As the world bands together to slow the spread of the COVID-19, large gatherings such as sporting events have been canceled in favor of practicing distancing practices such as self-isolating indoors. In times like these where we shift away from real life, esports and gaming have the potential to grow. For example, shortly after several states began to promote or require social distancing, CS: GO reached 1 million concurrent players for the first time ever.
However, esports has experienced its cancellations as well. At the risk of great financial loss, live events must decide whether they must cancel to prevent the spread of COVID-19. Though some events, like Flashpoint, have had the option to continue their matches online, CEO: Dreamland had to continue to host the event because canceling the event would bankrupt the organizer unless a contract’s “force majeure clause” was triggered. These clauses are triggered when a force majeure event occurs, as specified in a contract itself.
The difficulties that event organizers have faced in the wake of COVID-19 have reinforced the need of the following:
Narrowly Drafted Contracts
Contractual parties are excused from performing under an agreement when the failure is due to “force majeure.” To avoid conflicts or confusion when enforcing a force majeure clause, it is imperative that triggering events are narrowly drafted and clearly defined. If an event is not included in the clause and a party tries to rely on a catch-all force majeure clause (e.g., “other events beyond a party’s reasonable control), a court will consider whether the triggering event was foreseeable.
For illustration, a non-exhaustive list of “force majeure” events can include acts of God, strikes, lockouts or industrial disturbances, civil disturbances, arrests and restraints, interruptions by government or court orders, present and future valid order of any regulatory body having proper jurisdiction, acts of the public enemy (think terrorism, not the rap group), zombie apocalypse, wars, riots, insurrections, inability to secure labor or inability to secure materials, including the inability to secure materials because of allocations promulgated by authorized governmental agencies, epidemics, pandemics, fires, and explosions. Terms included in force majeure clauses may be accompanied by their qualifying definitions. If an event does not meet this definition, it may not trigger the clause. Alongside defining which events trigger force majeure clauses, obligations under a force majeure event for both contracting parties should be specified as well.
In short, force majeure clauses should include (1) specific categories of triggering events; (2) the extent and duration of an excluding event; and (3) the type of notice either party must give to be excluded from performance.
The Need for Insurance
A prudent practice to compensate for force majeure specificity is retaining insurance policies that cover the losses resulting from event cancellation. Depending on how they are structured, these policies can allow parties to potentially recover on business interruptions and related financial losses such as hotel attrition fees. However, even then, determining coverage is a granular process.
Business Interruption Coverage
Business interruption policies, as the name suggests, can cover losses of slowed or shut down businesses. Recovery under conventional business interruption insurance requires showing loss due to physical damage or loss caused by a trigging event specified in the policy. Depending on the policy, a loss can include the inability to use a venue or a loss of access. In particular, loss of access may be triggered by the act of a civil authority.
Force Majeure Insurance
Though they come at a high premium, force majeure insurance policies can cover financial consequences due to changes in federal or state statutes, ordinances, codes, directive, rule, regulation, or orders. These policies appear in many different forms like project completion, performance coverage, delayed competition, or event cancellation insurance. Event cancellation insurance is a growing insurance trend available to clients and venues to protect their bottom lines and protect them from wholly absorbing losses caused by contractually specified triggering events. As force majeure is unforeseeable, insurance companies require policyholders to purchase event cancellation insurance well in advance of their event.
As with all contracts, specificity is key. Before attempting to utilize a force majeure clause, be sure that the perceived triggering event is included in the respective agreement. Prematurely or falsely terminating a contract opens a party to liability for breach of contract claims. Having insurance is a best practice for businesses, but keep in mind that coverage for force majeure events is a safeguard that does not automatically act as a catch-all for any incident – making sure your company complies with the policy is essential.
(This post was submitted by Patrick Hankins, a 3L at Marquette University Law School and intern for Quiles Law)
(This post was contributed by Patrick Hankins, a 3L at Marquette University Law School and an intern at Quiles Law)
Last month, Epic released its first wave of items from its “Icon Series,” a collection of in-game items, emotes, and skins from some of its top Fortnite Creators. Epic’s first featured creator of the collection was Tyler “Ninja” Blevins, whose likeness was immortalized game as a purchasable character skin. Next, Imane “Pokimane” Anys had her TikTok dance moves motion captured to be available as a purchasable dance emote in a limited-time sale.
Epic’s “Creators” are any players that are partnered with them through the Support-a-Creator Program, a partnership system that allows individuals with at least 1000 followers to earn a small percentage of revenue from any in-game transaction when their code is used at checkout. Not only does the Icon Series provide some of the most sizable Creators a new avenue of partnership revenue, but it is also a way for them to continue to cultivate their brand.
The Legal Mechanism
To have a personal emote in the game, these content creators must enter into a licensing agreement with Epic Games. At the base level, a licensing agreement is a contract that authorizes another party to utilize the licensing party’s name, likeness, logos, and any other related intellectual property rights. A licensing agreement would specifically identify the limited uses for the licensed property, like producing Pokimane’s emote which was available for a period of time. Additionally, any payment terms would be specified in the license agreement. Fortunately, licensing agreements can have creative payment arrangements, like a percentage of the licensed product sold, a flat fee, or a combination of the two. Of course, how sizable this payment is is related to how substantial the licensing party’s brand is, as well as any exclusivity.
Learning from the Lawsuits
In the past, Epic Games has been sued for using public figures’ dance moves in Fortnite. Among these lawsuits, probably most notable was a December 2018 claim by Alfonso Ribeiro, best known for his portrayal as “Carlton” in the popular TV show, “The Fresh Prince of Bel Air,” claiming copyright infringement and a violation of his right of publicity because Epic had stolen his three-step dance move without his permission, proper credit, or compensation and added it into the game as the “Fresh” dance sold in-game. Shortly after in January 2019, Ribeiro tried to register the “Carlton Dance” with the U.S. Copyright Office but was refused because his claimed choreographic was a simple dance routine. Ribeiro’s case has since been dropped, but not before it became highly publicized.
In contrast to the emote lawsuits, the introduction of the Icon Series is a win for all parties involved. By reaching out to its loyal Creators instead of “finding inspiration” among some of pop culture’s most celebrated individuals, Epic avoids the negative PR of alleged intellectual property infringement and builds among existing promotions through licensing agreements. Epic’s partnerships with its creators show the Fortnite community that they actively want to support those that have contributed to the game’s success. In turn, the Creators have another revenue stream and have associated their name, brand, and likeness with significant in game advertising.
On November 5, 2019, the U.S. Federal Trade Commission (“FTC”) released an updated guide and video for online influencers and streamers about complying with mandatory sponsorship disclosures. Some of the important points discussed are as follows:
(This post was submitted by Patrick Hankins, a rising 3L at Marquette University Law School and an intern at Quiles Law)
Instagram influencer, Belle Kirschner, better known as Belle Delphine, made recent headlines by selling “GamerGirl Bath Water” – jars that allegedly contain Delphine’s bathwater. Most recently, Delphine had her Instagram account, with its 4.5M followers, banned due to its NSFW content. Despite selling out of the product in three days, Delphine reportedly had unsatisfied customers, one of whom claimed that their jar did not contain Delphine’s used bath water. Allegedly a molecular biologist, the fan claimed to have used “an eDNA analysis through ddPDCR” to verify the existence of skin cells in the GamerGirl Bath Water only to conclude that the jar lacked any human DNA. As a result, the individual claimed that Delphine was liable for a class action lawsuit because she advertised the water as “bottled while [she’s] playing in the bath.” Though the allegation was later proven false, could Delphine’s unsatisfied customers rise up and sue her, as the supposed molecular biologist suggested, if the product sold was not the product advertised? This post discusses several of the legal issues involved in misrepresented sales as seen through the lens of the "GamerGirl Bath Water" allegations
False advertising is the intent to promote the sale or increase consumption of services with a false or misleading statement in advertisement. False advertising claims can be based on either state or federal laws.
Virtually every state has laws that generally prohibit deceptive or unfair marketplace acts and practices. The extent of state law claims is generally limited to false advertisement that is significantly harmful to the public or is outrageously flagrant. Though false advertising laws can vary depending on state, a majority of states require a plaintiff to show they suffered injury, harm, or loss due to a deceptive, unfair, or illegal trade practice. As a result of this variation among states, several states have adopted the Uniform Deceptive Trade Practices Act as state law, especially to enable class action lawsuits.
Bait and Switch Advertising
A traditional “bait advertisement” is intended to entice customer to buy a product that an advertiser does not intend to sell in an attempt to switch the customer’s attention to another product. The reason that the bait and switch method is unlawful is because the advertiser is not making a bona fide effort to sell the advertised product. An advertisement is not a bona fide effort when indicated by three factors.
First, the advertisement creates a false impression about the product or otherwise misrepresents the product to sway a customer to a different product.
Second, the advertiser discourages the purchase of the product. Typically, a seller discourages the purchase of its advertised product when: (1) it refuses to show, demonstrate, or sell the product as specified in the offer; (2) it disparages the advertised product or its related offer; (3) it fails to have a sufficiently quantity of the product to meet reasonably anticipated demand unless it discloses that supply is limited; (4) it refuses to take orders for the product within a reasonable period of time; (5) showing the product as defected for its advertised purpose; and (6) a sales plan discourages sales personnel from selling the advertised product.
Third, a sale is made, but rescinded for selling another product in its place. Practices that can satisfy this fact include: (1) accepting a deposit for the advertised product but switching to a higher-priced product; (2) failing to deliver the advertised product in time for a refund; (3) disparaging the advertised product or a guarantee in connection with it; and (4) the delivery of a defective, unusable, or impractical product for its advertised purpose.
Notably, even if a seller later discloses true facts of the advertised product, it is still illegal to garner customers’ attention by deception.
Fraud and Deceit
Fraud is a knowing misrepresentation of the truth, deceit, or concealment of a material fact to deprive another of money, property, or legal right.
Deception, fraud, misrepresentation, and the nondisclosure of material facts against consumers in sales transactions are prohibited by consumer protection statutes. Generally, states and the federal government primarily measure the illegality of a seller’s conduct by its effect on a consumer, regardless of whether a seller intended to deceive consumers. It is not necessary to prove that a business’s statement or act was intentionally deceiving. A seller is deceptive when the effect of its conduct upon a consumer mislead him or her into purchasing something that was not intended or caused a consumer to act differently than otherwise. Under state laws, as long as an act or practice misled the consumer and had an adverse effect, deception can be found.
To avoid lawsuits from dissatisfied consumers, don’t deceive them with misleading advertisements and products – that includes jars of bathwater or other memorabilia. If the allegations against Delphine had held true, liability would arguably attach for false advertising and/or fraud, though it would certainly be quite the odd case to pursue. Regardless of how unique any memorabilia for sale may be, there should always be the intent to sell the products advertised without misleading the customers and all sales should be carried out lawfully.
By all accounts, 2018 was a monumental year for investment in esports. According to a report published by Deloitte and The Esports Observer in April 2019, investments in esports increased from $490 million in 2017 to $4.5 billion (!!) in 2018. Also in 2018, 53% of the industry’s 380 million-person global fan base was comprised of fans aged 21 to 35. This is one reason investors are attracted to the market, as this demographic is widely considered a valuable audience for advertisers.
Additionally, investors also see this as an opportunity to get an early stake in an industry that is growing at an unprecedented rate and is expected to continue to mature in a similar manner. In February 2019, NewZoo’s 2019 Global Esports Market Report projected that revenues for the esports industry would increase from its estimated $1.1 billion in 2019 to anywhere between $1.8 and $3.2 billion by 2022. The report also anticipates the total audience to nearly double by 2022 to 645 million fans. With projections like these, it is understandable that investors are pouncing on opportunities within the industry in as many ways as possible. But who are these investors and what are they investing in?
Who are the investors?
According to the Deloitte report, private equity and venture capital groups were responsible for 60 esports investments in 2018. While these groups undoubtedly dominated the investment market within the esports industry, interestingly, a significant subset of individuals involved in the private equity transactions were athletes and entertainers.
Over the past few years, athletes and entertainers have consistently continued to grow their stake in the burgeoning space. In 2015, former NBA player Rick Fox, co-founded Echo Fox, an esports organization that has grown to become one of the more popular brands within the industry. Since then, dozens of athletes (both former and current) and entertainers have joined in some capacity, including Michael Jordan, Stephen Curry, Alex Rodriguez, Drake and Diddy. In addition to their capital infusions, athletes and entertainers are in a strategic position to help grow the target of their investment by leveraging their fanbases and current brand partnerships.
What are the Investment Opportunities?
By far, the most popular investment opportunity for all investors is in esports organizations. For the unaware, esports organizations comprise multiple teams competing in several titles, most frequently under single branding. According to Deloitte, $193 million was reportedly invested into this category in 2018. This is primarily because investors see this as an opportunity to own a stake in an early stage sports business that hopefully could be as valuable as a traditional sports team in time.
Investing in existing teams has become a common approach for some professional athletes and entertainers, but others have taken a similar approach to Rick Fox by running their own organization. Los Angeles Rams lineman Roger Saffold (Rise Nation) is one of the most publicized examples, but NBA players Jonas Jerebko (Detroit Renegades) and Jeremy Lin (J.Storm) have purchased their own esports teams as well. However, running an organization may not be the most viable option for the vast majority of athletes and entertainers, as it requires them or their business partners to spend a lot of time handling day-to-day operations.
Other Opportunities: Developers, Media Platforms, Agencies, Esports Funds, etc.
While team investment may appear to be the easiest and most popular way to obtain ownership interest in esports, it is by no means the only way. As with any other industry, the esports landscape provides an assortment of opportunities. Developers, like Riot (League of Legends), Activision Blizzard (Overwatch, Call of Duty), and Epic (Fortnite), are often considered to be attractive investment opportunities, given that they essentially own the intellectual property (i.e. “the football”) behind their respective esports ventures. Individuals may look to invest in a lesser-known developer in hopes of finding the next League of Legends or Fortnite.
Additionally, media platforms have grown to be an appealing investment play within the industry since Amazon acquired Twitch for $970 million in August 2014. Recently, an up-and-coming social broadcasting platform that distributes esports, gaming, and music content, Caffeine, received a $100 million capital infusion from Fox. Though many of these investments are made by larger businesses or funds, athletes and entertainers could look to leverage their unique combination of stardom and capital in return for equity in budding platforms like Caffeine, which was cofounded in April 2016.
Some athletes have even jumped in on other big-picture plans as their way of getting involved in the esports industry. In 2018, Kevin Durant, Odell Beckham Jr., and the St. Louis Cardinals participated a $38 million funding round for Vision Esports, a holding company set up to invest in a collection of esports businesses. This is not a bad option for those individuals who may not know exactly what to invest in, and trust the industry knowledge of those individuals running the investment fund.
The examples described above are only a fraction of the endless amount of investment opportunities available within the esports industry. From teams to technology to third party tournament organizers, there is an option for every type of investor who is looking to get involved in the space. Unfortunately, as with any new industry, there are a significant number of con-artists seeking to obtain investment on false pretenses, which may be difficult to detect by those not involved readily involved in the esports industry. If you have any questions regarding potential investment opportunities or how to structure a particular transaction, please feel free to contact us.
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Over the past month, Kawhi Leonard, one of the NBA’s most iconic players, has continuously been in the news for leading the Toronto Raptors its first ever NBA championship. However, Leonard has also made news for his actions off the court. On June 3rd, Leonard initiated a lawsuit against Nike for ownership rights to a logo (seen below) that he claims Nike stole, “fraudulently” filed a copyright application for, and threatened to sue him over. The case is a great example of why individuals (in the esports context, players and streamers) must make sure that the ownership rights in their intellectual property are clearly established, expressed, and protected to the fullest extent prior to entering into sponsorships, endorsements, or other types of licensing arrangements.
In his complaint, Leonard begins by stating that he originally created his logo while in college, long before he entered into three-year endorsement deal with Nike. This is an important fact in the case because if true, under United States copyright law, Leonard would have obtained ownership rights to the logo upon its creation.
After making this assertion, Leonard explains that Nike started discussions with him about developing a unique logo to affix on its merchandise shortly after he signed his endorsement deal with the company. Since Leonard had already created a logo, he maintains that Nike repeatedly asked to revise his existing logo, and sent him multiple modified designs based upon the mark he created. After denying several mock-ups, Leonard finally approved a refined design, and authorized Nike to use it on its merchandise.
Throughout the term of their relationship, which had been extended to July 2018, Leonard believed that he retained ownership in the refined logo since it was based on his original design and he never expressly transferred any ownership rights in the mark to Nike – he only authorized Nike’s use of the mark. However, Nike also believed it was the true owner of the new refined mark, and the company even filed an application with the United States Copyright Office to register the mark. Nike’s application was granted in 2017 and its registration lists the company as the sole author and owner of the mark, and describes itself as an “employer for hire.”
Typically, these types of endorsement agreements will include language that provides the company with ownership rights in any intellectual property created by the company during the term of the agreement. This language defines the business as an “employer for hire,” which signifies that it will own any designs created by its employees or independent contractors, as these designs are considered works made for hire. Still, this type of provision would not apply to marks that were created by an individual prior to entering into agreement, which appears to be the case here. Generally, in those situations, the owner of the mark would either sell the mark outright, or agree to license it to the business at the outset of their partnership. In both situations, a written agreement would clearly define ownership rights in the intellectual property and any modifications to the mark.
Here, Nike may try to argue that the “refined mark” was completely different than Leonard’s original logo in hopes of establishing its own copyright in the mark. It may also contend that Leonard expressly transferred any ownership rights in the mark to the company once it made modifications. In either event, Nike will need to provide strong evidence corroborating its argument. While it appears the parties are approaching this matter cordially, executing a well-drafted licensing agreement at the inception of their relationship would have prevented this matter from escalating to this point.
How does this apply to esports?
As the profiles of many players and streamers in the esports industry continue to increase in popularity, these individuals need to be mindful of their intellectual property. They must take the appropriate steps to ensure that ownership of such property is clearly established in all agreements and protected to its fullest extent. This is especially necessary for players and streamers when entering into endorsement or sponsorship agreements with companies, as these businesses may look to use or further develop an individual’s existing intellectual property. As seen with the Leonard case, this is particularly critical with any associated logos or marks. Clearly establishing and expressing ownership rights in a mark will make it apparent to the business that an individual owns the mark it wishes to use.
In order to do so appropriately, individuals should first ensure that they legally own their mark. Oftentimes players and streamers hire parties to design their mark for them. In this case, individuals must make sure that they receive a written work-for-hire agreement from any party who designs their mark. This agreement will state that any rights to the design have been assigned from the artist to the streamer or player. Without this agreement in place, the designer may still have ownership interest in the mark.
Players and streamers should also look to register their mark with United States Copyright Office and United States Patent and Trademark Office. In most cases, proof of copyright and trademark registrations will provide a party with strong evidence of ownership rights in a mark, and also provide them with a number of other benefits.
Once these measure are taken and retention of ownership is firmly in place, individuals can express their ownership rights in mark to any company that wishes to enter into an endorsement deal and proceed to license their mark effectively.
Distinguishing ownership rights to intellectual property can become increasingly difficult when multiple parties begin to use such intellectual property, like a logo. Since companies executing endorsement or sponsorship deals may look to use or further develop a player or streamer’s mark in the activation of these agreements, individuals must make sure that their ownership rights in the mark are clearly defined and expressed to the company at the outset of their relationship. By doing so, companies will be aware of the individual’s rights in a mark and look to license the mark appropriately. Effectively executing this type of agreement should prevent any ownership confusion and/or subsequent litigation, saving both parties time and money.
As most business owners know, running a business is extremely difficult. Aside from all the internal decisions that must be made in order to operate a company successfully, business owners must also handle a wide variety of external problems that arise. One external issue that companies often deal with relates to its trademarks. It is not uncommon for new, competing businesses to try and exploit an established brand’s reputation by using a similar name or logo in order to gain recognition and grow its own brand within a marketplace. This infringement activity can be damaging to an existing brand’s reputation, as consumers may associate and confuse the two brands when making a purchase or utilizing its services. This post will explain what trademark infringement is and how deal with infringing activity should it take place.
What is trademark infringement?
Trademark infringement occurs when an unauthorized party uses a trademark or service mark, or a substantially similar mark, in connection with goods and/or services in a manner that is likely to cause confusion as to the actual company that produced the product or service. In a trademark infringement matter, a junior mark holder – the second business to adopt and use a particular mark with its goods or services – attempts to use a mark that is confusingly similar to senior mark holder’s – the first business to adopt and use a particular mark with its goods or services – mark without the senior mark holder’s approval. This confusion between the companies is problematic to the senior mark holder, as it can lead consumers to buy the junior mark holder’s products or services, resulting in lost profits or damage to the senior mark holder’s brand.
Do I have a claim for trademark infringement?
When determining whether you have a viable claim for trademark infringement, you should first ask yourself if you hold the rights to the specific mark. For maximum protection, it is best to have your mark registered with the United States Patent and Trademark Office (“USPTO”), but trademark owners are still afforded some limited protections under common law. Common law trademark rights start once a mark is used in commerce for the first time within a geographic region. These rights allow to trademark owners to stop competing businesses in their area from using a confusingly similar mark, but it is much more difficult to recover any monetary damages without federal protection. Sophisticated business owners should strongly consider registering their mark with the USPTO, as there are a number of benefits to completing this process.
Next, trademark owners should ask themselves, at a basic level, if there is a likelihood of confusion between the alleged infringing mark and their mark. Would consumers in the relevant markets confuse the two marks? In most situations, trademark owners who ask this question already believe that the similarity between the marks causes a degree of confusion, but it is prudent to ask an independent party (or multiple) for an impartial perspective. This basic assessment should further solidify a trademark owner’s belief in any potential infringement claim.
Having an understanding of how courts evaluate claims for trademark infringement will also help trademark owners analyze their situation, and allow them to evaluate their claim more thoroughly. Courts use an eight-factor balancing test when determining whether there is a likelihood of confusion between two marks. Each factor used in the test is important when measuring the possibility of trademark infringement; however, the first three factors are arguably the most heavily weighed in a court’s evaluation:
Other factors include: (4) evidence of actual confusion; (5) the likelihood that the prior owner will “bridge the gap” in the marketplace; (6) intent of the junior user; (7) sophistication of buyers in the marketplace; and (8) quality of the junior user’s products or services. All of these factors will play a significant role in the court’s evaluation since no single factor is determinative, but doing an elementary assessment using first three factors should provide trademark owners with a strong foundation in assessing the strength of their own potential infringement case.
What do I do now?
If a trademark owner believes that someone is infringing upon its mark, there are a couple of options available to facilitate a resolution. Generally, the first step that can be taken to stop the infringement is to send the infringing party a cease and desist letter. The goal of this letter is to inform the infringing party that the use of its mark infringes upon the trademark owner’s rights and to ask it to discontinue its use. This letter should describe any ownership rights in a specific mark and explain how the junior mark is infringing upon these rights. The letter should also clarify what remedy is sought. Along with the request to stop the use of an infringing mark, some parties may also ask for compensation for past use or pose an offer to license the mark for future use.
Typically, a cease and desist letter will at least start a conversation between the two parties. However, this method is not always well received and can be ineffective, as the letter poses no immediate legal implication on the infringing party. Oftentimes, trademark owners will reach out to the infringing party multiple times before deciding to escalate the matter to its next step - litigation. Once litigation proceedings have commenced, trademark owners will then be able to ask the court for a preliminary or temporary injunction, which if granted, will order the alleged infringer to stop using the mark in question pending the outcome of the lawsuit. As with most litigation, fees for trademark infringement cases can be costly, so trademark owners should consider exhausting all available options before filing a claim.
Trademark infringement can be extremely harmful to a brand and must be dealt with as soon as a trademark owner becomes aware of any infringing activity. After analyzing the infringing activity to determine whether it is actually infringement, trademark owners should try to communicate with the infringing party and inform it of its unlawful activity. In order to make sure there is a record of these correspondences, a cease and desist letter would likely be the most effective form of communication. If these attempts are unfruitful, litigation may be imminent to in order to stop the infringing activity. While this may be a costly endeavor, it is necessary to prevent any further damage from being done to your brand by the infringing party.
Analyzing and fighting trademark infringement claims tend to be a complicated matter. If you have any questions regarding trademarks or potential trademark infringement, please feel free to contact us.
(This post was submitted by Patrick Hankins, a rising 3L at Marquette University Law School and an intern at Quiles Law)
In the recently filed complaint against FaZe Clan, Turner “Tfue” Tenney alleges that FaZe signed H1ghSky1, an eleven-year-old gamer, and lied about the minor’s age (claiming that he was thirteen, which has proven true) in order to meet the minimum age requirements for Twitch streaming and competitive Fortnite events. It has been alleged that to maintain the charade, FaZe Clan also pressured H1ghSky1 and his family to maintain the lie. Unfortunately, H1ghSky1’s Twitch account has been banned, presumably due to his actual age not satisfying Twitch’s terms of service.
Given the recent discussion of underage players triggered by this incident, this blog post explores the various potential legal issues of signing a minor to a player contract and methods to prevent these issues from affecting an organization.
Minors Can Disaffirm a Contract
Minors only have the capacity to enter voidable contracts. Generally, jurisdictions allow minors to “disaffirm” a contract before or reasonably after turning 18 years old or if the minor dies within the contract’s effective period.
Disaffirming a contract is any conduct or statement by the minor giving notice of intent to disaffirm, or otherwise leave the contract. To disaffirm a contract, express notice is not required. Typically, this is accomplished by the minor’s oral or written declaration of intent not to fulfill the contract.
Void vs. Voidable Contracts
Void contracts, as the name suggests, mean that a contract is void from the beginning. There is no need for a party to disaffirm the contract because the contract is not enforceable. Contracts that delegate the minor’s authority to contract, any contract by a minor relating to interests in real property (i.e. land ownership), and contracts relating to personal property not in the minor’s immediate possession are considered void at their inception.
In contrast, voidable contracts have the status of potentially becoming void at the request of the wronged party. A contract with a minor is a voidable contract, but it is not void until the minor disaffirms the contract. If the minor does not void the contract, it remains effective even if the contract is voidable.
Generally, parental consent (along with additional terms for the parent) is included in contracts with minors to retain the parent as a guarantor for the minor’s services. Should the minor disaffirm a contract, the disaffirmance does not also apply to the parent’s obligation as a guarantor. The parent would remain liable, based upon the terms of the contract, regardless of the minor’s disaffirmance.
Legally emancipated minors may enter into contracts as if they were 18 years old. Emancipation is the permanent release of parental control and authority over a minor. Effectively, this allows a minor to collect personal earnings and terminates legal parental duties to support the minor. Some states allow minors to emancipate through an express agreement by parent and minor, or an implied agreement from acts and conduct that indicate consent. Other states even have laws that outline procedures which require court petitions that confirm the minor’s emancipated status.
Misrepresentation of Age
Generally, a minor who misrepresents their age will not be bound to a contract. The voidability of the contract depends on the minor’s actual age; the misrepresented age has no effect on whether the minor can disaffirm the contract. In fact, some courts allow minors, despite their fraud, to seek recovery of the consideration paid or seek other equitable remedies.
However, a minority of jurisdictions have established statutes that prevent a minor from disaffirming a contract based on age misrepresentation or if the other party had good reason to believe the minor was able to enter the contract. In those locales, a party’s reliance on a minor’s statements regarding age can serve as the basis of recovery. There, the minor must be retaining benefits provided by the contract which causes substantial harm to the other contracting party.
Some states allow a minor’s contract related to art, entertainment, and professional sports if a court has approved the contract. Once a minor’s contract has been approved by a court, disaffirmance of the contract is only permitted in statutorily provided instances. The states that require court approval also require a parent or legal guardian to establish a trust that keeps a percentage of the minor’s earnings which are not distributed until the minor turns eighteen or otherwise obtains a court order.
What can esports orgs do?
Contracting with a minor is a risky business practice. If an esports organization is seeking to sign a minor player, they should ensure that their contracts adhere to local law not only where the organization is operating, but also where the minor is located, to ensure that sufficient changes to the contract are made, if necessary.
Further, organizations should maintain a rigorous age screening process as misrepresentations of age, even a seemingly insignificant leap from eleven to thirteen years old can have larger ramifications such as violations of streaming platforms’ terms of service or games’ competitive rules. A violation of these terms means ineligibility for streaming or competition, which can have a significant negative impact for the organization.
Thus, esports organizations should not fully shy away from signing minors to player contracts, but keep in mind the extra steps required to establish an amicable agreement that serves both players’ desires as well as organizations’ needs to compete, stream, and influence across multiple platforms.
As we discussed previously, licensing can be a great way for businesses to profit off of their intellectual property without completely transferring or assigning all of their ownership rights to another party. A license authorizes a licensee to use a licensor’s certain intellectual property rights in specified manners in exchange for compensation. This arrangement allows both parties to exploit each other’s strengths (i.e. brand strength or production methods) for commercial gain. While these types of arrangements can be extremely profitable for both parties, licensors and licensees should have some familiarity with the language of the deal in order to ensure that they are not agreeing to unfavorable terms. This post will discuss the terms common to licensing agreements, and also highlight certain issues that can arise during the course of the contractual relationship.
Grant of Rights
The “Grant of Rights” section is the foundation of any licensing agreement. Here, the contract will identify which parties are involved in the transaction and what intellectual property is being licensed.
Correctly identifying the parties to a licensing transaction should not be overlooked. Oftentimes, a parent company may comprise of a number of entities so it’s important that the drafter makes sure the intended party is accurately described. For example, by entering into a deal with Activison Blizzard instead of the Overwatch League entity specifically, the extent of your transaction may exceed your original intention, as all of Activision Blizzard’s affiliated companies may be granted the right to use the licensed intellectual property.
Additionally, this section should also describe what intellectual property is being licensed. Depending on the purpose of the arrangement, the extent of what intellectual property will be made available can be broad (i.e. all intellectual property) or narrow (specific trademark/slogan). Precisely identifying which intellectual property will be the subject of the license is necessary to ensure both parties are on the same page and not exceeding their rights.
Scope of the Grant
The scope of the grant will dictate how the licensee will be able to use the license. Parties should determine whether the license will be exclusive, restrictive to certain geographic locations or sectors, and the term of the agreement when defining the scope of a license.
Generally, there are three types of licensing agreements: exclusive, sole, or non-exclusive. In an exclusive license, the licensee is only the party that can use the licensed intellectual property. This restriction on use also applies the licensor, which tends to cause these types of arrangements to be the most expensive. If a licensor wishes to continuing using the licensed intellectual property, the licensor should look to execute a sole license. This type of license provides the licensee with the right to continue to use its intellectual property, along with the licensor. In a non-exclusive licensing agreement, the licensee will be able to use the intellectual property, but the licensor holds the right to license the property to other businesses. Licensees will often try to push for some kind of exclusivity in a licensing agreement in order to prevent any potential competitors from also obtaining the rights to use the licensed intellectual property in a defined category, but this will also command a higher cost.
Territory rights must also be clearly defined. Parties will want to clarify where the licensee will be able to use the rights granted during the term of the agreement. Many agreements will grant licensees worldwide authorization, but it is not uncommon for licensors to add geographic restrictions if a licensor wants to reserve those areas for other potential partners in the future. These geographic restrictions can be structured in any fashion, but oftentimes will organized by continent, country, or region. For instance, a licensee may be granted a limited right to use the licensed intellectual property within only North America, or more narrowly, the United States, for the duration of the term. These limitations can get tricky as a licensor could also grant to a party exclusive rights for certain territories and nonexclusive rights in others.
As with any agreement, the term must also be defined in the agreement. The term of an agreement establishes the time frame of the deal. When deciding on the term, parties should be realistic and consider how long it may take for a licensed product to hit the market. A six-month license may not be wise if this time frame does not allow for adequate product manufacturing, distribution, and marketing. Parties should thoroughly consider this in order to maximize returns from the partnership. The Term may also provide for a specified run-off period beyond the initial term itself whereby the licensee can continue to sell off any remaining stock of licensed items/merchandise. This potentially reduces the sunk cost of remaining inventory.
The method of compensation used in these types of deals can vary, but will often take the form of: (1) a one time payment; (2) an earned royalty fee with an annual minimum; or (3) a combination of (1) and (2). By opting to use the one time payment method, the licensing party will pay a flat amount, up front, in order to the use the license for the duration of the agreement. While an upfront payment may be beneficial for a licensor who needs additional capital immediately, generally, parties will elect to use the earned royalty fee structure. Under this structure, the licensor will receive a percentage of net sales on products sold that incorporate the licensed intellectual property (approx. 6 to 10 percent). In order to protect against the possibility of poor sales, licensors may require an annual minimum payment to ensure they receive adequate compensation for the license. These payments can get complicated so parties must make sure to include clear payment terms regarding the timing and frequency of payments, as well as the mode of payment. Parties may also want to consider including language that requires a proper accounting report to accompany any royalty payment that is made. Without this, licensors would have a difficult time figuring out whether the appropriate royalty amount has been paid. Additionally, it is not uncommon for licensors that own famous marks to require both an upfront fee and a royalty payment. This allows the mark holder to capitalize on the fact that its marks are famous.
These rights define the circumstances in which the agreement may be terminated. While licenses will terminate upon expiry of the original term and after the exhaustion of all renewal periods, this section may also allow for parties to terminate the license either with or without cause.
Both parties should seek to include a list of events (breaches or defaults), which may trigger termination by the licensee or the licensor. For example, licensors will want to include language allows them to terminate a licensee if it: (1) fails to pay royalties; (2) fails to maintain licensor’s level of quality control; or (3) files for bankruptcy. A licensor may also want to include the right to terminate the license if a licensee does not release the targeted product to market within a certain amount of time.
Licensees generally have fewer termination rights, as the crux of the deal often relies on their performance. However, in certain situations, licensors may be obligated to advertise the product and conduct promotions. If they do not perform these obligations in an appropriate or timely manner, the licensor may be in breach, thus allowing the licensee to terminate. It’s important to note that agreements should give non-breaching parties the right to terminate, but not force them to do so.
These are only a few of the terms that will be included within a licensing agreement. However, familiarizing yourself with these provisions will provide you with a solid foundation when finalizing the deal. By clearly defining what intellectual property will be licensed, the scope of the rights granted, compensation, and each party’s rights of termination, you will be able to understand critical points of the deal and reduce the likelihood of major problems arising thorough the course for the partnership. Still, licensing agreements can include a number of complicated clauses, so it’s essential that you understand each section of the agreement being executing it. If you have any questions regarding the terms of your licensing agreements, please feel free to contact us.
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