Due diligence is a critical part of any acquisition. A company looking to buy an asset (any property a business owns) will typically conduct due diligence prior to acquiring the asset in order to determine whether the asset it wishes to buy has been characterized correctly by the Seller. This process consists of a thorough review of all aspects related to the target asset. While it may seem like a tedious task to complete, due diligence is an important part of the acquisition process because it essentially provides the buyer with a complete evaluation of information relating to the asset so as to protect against any misrepresentations made by the Seller. By engaging in sufficient due diligence, companies can further protect themselves from entering into bad deals.
Due diligence can be completed on the acquisition of any asset, including social media accounts. Unfortunately, it can be difficult to determine the ownership rights of digital assets if a company has not instituted the proper protections for this property. Before acquiring these types of digital assets, purchasers should consider a number points in order to make sure they are not getting swindled.
Here are several aspects to consider when evaluating whether to acquire a target’s social media accounts:
Generally, if you believe there are no issues with the target asset after completing this checklist, it is likely that the seller made accurate representations regarding the asset, and you may be more comfortable in proceeding with the deal. However, if any red flags appear along the way, you may want to take a more cautious approach and ask follow-up questions in order to understand the situation. Nonetheless, businesses should keep in mind that each acquisition is different and there are a number of additional factors that should be considered when entering into this type of agreement. If you need any assistance in performing due diligence and completing your acquisition, please feel free to contact us.
As social media and other digital platforms continue to function as successful ways to connect esports brands to consumers, the value of these digital assets continues to increase. Yet, many esports businesses fail to adequately protect these assets by clearly defining the ownership rights of its social media accounts and digital assets. This ambiguity can lead to problems if a hired party who has created the account or digital assets, decides to leave the company, since there is a strong presumption in favor of granting the original creator ownership rights, absent controlling language.
Ownership of digital assets has become an increasingly trendy issue to litigate in recent years, as businesses and their workers have increasingly filed lawsuits to determine who rightfully owns these assets. Most recently, last week, a Virginia newspaper filed a lawsuit against its former Virginia Tech football reporter to determine ownership over a Twitter account used by the employee while working for the media site. While determining ownership rights to digital assets may seem complex, esports businesses can take preventative measures in a variety of contexts to minimize the likelihood of these situations arising.
This type of dispute often occurs in the context of an employer/employee relationship. When hiring an employee, businesses will first enter into an employment agreement with the new employee. This is the first opportunity businesses have to establish protection for digital assets. These employment contracts should include a provision that clearly states that the business shall own any work product (and its associated intellectual property), or anything created by the employee, resulting from the services provided by the new employee. This language would extend company protection to any property created by an employee in furtherance of their employee duties, including the creation of a social media account by an employee tasked to do so.
Businesses can also limit digital asset ownership issues by providing additional clarity in the business’ employee handbook. In the handbook, a company can (re)state its social media and digital asset policy, thereby eliminating any ownership confusion. For example, a business’ employee handbook can state that any account used by employees who participate in social media activities as employees of the company is property of the company. This would likely include social media accounts dedicated to assisting the business’ customers. An effective social media policy will also specify in its employee handbook that employees cannot keep the account if they leave the company, perhaps even further specifying that the account’s password will not be changed, nor will the employee create a confusingly similar account. Employee handbooks may also include protections relating to associated contacts, follower lists, and connections the employee has gained through the account.
Independent contractor relationships are ripe for social media/digital asset ownership issues to arise. Generally in contractor agreements, companies will not own the work product created by independent contractors unless the agreement specifically includes language effectuating that. Companies often mistakenly believe that they own the rights to all work product created by the contractor simply because the companies are paying for the contractor’s services. This misconception can prove to be costly if the ownership rights are not clearly and correctly defined. Nonetheless, these potential ownership issues can be avoided by including a provision in the contractor agreement that affirms that the contractor agrees to assign all rights to the work product created during the course of his services to the company. This written assignment of ownership will effectively transfer any rights the contractor may have had in his work over to the employer. The specific language used in these provisions is integral to properly determining ownership rights.
Ownership issues relating to digital assets as intellectual property may also arise in the context of partnerships. If two partners in a business decide to create a social media account to help grow their business, and one partner creates the account, regardless of who operates the account, it may be difficult to determine ownership rights unless the partnership agreement explicitly lays out who owns this asset. Partners will want to make sure their agreement explains that any work done, or assets, created for or utilized in furtherance of the company’s business shall be property of the company. By incorporating language that makes this clear, these types of assets will belong to the company and will be subject to distribution, as typical of any other assets, upon dissolution of the partnership.
Ineffectively defining the ownership rights to social media accounts and other digital assets may seem inconsequential in the grand scheme of a multi-million dollar business, but overlooking the inclusion of adequate protections relating to this subject can be extremely costly. Both employers and hired parties have initiated lawsuits containing claims ranging from trade secret protection of accounts/contacts to common law theories of misappropriation and conversion against employees who have taken accounts/contacts or passwords upon leaving the company. While it may be difficult to definitively prevent all potential litigation involving digital assets, a clear definition of ownership rights will help all parties understand who owns what and hopefully preclude any problems from arising. No business wants to lose their successful social media account due to its own inability to secure said assets through its contracts and handbooks.
On June 22, ten well-known Twitch streamers had their Twitch accounts suspended after they received DMCA violations for playing copyrighted music during their streams. This is not the first time streamers have had their accounts suspended or terminated for this type of violation, and unfortunately, it likely won’t be the last. Streamers often play music during their stream without a license to so do. While the streamer may be unaware that this amounts to copyright infringement, service providers must take action against the perpetrator once they are alerted of this unlawful activity. Accordingly, streamers should be aware that incorporating music into their streams needs to be done so appropriately, in order to avoid potential account suspensions or legal repercussions. .
What is the DMCA?
The Digital Millennium Copyright Act (“DMCA”) is a United States copyright law enacted in 1998 to protect the interests of both copyright holders and online services providers, like Twitch and YouTube. The Act aims to provide copyright holders with an easier way to protect their work from being used in an unauthorized way online, while also affording service providers with protection from liability that may arise as a result of their users’ unlawful actions. Under the DMCA’s “Safe Harbor” provision, service providers are protected from copyright infringement liability as long as they comply with certain requirements. As long as these requirements are met, the Safe Harbor protection shields service providers from being held directly liable for any copyright infringement committed by their users.
How does it work?
The DMCA’s Safe Harbor provision states that a service provider cannot be held liable for copyright infringement if it:
This means that service providers will not be liable for copyright claims on content that users upload unless they know about the infringing activity and fail to take action by either disabling or removing the content. Since it would be difficult for service providers to constantly monitor potentially infringing content uploaded by their millions of users, service providers usually state the procedure for DMCA Takedown claim on their sites. Copyright holders must include the following information in their DMCA Takedown claim to service providers in order to correctly file a claim in accordance with the law:
Once this claim is received, the service provider must immediately disable or takedown the content with the infringing activity. If the service provider does not immediately disable or remove the content after receiving the DMCA Takedown Notice, it may lose its Safe Harbor protection and be liable for ALL infringing content on the site.
Why is the DMCA important to streamers?
DMCA takedowns are important to streamers because streams usually incorporate a number of elements that are subject to copyright law (ex. gameplay, music, commentary, etc.). Fortunately, most developers allow their games to be streamed by providing a license to do so. However, playing music during a stream is a particularly sticky issue. If a streamer were to play music on their stream without a license to use that music, the streamer is infringing on the artist’s copyright. Streamers must be aware that playing most music without the proper license can have lasting consequences.
What are the consequences of DMCA Takedown Notices?
Most of the time, service providers are responsible for doling out punishments to users who receive DMCA Takedown Notices. Each service provider has a set of terms that apply to their users when dealing with these notices, but oftentimes, services providers will provide users with warnings or strikes against their account for each notice they receive. If a user receives multiple DMCA notices, a service provider will typically suspended, or even terminate, the user’s account. This is a steep consequence for users who have worked long and hard to obtain their following. DMCA violators can also be subject to severe civil and criminal penalties.
How can I prevent this from happening to me?
In order to avoid any DMCA Takedown Notices, content creators should be aware of any copyrighted material that they may be incorporating into their stream. Streamers that want to play music during their stream should utilize a royalty free music service or otherwise obtain a license for any song they’d like to play. There are a number of inexpensive services available that provide users with licenses for a library of songs.
Streamers need to be aware that DMCA violations are serious and can have a lasting effect on their business and brand. In order to avoid any problems, streamers should be conscious of their potential exposure to copyright infringement in their stream, especially in relation to the music they choose to play during their stream. Without the proper license to play the music, streamers are subject to DMCA Takedown Notices, which can result in the termination of their account, and potentially subject them to more serious penalties. If you are streamer or influencer and you have any questions regarding this topic, please feel free to contact us.
(Photo used under creative commons by David Wees)
(This post is the third in our series on sponsorship considerations. Our first post, on defining expectations and payments, can be found here and our second post, on defining exclusivity, can be found here)
The last topic we will discuss in our sponsorship essentials series is intellectual property rights in sponsorship agreements. Just like the concerns we’ve already covered, intellectually property rights can easily become convoluted if not explicitly addressed in the terms of the agreement. These rights are at the core of a sponsorship agreement and are essential to its successful activation. The very nature of sponsorship centers around the usage of another brand for promotional purpose. A standard agreement will grant the sponsored party (licensee) the right to use the sponsoring party’s (licensor) name and logo in a specified manner (like a patch on a team jersey) and for a defined period of time. However, there are other intellectual property concerns to be aware of with respect to sponsorship agreements.
Defining control and ownership
Any sponsorship agreement should also precisely outline any rights associated with control over the licensed brand usage. In these agreements, parties will typically want control over: (1) the message being expressed in specific sponsorship activations, and (2) ownership of any content created as a result of an activation.
Control over the message being expressed in an activation is important to sponsors because it gives the sponsor the ability to determine whether any specific content being utilized for the activation is appropriate or in line with the brand image that the sponsor wishes to convey. An involved sponsor may negotiate for approval rights before any sponsored content is posted to ensure that the appropriate message is being delivered in conjunction with its branding. An established sponsor may not want to risk receiving any potential backlash from an inexperienced sponsee who posts controversial content. However, there are also many sponsors who don’t have the time to vet and approve potential sponsor content, so this may not be of concern to them. Instead, they’ll simply hold the sponsee accountable after any problematic content has been posted.
A sponsor may also want to own all IP rights associated with the content created during the activation of the sponsorship. This is particularly evident in streamer sponsorship agreements. Sponsors will want to own the content in which its IP or product is being used so that it can potentially utilize the video for promotional purposes at a later date. For an ongoing, “use on stream” deal, this equates to essentially owning the content of someone’s stream for the duration of the sponsorship agreement. Sponsees should be aware that granting this type of control to a sponsor would be problematic because it would effectively eliminate many of the rights the streamer had in the content of their stream, and their potential monetization of the stream.
As the streaming and esports industries continue to grow, companies will continue to flock to the market to align with new and trendy brands. Whether the sponsor is a well established company or not, it is important to consider all of the terms included in any potential agreement before entering into it. The specific provisions discussed in this series of articles are a good place to start when deciding whether you are being adequately protected in a sponsorship deal, but they are by no means the only terms to consider. Every provision in an agreement is significant and should be evaluated independently and within the context of the agreement as a whole. If you are a business, a player, streamer, or influencer, feel free to contact us to assist with your sponsorship agreements.
(Image used via creative commons, courtesy of BusinessSarah)
(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.
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