(This post is the second on our series on sponsorship considerations. Our first post, on defining expectations and payments, can be found here)
In all sponsorship negotiations, the issue of exclusivity is perhaps the single most important topic of discussion. Exclusivity is significant because it prohibits a sponsee (the company/individual being sponsored) from entering into other sponsorships, whether at large or in specified categories. Sponsors will often push for complete exclusivity over broad sponsorship categories because this protection provides the sponsor with an uninterrupted spotlight for their brand. For example, a drink sponsor like Cola-Cola will not want to pay top dollar for a sponsorship deal if the sponsee can simultaneously enter into an agreement with Pepsi. It is easy to see why a sponsor would want this type of protection, but a sophisticated sponsee should be aware that exclusivity can be tailored to better reflect the desires of both parties to the sponsorship.
An effective exclusivity provision starts with detailed communication. Both parties need to know what each side expects the exclusive product category to include. Sponsors will want the product category to be as broad as possible in order limit the amount of competitors. For instance, a company that offers nutritional supplements may try to expand its product category to include nutritional bars, protein shakes, and other types of supplements. In response, sponsees should try to limit the scope of the exclusive product category to be as narrow as possible. Using the above example, if a sponsee can limit the category to only include nutritional bars, it will have more flexibility when soliciting additional sponsors for the protein shakes and other supplement categories. This flexibility allows for potentially greater sponsorship revenue.
However, newer organizations, players, or influencers, may find it difficult to negotiate the scope of the rights to their advantage. Nonetheless, sponsees should at least make sure the categories and exclusivity are thoroughly defined to curb potential sponsor overreach. A sponsor may believe its deal as a sponsee’s “exclusive camera” would preclude a sponsee from entering into another deal with a company like Panasonic, who sells a variety of products including cameras, headphones, and televisions. A sponsee should insist that any obligation it has to not enter into a deal with a competing sponsor (exclusivity) is limited to the category that the sponsorship is in. Unfortunately for sponsors, a sponsee would still be able to enter into a deal with Panasonic as long as it only agreed to endorse a Panasonic product that did not fall under a protected category. While this may not be ideal for the current camera sponsor, an explicitly defined product category would inform sponsors of any limitations and hopefully clear up any potential confusion or issues that may arise down the line when partnering with multiple sponsors.
Another matter the parties to a sponsorship should be aware of is whether any restrictions are imposed by third parties. Frequently in traditional sports and esports, leagues will prevent teams, and teams will prevent players, from entering into sponsorship agreements within its own defined “Reserved Categories.” A Reserved Category is effectively a sponsorship category in which the restricted party is contractually required to not obtain sponsors in. For example, if a league has an exclusive sponsorship with Alienware and it has specified in its league participation agreement that the PC category was protected or reserved from teams, then a team could not enter into a sponsorship which would include PCs. This also occurs between teams and players in their player contracts, with players having certain sponsorship categories closed off to them. Importantly, it is in everyone’s best interest that these Reserved Categories are well defined, so as to avoid any possible confusion and disputes.
Negotiating exclusivity rights can be difficult but it is in all parties’ best interests to have a clear picture of what specific products are being protected and the associated rights/obligations. Without this, a number of potential problems can exist, which may ultimately harm the sponsorship relationship.
Our next post will discuss the various intellectual property concerns when entering into a sponsorship agreement.
Sponsorships are integral to the esports and sports industries as they provide a vital stream of revenue to their recipients. As 2018 is shaping up to be the biggest year for non-endemic sponsorships in the history of esports, it is important to keep in mind some basic sponsorship considerations when reviewing any sponsorship agreement. Specifically, the agreement’s expectations/obligations, payment, intellectual property, and exclusivity terms are key areas of any sponsorship agreement that you should pay close attention to. This post will address the expectations and payment provisions of a sponsorship agreement, and subsequent posts will discuss considerations regarding intellectual property and exclusivity.
When executed correctly, a sponsorship is a valuable arrangement because it is designed to benefit both parties. The foundation of a sponsorship is the expectations and obligations involved, and here we begin to see the mutually beneficial arrangement comes in to view. What is the sponsoring company asking of me? What are you receiving in exchange for the sponsorship? These questions are the starting point for an analysis of the expectations and obligations involved in a sponsorship agreement.
The key to an effective sponsorship agreement starts with both parties’ expectations being clearly defined. Without a precise description of each party’s obligations, the parties will, at least partly, be unaware of what is expected, making it difficult to properly fulfill their obligations. This ambiguity can often lead to arguments, terminations, or even breach of contract lawsuits. Considering that it’s in the best interest of both parties to develop a long-standing business relationship, avoiding conflicts through precise wording is beneficial to everyone.
Both parties should articulate its goals for the deal and explain how they plans to achieve their goals. For example, if a company wants to sponsor to a team and its players, requiring the players wear clothing with the company logo prominently displayed, it is imperative to specify when the company wants the team, and its players, to do this. With teams constantly pushing out content on various social media platforms and players doing the same on their individual accounts, a sponsor may expect to see its logo on team gear at all times. This may be broader than the team anticipated, who solely wanted the items’ usage to be while the players are streaming. A clearly defined provision would eliminate any confusion amongst the parties and provide a solid foundation for the sponsorship by eliminating any unknown intentions.
Payment terms are also of critical concern in evaluating a sponsorship agreement. Unfortunately, failed sponsorship payments are routine within the esports industry, and oftentimes create further issues for the sponsored party. For instance, if a team doesn’t get its sponsorship payment on time, it may have trouble paying its players’ salaries. At its most base level, payment provisions are what the sponsored entity or person receives in exchange for the sponsored promotion. Of course, the sponsorship agreement should specify the amount to be paid (or the specifics as to how a variable amount is determined) and when the amount will be paid. However, the payment terms of the agreement can also be used to incentivize proper payment. Savvy negotiators will seek to add penalties, termination rights, or other things that would disincentivize late/failed payments. In the event that payment is late or does not occur, these additions would provide you with greater flexibility to offset some of the impact incurred.
When it comes to sponsorship agreements, clarity and precision are key. This is especially true when defining each party’s expectations and obligations with respect to each other, including payment terms.
In our next post, we’ll discuss exclusivity rights and some of the considerations involved by both parties.
Trademarks are the foundation of branding, as they protect the rights holder from third parties using any protected words or logos for their own pecuniary gain. Fnatic, Fatal1ty, and Overwatch League, are a few of the many examples of trademarks utilized in the esports and streaming industries. Trademarks are extremely valuable assets to those who own them because they provide heightened protections and rights to owners. These benefits are not only available to companies, like when a streamer or influencer creates a company to provide their services through, but also to individuals who can prove that their name, or pseudonym, has acquired “secondary meaning”. Secondary Meaning is a legal term used to mean that the mark owner can show that the individual’s name or pseudonym is indicative of the producer of the services and not the services themselves. Popularity certainly plays a role in whether Secondary Meaning can be proven. Athletes like LeBron James and Cristiano Ronaldo have trademarked their names, nicknames and even their commonly-used phrases to provide themselves with exclusive use of these words and phrases for their own pecuniary gain. Streamers and influencers should follow in these athletes’ footsteps with respect to their intellectual property.
What are trademarks?
Trademarks are words, symbols, or phrases, used to identify and distinguish the specific source of goods or services. A trademark provides its registrant with the exclusive right to use a registered word, symbol, or phrase in connection with the goods or services specified in its registration. This means that the use of confusingly similar words, symbols or phrases in the same or similar industries could be unlawful. Trademark registration provides owners with a number of other benefits as well.
Once a trademark is federally registered, the registration serves as notice to the rest of the United States that the word, mark or phrase is being utilized in commerce by the mark’s owner. This means that if someone tries to utilize that mark, or a confusingly similar mark, for the same service or product, even if they were unaware of the registered mark, the prior registration precludes that mark from being utilized in commerce.
The federal registration also allows the mark holders to use the ® symbol. This symbol appears after the registered mark, in the upper right hand corner, when the mark is being used in connection with the goods and services listed in its registration. It gives constructive notice to potential infringers that the mark has been registered with the United State Patent and Trademark Office (“USPTO”) and that the mark holder has the exclusive right to use and license the trademark.
Oftentimes, the registration and use of the ® symbol alone will prevent users from creating marks that are confusingly similar. However, if a third party infringer utilized a mark that is confusingly similar, a mark owner can demonstrate their ownership by directing any infringers to their registered trademark, which is publicly viewable on the internet. Federal registration also allows a mark owner to obtain statutory damages up to $200,000 (in counterfeit cases), treble damages (for willful infringement), and attorneys fees, should the mark owner need to pursue any infringement of its trademarks through litigation. For these reasons, trademarks can act as both a sword and a shield for the registrant.
Why Trademarks are Important for Streamers
A trademarked alias will provide you with complete control over the use of your name in connection with the goods and services in which your trademark is registered. For instance, if your alias is “CKNdinner”, and you file a trademark registration for that phrase in connection with Class 25 (clothing, footwear, headgear, etc.), you will be the only person or business that is able to sell t-shirts, hats, etc. with that name on it once the mark is registered. These goods will also show the ® symbol after the mark, which will help deter potential infringers before they even think about utilizing the registered mark, or a confusingly similar one, on their own goods. Further, if someone were to infringe on their registered marks, they would have a strengthened position to pursue a claim through court due to the potentially increased damages and ability to be awarded attorney’s fees.
Without the trademark on your alias, it is much more difficult to protect against a third party trying to profit off of your established brand. It sounds uncommon, but this happens more frequently than you may think. A few years ago, professional athlete Johnny Manziel was forced to take legal action against a man who sold t-shirts using his popular moniker, "Johnny Football". Although Manziel did not have formal trademark protection for the nickname, he still had common law rights to use the phrase and the opportunity to plead his case in court. Plaintiffs in these types of actions may still be successful without a registered trademark, but in order to receive a monetary award, they would have to demonstrate actual damages, which can be in difficult in many cases. Nonetheless, the federally registered trademark would grant streamers and influencers the right to sue in federal court, and due to the statutes which govern trademarks, the bar to recover monetary damages would be much lower.
As online streaming viewership continues to grow, individual brands are becoming increasingly more valuable by the week. Subscribers and companies alike are willing to pay a great deal of money to streamers and influencers in the hopes reaching their audience and showcasing its brand. In order to make sure that their brand is adequately protected, streamers and influencers should consider the benefits a trademark can provide to them. In addition to the benefits described in this blog post, trademark registration in the US may also serve as the basis for a foreign trademark registration, which is especially helpful given the increasingly global esports and streaming industries. Sophisticated streamers and influencers should follow in the footsteps of the entertainers before them, and their massive brands, in order to shield themselves from any potential infringers while they grow their brand.
If you are a streamer or influencer and you would like to discuss how our attorneys can help you with this process, please contact us.
Whether it’s apparent or not, streamers and influencers are each a business. However, many of these individuals have not considered that their current business entity structure may not be the best option for them, given the risks at stake and the protections that could otherwise be available to them. Let’s explore the different types of entities and how they relate to streamers and influencers.
Sole proprietorships are one of the most commonly used business structures by streamers and influencers in the videogame and esports industries, as they are the simplest to create. In order to ”create” this structure, no formal action is necessary. The sole proprietorship is created once the individual begins performing business activities. As a result, streamers and influencers often operate under this designation without being aware of it.
Sole proprietors can operate under their own names, or a trade name. If an owner does decide to use a trade name, states generally require the owner to register the fictitious business name with the state. Any trade name should always be unique.
In addition to its uncomplicated setup, the taxation of sole proprietorships is relatively easy since there are no distinctions between owners and their businesses. Any income earned by the sole proprietorship will be reported as income by its owner on his or her personal income taxes. The owner will also have to report any losses to the business on their personal taxes.
Though a sole proprietorship is the easiest kind of business to establish, it’s also the most risky.
Limited Liability Company
LLCs are a popular entity selection for business owners because they provide their members with the benefits of limited personal liability and tax flexibility, while still being relatively simple to create and operate. LLCs are created by filing the requisite certificate of organization with the state where the LLC will be located.
The most substantial benefit to an LLC is that its owners are not subject to personal liability for debts/liabilities incurred on behalf of the business. Since LLCs are designed to separate business assets of the company from personal assets of its owners, the owners’ personal assets remain protected while the business’ creditors are only able to reach the business’ assets. For streamers, this protection from liability means that if, for example, you are sued for failure to perform your sponsorship obligations, the only assets that the sponsor could sue you for are the business’ assets (your computer, the business bank account, etc.) and NOT your personal assets and income that your business has paid you to perform your services. Accordingly, this is an easy way to protect your life from the activities of the business.
With respect to taxes, profits and losses from an LLC pass through to the owners’ tax return and losses can be used to offset other the owners’ income, but only up to the amount invested. As with sole proprietorships, this is helpful as the business itself is not subject to its own taxes.
LLCs are a good option for streamers and influencers because it shields liability while still allowing the streamers or influencers to profit off of their business as they would have if there were no business entity in place. However, it is important to note that the liability protection is not perfect, as certain actions can limit and/or destroy that liability shield if the LLC is not managed properly.
Corporations are the most rigid business structure. Corporations are created by filing an articles of incorporation with the State. Once the company is incorporated, it issues stock to its shareholders in exchange for cash or other assets. The amount of stock each shareholder receives determines the shareholder’s ownership percentage in the corporation. There is no limit to the amount of stock that can be issued.
Choosing to set up an organization as a corporation will provide its shareholders with several benefits. Similar to that of an LLC, corporations provide its owners with protection from personal liability. Additionally, this type of structure is generally more attractive to investors than an LLC. Furthermore, companies using this type of structure may also use stock as a business incentive to their employees. This has become a popular option for start-up companies who, in their beginning stages, do not have the amount of capital required to pay talented employees. However, corporations are taxed separately to its owners, meaning that any profits that the business earns are taxed at the corporate level, and then any profits paid to the owners are taxed as income.
Corporations are not ideal business entities for individual streamers and influencers due to the rigid nature of the structure and double taxation. However, it is plausible that a corporation could be a good fit for a group of streamers or influencers who wish to come together and create a business bigger than any of them individually.
Streamers and influencers should be aware of the various business entities that they could utilize to perform their services while possibly offering themselves a shield from liability. Though it may seem odd, any streamer or influencer is a business unto themselves. Though the choice of business entity will always vary based on the business owner’s circumstances, exploring the possibility of creating an LLC to perform their services is a sound business decision. If you’d like to discuss how our attorneys can help you establish your business, please contact us.
(This post was contributed by Alan Conklin. Alan is an intern for Roger Quiles, Esq. and a recent graduate of the Villanova School of Law)
On October 10, Epic Games filed complaints against Charles Vraspir and Brandon Broom (the “Players”) alleging the Players made and used software that allowed users to cheat in Fortnite, a co-op survival action video game developed by Epic Games.
The Players were alleged associates of the website Addicted Cheats, where users pay a monthly subscription of $5 to $15 for botting services that aim and kill enemies in PvP games. In order to create the cheats used to enable this service, the Players allegedly reverse-engineered and modified the game’s source code.
Cheating in video games is an important issue for game developers, as cheating typically makes games more difficult for other users to play and alters how the gameplay experience from what the developers intended., often causing those users to play the games less. For games that have only been around for a short period of time, this user exodus can be devastating.
Fortnite: Battle Royal, which was released to the public on September 26, 2017, has impressively passed the seven million-player mark in the short amount of time, but the game’s developer took swift action in response to the discovery of the cheating service. In a statement made to Polygon last week, Epic stated,
“When cheaters use aimbots or other cheat technologies to gain an unfair advantage, they ruin games for people who are playing fairly. We take cheating seriously, and we’ll pursue all available options to make sure our games are fun, fair, and competitive for players."
One of the available options was apparently taking legal action against Vraspir and Broom, who had already been banned from Fortnite at least nine times.
In two separate complaints, Epic makes four similar arguments against each individual:
First, Epic argues that the Players violated the Copyright Act by creating an unauthorized derivative work of Epic’s copyrighted Fortnite code. Epic alleges the Players used computer software to inject code into Fortnite’s code, which materially modified and changed the code. This created work was never authorized by Epic. Accordingly, Epic believes the Players infringed on Epic’s copyrights and are liable for direct and willful infringement.
For this violation, Epic seeks: (1) an injunction prohibiting the Players from using the service; (2) actual damages, including lost sales and profits as a result of the Players’ contributory infringement; (3) any additional profits made by the Players; (4) alternatively, statutory damages up to $150,000 for the Players’ willful infringement; and (5) attorneys’ fees and costs.
Contributory Copyright Infringement
In the second claim, Epic alleges the Players contributed to the direct and willful infringement of Epic’s copyrights while working in their capacity for Addicted Cheats. Epic states the Players touted the cheats to other users in online forums, actively encouraging the other users to purchase the cheats. Additionally, Epic believes the Players helped users in their use of the cheats by “providing help and support to cheaters and would-be cheaters who ask for support using the cheats.”
As a result of this violation, Epic seeks: (1) an injunction prohibiting the Players from using the service; (2) actual damages, including lost sales and profits as a result of the Players’ contributory infringement; (3) any additional profits made by the Players; (4) alternatively, statutory damages up to $150,000 for the Players’ willful infringement; and (5) attorneys’ fees and costs.
Breach of Contract (North Carolina law)
The third claim against the Players is a breach of contract claim asserting that the Players violated Epic’s Terms of Service and Fortnite’s End User License Agreement (the “EULA”).
In order to create an account with Epic, use its services, and download Fortnite, all users, including the Players, must agree to both the Terms of Services and the EULA.
Epic’s Terms of Service expressly prohibit users from ““copy[ing], modify[ing], creat[ing] derivative works of, publicly display[ing], publicly perform[ing], republish[ing] or transmit[ting] any of the material obtained through [Epic’s] services.”
Fortnite’s EULA prohibits players from ““reverse engineer[ing], deriv[ing] source code from, modify[ing], adapt[ing], translat[ing], decompil[ing,] or disassembl[ing Fortnite] or mak[ing] derivative works based on [Fortnite]” and “creat[ing], develop[ing], distribut[ing], or us[ing] any unauthorized software programs to gain advantage in any online or other game modes.”
By reversing engineering Fortnite’s source code and materially altering it to make a cheating service, the Players created an unauthorized derivate work, thus violating their agreements with Epic and Fortnite.
For this violation, the Epic seeks: (1) an injunction prohibiting the players from continuing to the use the work; (2) compensatory damages; and (3) attorneys’ fees and other costs.
Intentional Interference with Contractual Relations (North Carolina law)
The last claim against both Players also involves the Terms of Services and EULA. In this claim, Epic argues that the Players intentionally interfered with contractual relations by encouraging and inducing Fortnite users to purchase and use the Players’ cheats, despite having knowledge of the Terms and EULA between Epic and its registered users, which prohibit the use of cheats in Fortnite.
For this violation, Epic seeks: (1) an injunction to restrain and enjoin the players from continuing to use the service; (2) damages for loss of goodwill among users of Epic’s services, decreased profits, and lost profits from users whose accounts were terminated for violations of the Terms and the Fortnite EULA; and (3) the proceeds the Players received from the sales of the cheats (unjust enrichment).
Circumvention of Technological Measures in Violation of the Digital Millennium Copyright Act (Broom only)
In addition to those claims, Epic asserted another claim Broom individually. This claim alleges that Broom violated the DMCA, by using a cheat that was primarily designed for the purpose of circumnavigating Epic’s security measures used to prevent unauthorized access to Fortnite’s copyrighted work. In continuance of this claim, Epic argues that Broom, as a moderator and support person for AddictedCheats.net, materially contributed to the sale, distribution, and use of the Fortnite cheats while actively assisting other cheaters in their pursuit to circumnavigate Epic’s technological security measures.
For Broom’s suspected actions, Epic seeks injunctive relief, actual damages and Broom’s profits attributable to this violation, maximum statutory damages and attorneys’ fees and costs.
Copyright infringement suits have become one of the most common remedies for game developers in the fight against cheating services like Addicted Cheats. In March 2017, Blizzard Entertainment successfully sued the German company Bossland GmbH, famous for creating bots known as “Honorbuddy” and “Hearthbuddy”. In that suit, Blizzard was awarded $8.6 million in damages for approximately 43,000 instances of copyright infringement.
While there is no doubt game developers will continue to use legal remedies against cheating services, it is important for cheaters to recognize that in this case, Epic took action against the Players individually. Instead of suing Addicted Cheats, the service that used the Fortnite cheats, Epic decided to come after Vraspir and Broom, in hopes of holding them individually liable for any damages it may receive.
Although this may not become a trend going forward, since individuals usually do not have as much money as the companies providing the cheating services, game developers may still use this strategy as another way to deter future cheaters and maintain the integrity of their games.
A copy of Epic’s complaints can be read below:
(This post was contributed by Alan Conklin, an intern for Roger R. Quiles, Esq. and recent graduate of Villanova Law)
On September 7, two Youtube stars, Trevor “TmarTn” Martin and Thomas “Syndicate” Cassell, avoided any significant punishment or fine from the Federal Trade Commission for failing to disclose their interests in a website they were promoting, by agreeing to terms set forth by the agency.
The settlement agreement comes nearly a year after the social media influencers’ connection with CSGOLotto was discovered. After the discovery, the FTC filed a complaint against Martin and Cassel, its first ever complaint against individual social media influencers, for deceptively endorsing the online gambling service CSGO Lotto, while failing to disclose that they jointly owned the company.
In the settlement, the FTC order requires Martin and Cassell to “clearly and conspicuously disclosure any material connections with an endorser or between an endorser and any promoted product or service.” The duo was lucky to avoid any fines for these specific actions, but the order did state that each infraction in the future would cost the violator $40,654. While this punishment may seem like a slap on the wrist for Martin and Cassel, the FTC hopes this action will send a message to other social media influencers and show them that they must disclose their connections to products they promote in order to allow consumers to make informed decisions during the purchasing process.
In late 2015, Martin and Cassell, began operating a website called CSGOLotto, which allowed consumers to gamble, using “skins” as virtual currency. “Skins” are collectable virtual items used to cover weapons in the popular game, Counter-Strike: Global Offensive, also known as “CS: GO.”
Without informing the public of their positions as president and vice president of CSGO Lotto, Martin and Cassell, respectively, promoted the website to their massive followings on their social media channels. On Youtube, their combined accounts had over 10 million subscribers.
Martin and Cassell posted videos on these accounts with alluring titles such as, “HOW TO WIN $13,000 IN 5 MINUTES (CS:GO Betting),” and “$24,000 COIN FLIP (HUGE CSGO BETTING!) + Giveaway.” Alone, Cassell’s videos promoting the website were viewed more than 5.7 million times.
The duo also used their Twitter accounts to promote the site without disclosing their connection to CSGO Lotto:
“ ’I lied… I didn’t turn $200 into $4,000 on @CSGOLotto…I turned it into $6,000!!!!
csgolotto.com/duel-arena” [screen shot of Syndicate winning a betting pool worth over
$4,400 on CSGO Lotto] (April 20, 2016 tweet by @ProSyndicate)’ (Exhibit N)”
While this may have seemed like an adequate amount of marketing for the content creators, they did not stop there. The two influencers and their company had an “influencer program,” where they paid other gaming influencers between $2,500 and $55,000 to promote the CSGO Lotto website to their followers, and prohibited them from saying anything negative about the site.
Soon after their affiliation to the website was revealed, the FTC filed a complaint against Martin, Cassell, and their company, alleging that they “misrepresented that videos of themselves and other influencers gambling on the CSGO Lotto website and their social media posts about the website reflected the independent opinions of impartial users of the service.” The complaint also referenced the deceptive social media posts by the paid influencers.
Despite the soft “punishment” handed down by the FTC, social media influencers should take note that the Commission is ready and willing to take action against them should they fail to adequately disclosure their relationship to companies in any post for which they have a connection. This past April, the FTC sent over ninety educational letters to social media influencers and brands, informing the influencers that their relationships must be “clearly and conspicuously disclosed.” On Thursday, the Commission sent follow up letters to twenty-one of those initially targeted influencers, warning them of potential violations. Although the punishments do not appear to be severe, social media influencers should not take any risks with future “paid-for” posts or posts for companies with which they have connections. The FTC has recently updated its “Endorsement Guide” to help social media influencers understand what is appropriate when endorsing a product.
(This post was contributed by Kaylee Sauvey, a rising 3L at the Fowler School of Law and intern for Roger Quiles, Esq.)
On July 2, 2017, recording artist Dion DiMucci (“Dion”) sued Zenimax Media, Inc. for failing to obtain his consent before using his song “The Wanderer” in advertisements for Fallout 4, the newest installment in the Fallout video game franchise.
The Complaint acknowledges that a valid contract was executed between the makers of Fallout and Universal Music, who owns the song’s copyright, for the song’s use in advertisements for Fallout 4. Despite this, the following elaborate argument details why Dion believes that he was entitled to personal consultation before the song’s public use.
Dion authored “The Wanderer” for Laurie Records in 1961, which had adopted AFTRA’s National Code of Fair Practice for Phonograph Recordings (modernly “SAG-AFTRA National Code of Fair Practice for Sound Recordings,” hereinafter “Phono Code”). Dion argues that because of this, he is entitled to benefit from any collective bargaining agreements made under AFTRA; because his music was being used in a commercial advertisement, Dion alleges that the SAG-AFTRA Commercials Contract – formed for the benefit of SAG-AFTRA members to regulate compensation and working conditions on the set of a commercial – applies to him.
In the Commercials Contract, there is a provision stating that the producer of a commercial must separately negotiate with a “principal performer” before a photograph or audio recording in which he is featured can be released to the public in a commercial advertisement.
The Universal/Zenimax contract guarantees that Dion would be paid at least the minimum amount offered under an applicable collective bargaining agreement, as well as “other economic benefits having a substantially equivalent cost.” These “economic benefits,” he argues, include the ability to be consulted before his songs are used in any public way. Dion alleges that the Commercials Contract “affords the artist the right to control the use of his performance to the same extent as a copyright or trademark owner licensing his intellectual property,” and because the “goodwill attached to a recording artist’s performance is his asset,” this qualifies as an economic benefit covered under the agreement for the song’s use in Fallout 4.
In the Dion case, the existence of a valid contract with the record company for the use of “The Wanderer” is procedurally accurate. Song use requires consent from the artist’s record company and/or publisher – those that hold the copyrights to songs. Obtaining a license for use from the copyright holder is the procedurally correct method of legally using a song.
The argument that personal consultation with a recording artist is required goes against the established principles of music law. If an artist had a legal right to object to any use of their music, then the proprietary function of record companies and publishers would cease to exist. This argument – disregarding a valid contract and saying that the Commercials Contract is binding – is unique, but inaccurate.
ISSUES WITH COMMERCIALS CONTRACT/PHONO CODE
On its face, the Commercials Contract is not even applicable to a recording artist in Dion’s situation. The Contract is specifically applicable to “principal performers” operating under the jurisdiction of SAG-AFTRA. The multi-part description of “principal performers” in the body of the Contract makes reference to actors and stuntmen of all varieties, but never makes reference to recording artists. In fact, in the Complaint, Dion has included the seemingly-applicable provisions of the Contract, but has replaced the phrase “principal performer” to instead say “Plaintiff.” This certainly appears to be a technique to manipulate the court into believing the provision applies to recording artists, even though, in reality, it does not.
Like the Commercials Contract, the Phono Code does not grant a recording artist permission to control his music, but is instead used to regulate compensation by establishing a royalty rate.
PROBLEMS WITH THIS ARGUMENT
Ultimately, there are many problems with Dion’s argument.
First, the argument that the Commercials Contract and the Phono Code overwrite the valid license for the use of “The Wanderer” is unsound because this suggests that the copyrights retained by the record company and publisher are secondary to the moral right vested in a recording artist. If this is true that a recording artist could overwrite valid agreements made to use their music, what purpose would it serve to have another entity hold the copyright to a recording artist’s music? Furthermore, Dion argues that he has the right to control his music “to the same extent as a copyright or trademark owner,” which, by its very nature is absurd, as he has surrendered the rights to his music to other entities that thereafter dictate how the music is used. Ultimately, the end result of this argument is that anyone following the proper procedure and obtaining a valid license for song use could still potentially face litigation by a recording artist.
Secondly, the applicability of the Commercials Contract to “principal performers” at no point specifically includes recording artists. However, the Complaint suggests that the relevant provisions of the Contract are applicable to “Plaintiff,” a recording artist, even though the original provision suggests otherwise.
Third, the attempt to label personal negotiation with an artist as an “economic benefit” is a creative argument at best. The argument is problematic in the sense that, while true that the “goodwill” attached to an artist’s image is vital, it is not by default an “economic benefit” that would be owed to him under a collective bargaining agreement.
Finally, both the Commercials Contract and the Phono Code are procedural agreements created to ensure fair treatment under a union standard. They regulate compensation and working conditions for those covered by SAG-AFTRA. They are not meant to ensure that a recording artist can bypass the rights of a copyright holder with respect to creative content.
If Dion’s argument is accepted by the court, it has the potential to change the way the world licenses music for videogame and advertisement use, as well as the function of music entities and the rights they hold to a recording artist’s music. It may invalidate otherwise valid licenses and result in a wave of litigation by disgruntled artists seeking to control their music even without possessing a valid copyright to do so. It seems unlikely that the court will accept Dion’s argument, but we will have to wait for a resolution to see what the court holds.
(This post was contributed by Kaylee Sauvey, a rising 3L at the Fowler School of Law and intern for Roger Quiles, Esq.)
Enforcement of copyright law is a very dense and subjective process, as seen in the Blizzard/Valve v. Lilith/uCool case, which is rooted in ownership of rights to the mod of Warcraft III called “Defense of the Ancients,” (“DotA”). In brief, teenage developer Eul created this mod and may have released his ownership of it on an online forum. He later sold his rights to Valve. DotA appeared to have been the basis several other popular mods, the rights of which were also sold to Valve and Blizzard by their “owners,” and eventually, two unlicensed smartphone apps were released by Lilith and uCool. One of the main issues in this case is whether the rights acquired by Valve and Blizzard are valid if the release of ownership was also valid.
Relevant Copyright Law
A copyright is created at the moment someone fixes something creative in tangible form. The second you take that picture or write down those song lyrics, you have a valid copyright. For example, as soon as you take a photo, you have an exclusive right to Photoshop, publish, sell copies of it, etc. Let’s say you Photoshop it and then save a copy. You have just created a derivative work. Someone sees your original and decides to Photoshop it and then publishes it as their own. While this is also a derivative work, it may be an infringement on your copyright because you hold the exclusive right to use your original. If, however, you no longer wanted to own the rights to your photo, you could abandon the copyright and anyone could use it without asking your permission; this requires “some overt act indicating an intention to abandon.”
Now let’s take a look at the Blizzard case.
2002: Blizzard releases “Warcraft III: Reign of Chaos,” which included the development program called “World Editor” for creating settings and other content to modify the game, but restricted use to non-commercial uses in its End User License Agreement (“EULA”). The EULA did not ensure that the rights to all intellectual property created using the World Editor would be retained by Blizzard. Eul developed DotA using the World Editor and then locked the mod to retain creative control.
2003: DotA: Allstars is created by a third party and the mod is not locked. Guinsoo builds off of Allstars and locks the mod.
2004: On September 23, Eul posts the following message on a gaming community forum:
“from this point forward, DotA is now open source. Whoever wishes to release a version of DotA may without my consent, I just ask for a nod in the credits to your map.”
2005: Guinsoo quits and Icefrog is enlisted to work on DotA.
2006: Icefrog is hired by S2 Games as a designer for “Heroes of Newerth.” Initially, Icefrog retains his intellectual property rights to his contributions to Heroes, but S2 later changes his contract to retain all rights.
2010: Icefrog and Eul sell their rights in DotA and Allstars to Valve. Guinsoo sells his rights in DotA and Allstars to Riot Games, which then sells them to Blizzard in 2011.
2013: Valve releases Dota 2.
2014: Lilith releases “DotA Legends” an app based on DotA. Six months later, uCool releases “Heroes Charge” – a similar app.
2015: Blizzard and Valve sue uCool and Lilith for copyright infringement.
Commercial Use? Open Source? Who Owns the Rights?
The second issue is whether Eul’s forum post was an actual abandonment of any rights to DotA or if the addition of his request to credit him would be considered a retention of some rights. If DotA is actually open source material, the case is strongly in favor of Lilith and uCool. If, however, Eul did retain some rights, the case is stronger for Eul that he had some rights to sell to Valve and Valve may actually own the rights to DotA.
What This Means for Game Developers
This problem could have been solved in favor of Blizzard at the outset if they had included a provision in their EULA for the World Editor in which they retained the intellectual property rights to any content created using the World Editor. In the aftermath of this lawsuit, programs like the World Editor, which may produce similar user-generated content, will likely include a provision retaining these rights for the developing company. This would make any content created by any user the automatic intellectual property of the development company and eliminate any legitimate, subsequent claims of authorship by other parties.
If the jury finds that Eul’s “open source” statement is actually an effective abandonment of his rights, despite his request for credit, then independent developers such as Eul would be encouraged to keep their mods locked and actively maintain them to strengthen their claim of ownership. Any permission given openly for use or distribution would also be deemed an abandonment of ownership. This may result in more mods being sold to other users for a price instead of encouraging free use and distribution.
(Photo used under creative commons by David Wees)
(This post was contributed by Alan Conklin, a third year law student at the Villanova University School of Law and intern for Roger Quiles, Esq.)
On March 14, 2017, Blizzard Entertainment (“Blizzard”), popular developer of games such as Overwatch and World of Warcraft, decided to move forward with its lawsuit against Bossland GmbH (“Bossland”), a company known for creating cheat engines for games, filing a motion for entry of default judgment.
Last July, Blizzard filed a complaint in the Central District of California, accusing Bossland of contributory copyright infringement, unfair competition, and a number of other claims including a violation of an anti-circumvention provision in the Digital Millennium Copyright Act (“DMCA”) and a violation of its End User Licensing Agreement. For these claims, Blizzard sought to recover $8.5 million in damages. After the Court denied Bossland’s motion to dismiss for lack of jurisdiction, Bossland “elected to voluntarily default rather than defend [the] case on the merits.” The Court’s clerk entered the default on February 16, 2017, and Blizzard subsequently filed its motion.
Bossland is a German-based company known for making several game cheat engines, including Watchover Tyrant, Honorbuddy, and Demonbuddy. Blizzard believes that these cheat engines are detrimental to its business because they are used by “cheaters, hackers, or others who seek to manipulate the game experience (either for their own personal gain or simply to disrupt and annoy others).” In turn, Blizzard thinks these manipulations have ruined the games for many legitimate players, causing millions of dollars in lost sales.
For years, Blizzard has been engaged in a battle against cheat software developers. Since July 2013, Bossland has sold approximately 118,939 units to consumers in the United States alone. Blizzard projects that 36% of these products were cheats for its games. As a result, Blizzard alleges that Bossland is guilty of 42,818 infringements and seeks to receive the minimum statutory copyright damages of $200 per infringement.
Blizzard’s main accusation is based on its belief that Bossland’s programs have been used solely for the purpose of circumventing Blizzard’s anti-cheat measures that it had put in place to effectively control access to its copyrighted work. Under copyright law, “[n]o person shall circumvent a technological measure that effectively controls access to a [protected work].”
Blizzard’s anti-cheat measure, a program named Warden, “prevents unauthorized access to the Blizzard Games, restricts users from loading unauthorized copies of the Blizzard Games, and otherwise monitors the game client and environment for malicious or unauthorized software processes.” The program is also used to detect any third-party programs that facilitate cheating or the modification of gameplay unauthorized by Blizzard. In this case, Blizzard alleges that Bossland has violated the law by creating a program that was designed to evade Warden’s detection capabilities and violates its intellectual property rights.
Will Blizzard Benefit?
Although Blizzard appears to make a solid argument, a judgment in the company’s favor may not actually benefit Blizzard much because the Central District of California may not be able to enforce the judgment over the German-based company. Bossland has stated many times that it has no ties to the United States because it does not have any offices or employees in the United States, and it does not advertise or do any business on the country’s soil. It also does not use any United States based companies for its transactions. These factors will make it hard for the court to actually enforce any action placed against Bossland, a company that holds most of its assets abroad. To enforce its judgment, Blizzard would need to attempt to have the judgment localized in Germany, which would be difficult.
Nonetheless, a positive ruling can still have an impact on the on-going battle between cheat software programmers and game developers. Blizzard believes a ruling against Bossland will deter other third-party software developers by showing them that it will do whatever it takes to in order to protect its brand and the integrity of its games.
Legislative Protections for Game Developers
Given the substantial size of the gaming industry, countries are now starting to enact legislation to protect game developers from similar harms. South Korea, one of the most progressive countries in the esports industry, passed a bill last November that protects game developers from cheating programs similar to those created by Bossland. The bill prohibits the manufacturing and distribution of programs not permitted or provided by the game developer. Violators are subject to a fine of $43,000 USD (50 million KRW) and/or up to a maximum sentence of 5 years in prison.
Currently the United States does not have any laws that specifically regulate cheating software issues similar to issues in Blizzard’s case; however, with the growth of esports, game developers, including Blizzard, may see more laws with similar protections being passed in the United States in order to maintain the integrity of their games.
(This post was contributed by Alan Conklin, a third year law student at the Villanova University School of Law and intern for Roger Quiles, Esq.)
A FIFA YouTube gaming star and his business partner appeared in court on February 6, 2017 to defend allegations that they violated the UK’s Gambling Act.
During Monday’s hearing at the Birmingham Magistrates’ Court, Craig Douglas, better known under the YouTube alias NepentheZ, pled guilty to charges of advertising unlawful gambling and being an officer of a firm that provided facilities for gambling without a license. For his actions, the Court ordered Douglas to pay £91,000 (est. $97,000).
His business partner, Dylan Rigby, was forced to pay a much heftier fine. Rigby, who created and ran the gambling website, pled guilty to two charges of providing facilities for gambling and one charge of advertising illegal gambling. For these offenses, Rigby was ordered to pay fines and costs of £164,000 (est. $175,000).
The website, FUTgalaxy, allowed users to gamble virtual currency they earned playing FIFA 17 on real life matches played in the UK, France, Germany and Italy. If successful on their bets, users could then transfer the virtual currency back to the video game or exchange it into actual currency through an online black market.
Gambling in the UK
While it is typically legal to gamble on sporting events in the United Kingdom, the country’s Gambling Act of 2005 strictly forbids providing facilities for gambling without having an operating license. The United Kingdom’s Gambling Commission (the “UKGC”) has made it clear that the Act extends to popular forms of esports gambling that involve virtual currency.
In August 2016, the UKGC published a discussion paper entitled “Virtual currencies, eSports and social gaming.” In the paper, the UKGC addressed virtual currency betting, a type of gambling that has become prominent in the esports community over the last few years. Virtual currency betting is identical to traditional gambling but instead of using monetary currency, players use in-game items they have earned which have assigned values. For example, in FIFA 17, players can earn FIFA coins by winning matches and competitions in the game’s Ultimate Team mode. These coins can then be traded for different items that have assigned values. The fact that this type of currency can be traded for items with real values, or for actual currency, has led the UKGC to consider it a “de facto virtual currency.” Accordingly, the UKGC requires any facility that fosters gambling with this type of currency to have an operating license. This license requirement is intended to protect consumers, especially children and other vulnerable people who may be exploited by this new form of gambling.
Here, Douglas and Rigby did not have an operating license for their gambling site, effectively making it illegal. Additionally, Douglas often promoted the unregulated site to his 1.4 million YouTube subscribers, many of which were under the UK’s legal gambling age of 18. In one video from his YouTube channel, Douglas even acknowledged the age limit and stated, “You don’t have to be 18 for this, because this is a virtual currency.” The unregulated site had no age restrictions and allowed minors to use a credit card to place bets in the form of FIFA coins. FUTgalaxy generated a pre-tax profit of around £96,000 (est. $103,000) between July 2015 and February 2016.
More to come?
This case is an important milestone in the esports industry, as it marks what may be the first successful government prosecution of a person involved in unlicensed gambling of virtual items. It will be interesting to see whether this ruling will have any impact on future virtual currency issues across the globe, including the United States, which has much stricter gambling regulations.
In the United States, one State has already had to address the issue of virtual currency gambling. In October 2016, the Washington Gambling Commission (the “WGC”) ordered Valve Corporation, the creator of Counter-Strike: Global Offensive (“CS:GO”), to stop its skin transferring system, which allowed CS:GO players to use skins, or in-game items that can be used to change the appearance of game characters or guns, as virtual currency. Unregulated gambling websites, similar to FUTgalaxy, allowed skins to be bought and sold for actual currency, essentially assigning the skins a real-world value. On these sites, players were able to bet their skins on esports matches, coin flip games, lotteries and casino games like blackjack and roulette. This unregulated market was on pace to exceed $7 billion in 2016 prior to the WGC’s order. Trevor Martin and Tom Cassell, popular YouTube personalities, owned one of the most notorious skin gambling websites, the now defunct CSGO Lotto. Value Co., Martin and Cassell are currently in a class-action suit that alleges the parties created and promoted an illegal gambling market. However, unlike in the FUTgalaxy case, US and state government agencies have yet to take any action against these parties since the gambling sites have been shut down.
With the rapid growth of the esports industry in today’s world, it is very unlikely this will be the last gambling case involving virtual currency.
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