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.
As we have discussed previously, intellectual property is a core part of every business. Intellectual property encompasses a variety of works including trademarks, copyrights, patents, trade secrets, and propriety data, amongst other things. Assets like a company’s trademarks (i.e. logo or slogan) can be extremely valuable in commercial affairs because, if properly maintained, these rights provide owners with an exclusive right to use and monetize their creations. This means owners have sole control over who is able to use their intellectual property and how it can be used. Oftentimes, intellectual property owners will use these rights strictly for their own monetary gain, but owners can also sell these rights, or uniquely license them to another party.
What is Licensing?
Licensing is a business arrangement where the owner of certain intellectual property rights (licensor) agrees to authorize another party to use such rights (licensee) in exchange for compensation. This compensation can vary in form, but will typically comprise of a one-time, upfront fee or a percentage of all gross or net revenues received from the use of the licensed intellectual property, otherwise known as royalties. One common example of licensing occurs in the retail market, where a company may enter into a retail licensing deal with an apparel company that allows the apparel company to use its trademark (i.e. the licensor’s name or logo) on all types of clothing sold in exchange for a percent of the profits from apparel sales using the licensed mark.
Businesses frequently use this kind of arrangement because it provides them with another way of profiting off of their intellectual property without completely transferring or assigning all of their ownership rights to another party. Through licensing partnerships, a company is able to use the expertise of another business that operates in a different sector, like manufacturing, to reap commercial benefits from that sector at minimal cost. For example, a company that only creates comics books may license its characters to a toy company without having to use its resources on costs or labor associated with the production of action figures. In most cases, the comic book company would not have to take an active role in any of the production, distribution, or marketing of the action figures, and would still receive a percentage of any sales of this product. Licensees welcome these partnerships because they are able to profit off the popularity of the licensor’s brand.
Licensing arrangements are most effective when they are solidified through a written contract. This provides all parties with necessary control and reduces the risk associated with the agreement. Parties in a licensing deal are able to determine when (duration of term), where (territory of use), and how (scope) the intellectual property can be utilized. By defining these terms effectively, a business has the ability to profit from different sectors (i.e. apparel, entertainment, etc.) in an efficient manner. Additional protections can also be added to ensure that a partnership is operating successfully. A licensor may require that certain benchmarks be met in order for the licensee to keep the using its rights. For instance, a licensor can require that the licensee meet a minimum annual revenue target in order to ensure that the licensee is adequately marketing the product bearing the licensed intellectual property. Licensing agreements that include provisions like this may provide for the return of all intellectual property rights to the owner if these goals are not met. These types of provisions can act as added security in the event one side fails to meet certain quality control or performance standards.
Licensing in Esports
Licensing partnerships are especially apparent within the esports industry. Game developers, like Riot, Activision Blizzard, and Epic Games, license their games to tournament organizers through various types of licenses so that these organizers can use games like League of Legends, Overwatch, or Fortnite in their tournaments. Additionally, esports teams will often enter into licensing deals with apparel companies to produce products like performance wear, fanwear, and other accessories. Influencers can also enter into their own licensing deals for branded products. Most recently, Ninja, through his partnership with Red Bull, entered into an exclusive licensing deal with Walmart for the sale of his unique headband. Sponsorship agreements will also oftentimes include language that defines terms of licensing, if any, between the parties as both parties will use of each other’s intellectual property (logo, slogan, etc.) in sponsorship activation. The amount of licensing opportunities within esports is endless and these types of partnerships will continue to make up a significant portion of all business transactions within the industry as it grows.
Any time intellectual property is involved, which is almost always certainly the case, companies will have the opportunity to license it for commercial gain. Through a licensing arrangement, both parties to the transaction can reap certain benefits. Licensors may be able to use a licensee’s production, distribution, and marketing network, while licensees can profit off of the licensor’s brand appeal. Still, while these types of deals seem easy to complete, there are a number of concerns that must be considered before executing a deal. Be on the lookout for a future post where we will address these concerns.
As the esports landscape continues to grow and companies further invest within the space, there is no doubt that the shift towards the professionalization of business practices at all levels of the industry is well underway. This progression is already apparent in that most businesses, teams, and players have started to adopt a more mature outlook on written contracts within the space. For the most part, some type of written contract is now the rule rather than the exception in business transactions, even at the small business and semipro levels. While this approach is positive for the future of the industry since contracts should provide both parties in a transaction with necessary protections, the value of a contract can be in jeopardy if proper business practices are not instituted.
Disputes in business transactions can arise at any level of the deal so it’s important for all businesses (yes, streamers are businesses too) to take steps to ensure that they will be able to protect themselves if a problem were to arise in the future. No one likes to think that when entering a contract, there may be disputes in time, but implementing some simple business practices at the outset of any deal can help make the resolution of any potential dispute easier. Here are some tips that will help prevent problems from occurring, and may assist you down the line if there is ever a contractual dispute:
1. Do Your Due Diligence
While this may seem like an unnecessarily obvious step, research the other party to the deal prior to entering into an agreement with them. Our trusting human nature can sometimes be harmful in newer industries where bad actors look to prey on inexperienced business owners. Unfortunately, esports is no different. There are a number of very public examples (see here) where people have falsely represented who they are or who they work for in order to reap their own gain. For example, someone may represent that they work for a company does not actually exist, have high valued accounts which don’t exist, or represent that they work for a company, when they actually do not, in order to trick a person into entering into an agreement for whatever reason. Doing a quick search of the company or person you are dealing on websites like Google, LinkedIn, and even Twitter, can help you better determine whether the other party is reliable and prevent you from entering into a partnership with people who may be acting fraudulently.
2. Retain All Communications
Keeping a record of all communications (emails, texts, discord messages, etc.) with the sponsor throughout the span of your relationship can also be beneficial if done so in a responsible manner. Maintaining communications from initial outreach, to negotiation, and through the actual term of the agreement, will help provide you with concrete evidence to validate your claim if there is ever a dispute regarding the terms or intention of an agreement. This is especially necessary when communicating orally over the phone or through online voice chats, where details can easily get lost or “forgotten” between the parties. It is always a good practice to send a follow-up email to the other party after discussing anything significant in the manner. Doing so provides both parties with clarity as to what was discussed, which can eliminate any immediate confusion.
3. Retain All Contracts and Corresponding Information
Although written contracts have become more of a standard practice within the esports industry over the past few years, there is still an element of unpredictability that transpires in many of these transactions. Oftentimes, parties will agree to modify conditions of an existing agreement during its term, which can result in multiple separate independent agreements. It is good practice to keep track of ALL of these agreements on file in an organized manner in case of a dispute. This way, if a party tries to argue that it only agreed to certain terms from the original agreement, you will be able to provide supporting evidence proving otherwise. Without having these documents available, it would be much more difficult to substantiate your claims. Importantly, this sentiment also applies to any amendments to a contract. Additionally, it is also helpful to preserve any audit trail from websites where you have electronically signed an agreement. This audit trail can prove to be useful if the opposing party ever tries to contest the authenticity of a signature, which, unfortunately, happens far too often. An audit trail will verify the name of the user that executed the agreement, the date it was signed, and sometimes, the IP address of the signatories.
While these steps may seem basic, it is surprising how often little steps like these are not taken. With so many deals being completed, and frankly, being busy operating the business itself, it is easy for businesses to become unorganized and lose track of every detail of its dealings. Instituting simple business practices like saving all contracts from your email into your hard drive, scanning each physical agreement onto your computer, and sorting/maintaining all communications with contracted parties can save you time and money if a problem were to arise. And as always, do your due diligence before entering into an agreement!
(Photo used under creative commons license. The original photo can be accessed here)
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