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 his complaint filed against FaZe Clan, Turner “Tfue” Tenney alleged 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!
With the recent reports that Call of Duty franchises will be sold for $25 million, now is as good a time as any to take stock of the issues that have plagued the CoD community for years. The franchise system that Activision-Blizzard has created for the Overwatch League is surely portable, at least in part, to their other games. However, the foundation created for OWL benefitted from the fact that Overwatch was a relatively new game, creating a new community unto its own, with little time and means for roots to take hold prior to the league and its academy system forming. That’s far from the case with Call of Duty, with years of a largely unstructured esports ecosystem that has become a Frankenstein of excitement, public contract disputes, sneaker flexes, entire rosters being dropped after qualification, third party tournament systems, and rampant player poaching. The CoD community is truly a unique space in esports, though one that has never risen to the popularity of League of Legends or Counterstrike. At $25 million per franchise, Activision-Blizzard will have the money, and opportunity, to stabilize what has otherwise been an unstable ecosystem in its corner of the esports industry. Having worked with dozens of teams, players and influencers in Call of Duty, here are some of the things I’d like to see implemented to create a more legally sustainable industry:
On November 5th, current and former employees of Riot Games filed a class action lawsuit against the publisher, alleging that Riot denied them equal pay and stifled their careers solely because they were women. Additionally, the two women allege that they encountered constant harassment in a work environment that punished them for speaking up. The complaint contains multiple allegations against Riot including: (1) a violation of California’s Equal Pay Act; (2) a discrimination and retaliation claim in violation of that same Act; (3) discrimination, harassment, and retaliation claims in violation of the Fair Employment & Housing Act; and (4) a claim for failure to prevent discrimination.
This lawsuit comes on the heels of an investigative report published by Kotaku in August that discussed Riot’s toxic working environment and the sexist culture of the company. In that report, Jessica Negron, a former employee and current plaintiff, shed light on her experiences within the company, including multiple incidents of harassment, discrimination based on her gender, and a pattern of pay inequity. In one instance, Negron recounted an experience where she did not receive adequate compensation or a change in her job title after assuming the role of her recently departed manager. After fulfilling the manager’s job duties for a lengthy period of time, management denied her request for increased pay and eventually filled the role with three consecutive male employees.
The complaint reiterates many of the incidents that were written in the Kotaku article and includes additional experiences in detail. In another instance of the alleged toxic work environment at Riot, Negron alleges that a former supervisor expressed his appreciation for the lack of diversity within the company, “because gaming culture is the last remaining safe haven for white teen boys.”
The second plaintiff, current Riot employee Melanie McCracken, described numerous occasions where her coworkers allegedly subjected her to sexism. In one specific encounter with her former supervisor, the supervisor allegedly communicated an outright opposition to hiring women for senior employment roles. The complaint states that the supervisor told McCracken that he would “feel weird having a male” as an assistant. Later, when McCracken filed an anonymous complaint with Riot Human Resources department, the HR employee relayed the encounter to management, which allegedly led to McCracken’s former supervisor advising her that she had five months to find a new position or be fired.
If all the incidents described in the complaint are proven to be true, including class action certification (which is difficult to achieve), it would seem likely that the plaintiffs would prevail on their claims should this case reach verdict. However, many of these kind of cases never reach verdict due to a settlement being reached. Settlement is oftentimes seen as a means of helping prevent negative PR stemming from the lawsuit and its allegations. Nonetheless, the alleged incidents described in the complaint and Kotaku’s article should be deemed a cautionary tale to other companies within the video game industry, which has an unfortunately long history of alleged discriminatory practices.
On September 27, 2018, Nintendo’s blue-shell finally reached the Japanese go-karting company MariCar. The Tokyo District Court ruled in favor of the video game giant and awarded it damages for Maricar’s copyright infringement. MariCar, a popular service in Tokyo since 2011, must now pay ¥10 million (nearly $89,000 USD) in compensation and cease its use of Nintendo-related cosplay to promote its business.
MariCar is a well-known tourist attraction in Tokyo that offers street-legal go-kart rentals to users who wish to tour the streets of the city. The company also gave customers the option of renting out costumes to wear during their go-kart adventure. These options included costumes that mirrored characters like Mario, Luigi, Princess Peach, Bowser, and other characters from the classic Nintendo title Mario Kart, undoubtedly in an effort to make the virtual game a reality for fans.
The game developer filed the lawsuit in February 2017 alleging copyright infringement and a violation of Japan’s Unfair Competition Prevention Act. In its filing, Nintendo stated that MariCar provided users of the service with copyrighted Nintendo character costumes and often posted photos and videos of the customers in said outfits in an effort to promote its business. Nintendo believed the go-kart company’s actions were a violation of Nintendo’s intellectual property rights, since MariCar had been using the characters’ likeness without a license. The Tokyo District Court agreed with Nintendo and ordered MariCar to stop using Nintendo-related outfits in connection with its services and awarded Nintendo the requested amount of 10 million yen. Interestingly enough, the company still offers its customers the option of wearing other character cosplay like Superman and Spiderman – for now.
This lawsuit was not the first time Nintendo legally opposed MariCar. Prior to filing its lawsuit against the go-kart company, Nintendo filed an objection with the Japan Patent Office over MariCar’s registered trademark. In its objection, Nintendo argued that the MariCar trademark beared a striking resemblance to Nintendo’s Mario Kart franchise, and that MariCar directly intended its trademark to confuse the public. Nintendo went on to assert that the public widely interpreted MariCar to be nickname for Mario Kart, much like other abbreviated Japanese nicknames for game titles, such as “Pokemon” for “Pocket Monsters,” “Pazudora” for “Puzzle & Dragons” and “Sumabura” for “Super Smash Bros.” This colorful argument did not appeal to the authoritative body, as the Japan Patent Office maintained that there was no connection between the two trademarks, handing Nintendo a rare legal loss.
Nintendo has a long history of aggressively defending its trademarks and copyrights. The publisher recently opposed a United States couple's “Poké Go” trademark that was intended for use in connection with clothing. Predictably, Nintendo stated that the trademark would be confusingly similar with its Poké trademarks. More recently, the game developer sued a website operator over two websites that allowed anyone to play and download a number of Nintendo games for free. Over the years, Nintendo has shaped the gaming industry through its zealous fights to protect its intellectual property against copyright infringement.
At first it may be hard for passionate Nintendo fans to understand why the publisher has taken such an aggressive approach in defending against copyright and trademark infringement. From their perspective, the Japanese company is simply preventing supporters from living out their fantasies of a real life video game like Mario Kart and stopping others from making its older games more available to the masses. However, Nintendo is only doing what is necessary to protect its property and brands that have taken years, and substantial sums of money, to build. Without opposing similarly confusing trademark registrations, Nintendo, in time, could potentially lose a trademark that it previously held. Additionally, by allowing others to use its copyrights for their own businesses, the publisher would be losing out on creative control over similar opportunities it may have planned to provide at a later date and any profits that would be associated. Still, companies that wish to use Nintendo’s copyrights may do so legally by obtaining a license from the game developer, though the price for a license may be steep. In the mean time, fans will have to wait for Nintendo to make their dreams come true with a theme park containing all their favorite characters.
On September 11, 2018, New Mexico’s Attorney General Hector Balderas filed a federal lawsuit against an app developer and its contracted advertisers for violating the Children’s Online Privacy Protection Act (“COPPA”), New Mexico’s Unfair Business Practices Act, and the Federal Trade Commission Act. The 85-page complaint contains allegations that Tiny Lab Productions, an app developer, operated 91 apps designed for children that failed to adequately comply with COPPA. The complaint states that the developer collected and sold children’s data to advertisers, who then used the data to track and profile the children for targeted advertising without parental consent. Under COPPA, companies must comply with a certain privacy rules before they are able to collect a child’s data, including obtaining explicit consent from the child’s parents. New Mexico also alleges that some of the apps’ advertisers, namely Google (and its advertising company, AdMob) and Twitter (and its advertising company, MoPub,), marketed these apps through their platforms, which gave the public a false impression that the apps were in compliance with COPPA.
The Attorney General is seeking a permanent injunction to prevent any further tracking practices and destruction of any improperly obtained personal data, along with civil penalties for the COPPA violations, and nominal and punitive damages for violating New Mexico’s Unfair Business Practices Act.
App developers and online businesses need to recognize that privacy and data collection practices have become a principal concern for the Federal Trade Commission and Attorneys General throughout the country, especially when it pertains to the collection of children’s data. Website and online service operators should be aware of COPPA and must understand that compliance with it is necessary in order to avoid facing punishment.
What is COPPA?
COPPA is a series of federal laws that was enacted by Congress in 1998 to protect the privacy of children under 13 years old. Congress created the regulations to protect children from unknowingly sharing their data with companies, after noticing an increase of marketing techniques that targeted children. The data that was being collected often included personal information ranging from the child’s first and last name, home address, telephone number, and more recently, files that contained the child’s image or voice, and geolocation information that made it easy to identify the child’s street name and home city or town. Congress recognized that children giving away this information posed obvious dangers, and enacted a list of practices for website and online service operators to implement. Effectively, these practices allow parents to control what types of data operators are able to collect from their children. The Act was revised in 2012 to apply to social networks and smartphone apps as well.
Who does COPPA apply to?
Many people believe that COPPA only applies to commercial websites and online services that are directed to children under 13 years old, but the Act also extends to other operators who collect data from children. Under the Act, all general audience website or online service operators with actual knowledge that they are collecting, using, or disclosing personal information from children under 13 must also comply with COPPA. Additionally, all website or online service operators that have actual knowledge that they are collecting personal information directly from users of another website or online service directed to children will be subject to penalties for not complying with the Act.
The Act defines “online services” in a broad manner that includes any service available over the Internet or that connects to the Internet or a wide-area network. This includes all mobile apps that connect to the Internet, Internet-enabled gaming platforms, and services that allow users to play network-connected games, engage in social networking activities, purchase goods or services online. It also includes Internet-enabled location-based services also are online services covered by COPPA.
How to comply
Operators must make sure they follow these requirements in order to comply with COPPA:
What are the consequences of not complying?
For each violation of COPPA, courts may impose a civil penalty of up to $41,484. Courts look at a variety of factors when determining how severe of fine it should levy. If the operator was not collecting a great deal of personal information and had it never violated the Act previously, a court would be less likely to impose the maximum fine. However, if the operator repeatedly violated COPPA, collected a multitude of personal information, and it was sharing the data with third parties, a court would be more inclined to impose the maximum penalty. The fine amount can quickly add up since each violation is penalized. Last January, VTech Electronics agreed to pay the Federal Trade Commission $650,000 over charges that it violated COPPA by collecting personal information from children without providing direct notice and obtaining their parent’s consent, and failing to take reasonable steps to secure the data it collected.
As data collection and tracking continue to be valuable marketing tools for companies, it is important for these companies to understand that they must comply with certain regulations if they wish to perform these practices and collect data from children under the age of 13. By failing to do so, companies will be exposed to steep fines considering the volume of data that is continuously being collected. Without proper compliance and protections in place, a company may end up being subject to fines that can cause permanent damage to the company. If you have any questions on how to correctly with COPPA, please feel free to contact us.
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