apple takes a 30% commission on every chip purchase, allegedly earning billions in revenue.

The plaintiffs claim that the partnership between online hosting platforms and gaming apps has created dangerous addictions. The complaint explains that app users have reported severe monetary losses, as well as other non-financial damages associated with gambling such as depression, divorce, and attempted suicide. The complaint contains sworn affidavits from app users who have gambled away extraordinary amounts of money—in the tens of thousands of dollars range—and have suffered serious consequences. The affiants lament that their addictions control their lives, with many hiding it from their spouses and family. One user describes being unable to give her grandchild money because she saves it for her game.

Gambling Gray Area

The complaint asserts that social casinos are already illegal in many states, including California and Washington. It cites a federal appeals circuit ruling that social casinos are considered a form of illegal gambling under Washington law since virtual chips issued in-app are a “thing of value.” Despite knowing that social casinos are illegal, Apple and other platforms continue to engage with these apps, amounting to what plaintiffs allege to be co-conspirators to an illegal gambling enterprise. As such, Apple’s hosting of at least 50 social casino apps makes it “a direct participant in an informal association and enterprise of individuals and entities with the explicit purpose of knowingly devising and operating an online gambling scheme to exploit consumers and reap billions in profits.”

The plaintiffs are seeking a declaratory judgment that Apple’s conduct is unlawful under California’s Unfair Competition Law and constitutes racketeering activity as defined under RICO. Plaintiffs also seek monetary damages, the amount of which can be tripled (“treble damages”) under the applicable RICO laws.

Apple’s Gambling Procedures

Although Apple has not filed its answer or released a public statement on the lawsuit, it is conceivable that the company will reference its own app store gambling guidelines, which have been seen in the past as quite stringent in determining which apps are sold in its stores. In its revised guidelines for gambling apps in 2019, Apple reiterates its position on gambling apps, requiring that all real money casino games must be licensed in the jurisdiction in which they are operating and geo-restricted from access outside its parameters. It has been pointed out that some apps have been rejected by the Apple store despite no apparent breach of Apple’s terms and conditions, with the company exercising ultimate control and discretion in the apps that it will host.

Last year, Apple’s new guidelines struck a blow to many gambling apps when it required that the apps be built natively as opposed to using HTML container apps—a process that would make it significantly more difficult to build the apps. The guidelines apply to all “real money gaming” which is defined as sports betting, poker games, casino games, and horse racing. However, where exactly the specific social casino slot machine apps referenced in the complaint fall within the definition of gambling will likely be a question for the courts to resolve.