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12.02.20

Game On: Legal issues in the esports industry

BY , , , , , , Irene Scholl-Tatevosyan

Esports and gaming became even greater household staples in 2020. As the popularity of esports and gaming grows exponentially, companies must also level-up their legal compliance.

Several members of the Nixon Peabody Esports and Gaming Group hosted a one-of-a-kind, virtual symposium to cover the biggest legal issues in the industry. Each session touched on a salient topic specific to esports and gaming. Below are key takeaways from each of those sessions.

The video game clone wars

  • Copyright protects creative expression (not ideas).
  • Game rules are not protectable by copyright, but copyright can provide protection for the “look and feel” of a video game.

A worker by any other name is an employee

  • Under the AB5 test it will be harder for gaming/esports companies to classify workers as independent contractors. As more states adopt this test, gaming/esports companies should audit their worker classifications.
  • The Department of Labor proposed rules clarifying the FLSA test for determining whether a worker is an employee or an independent contractor, which, while helpful, may be changed as the Biden administration has indicated it wants to move toward the AB5 test as well. Thus, companies should keenly watch for updates federally.

Legal implications of monetization

  • With the rise of in-game ad placements, unique commercial opportunities with celebrity talent, and the ever-evolving methods by which gamers and audience members can engage in virtual spaces, we will continue to see the needs for proper clearance of intellectual property and publicity rights, compliance with state and federal regulatory schema, and allocation of associated risks within the transaction.
  • Seeking proper legal counsel who can identify potential legal issues early and build contractual protections and resolutions into the transaction at the outset can save the parties substantial cash and headache in the future.

Strategic planning and litigation risk mitigation for competitive gaming platforms

  • Gaming and esports companies face a dizzying array of litigation risks because these companies (i) are subject to complex state and federal laws and (ii) often have to contend with disgruntled customers who have a wide selection of causes of action from which to choose, especially at the state level.
  • The best overall strategy for dealing with such litigation risks is (a) estimating one’s legal budget carefully from day one with a realistic assessment of the biggest risks and (b) enlisting the support of superb litigation counsel to handle specific legal challenges as they arise.
  • When developing offers for in-game transactions and virtual items, game developers must be mindful of recent litigation trends showing how (and in what jurisdictions) plaintiffs are seeking damages where such offers involve elements of chance (e.g., loot boxes).

Mitigating and managing COVID-19 reopening risks in the esports & gaming industry

  • COVID-19 presents unique legal risks to businesses that conduct in-person events, whenever they resume, as liability could arise from attendee exposure, changes in existing business relationships, and even consumer claims as events are cancelled or moved. 
  • An effective plan to mitigate those risks must be a holistic effort: from reviewing prior contractual relationships, to drafting effective exculpatory clauses for new contracts, to ensuring that proper health protocols are in place and monitored throughout on the day of the event.

Keep an eye out for future virtual events, as we look forward to leading more of these conversations as new issues in the industry arise.

 

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Bruce E. Copeland

Partner

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John Eden

Associate

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Jason T. Kunze

Counsel

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Carolyn G. Nussbaum

Partner

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Christopher Queenin

Associate

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Vincent J. Tennant

Associate

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Irene Scholl-Tatevosyan

Associate

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