BREAKING DOWN THE LEGAL CHALLENGES FACED BY THE E-SPORTS INDUSTRY: A LEGAL PUZZLE

[Author: Swayam Samarth, student of law at KIIT School of Law, India]

INTRODUCTION

E-sports has evolved from being a fringe teenage hobby to the fastest-growing area of the entertainment business over the last decade. The ecosystem involves top athletes, multimillion-dollar contracts, celebrities, popular sponsors and huge rewards. Multiplayer gaming was severely limited when video games initially became available in homes around the world. With the advancement of technology and the internet, people are able to compete among themselves in a multiplayer mode gaming setup. Subsequently, developers and distributors have found an opportunity to monetise such games and increase their profits by organising competitions, of course involving a huge prize money at stake. Presently, the e-sports industry is growing at a tremendous rate– The numbers are skyrocketing and it should be noted that in the previous year, cash and prizes in kind worth $215 mn were drawn along with hefty salaries for the e-sports professionals. This rapid global spread of e-sports, along with its diverse qualities, has resulted in a tangle of policy and legal issues that the sector as a whole is actively attempting to resolve.

This article discusses the legal challenges encircling e-sports and possible solutions to the same.

WHAT IS AN E-SPORT?

Albeit there is no generally accepted definition of an e-sport, Wagner defines it as “a field involving sporting activities where the participants develop their physical and mental abilities, facilitated through technology and communication.”

Sjoblom and Hamari insisted on the fact that the term e-sports refers to an online competitive video gaming setup supplemented and supported by gaming leagues, competitions and tourneys involving a certain prize, where the players belong to a group or a gaming team.

THE CURIOUS CASE OF GAMBLING AND E-SPORTS

E-sports is not exempted from the scope of gambling and to be precise, match fixing. Every other sport has more or less faced the wrath of the skill v. chance debate and e-sports is no different.  Since the United States Supreme Court in 2018 , determined that sports betting was allowed, the market in the United States has grown significant. It is currently worth $9.5 bn. , and is expected to grow to $37 bn. by the end of 2025. Gambling watchdogs are likely to include e-sports in the ambit of regular sports betting. In general, e-sports betting would likely be regulated in the same way as real money traditional sports gambling is. Virtual Currency purchases, gaming loot boxes and other purchases made in-game should not be traded for hard cash.

LACK OF A GOVERNANCE STRUCTURE

The regulation framework is underdeveloped in this sector. Amidst all the talks surrounding the monumental growth of e-sports, a problem arises pertaining to its governance structure. The industry’s unidentified governance structure has contributed to a number of activities that have eroded its integrity. Consumers, athletes, organisations, and other stakeholders together form a complex ecosystem of e-sports, with athletes and consumers being the most common subjects of study for scholars.

While majority of the countries around the world don’t have a separate legislation to include e-sports in their ambit, this needs some rethinking because of the tremendous growth of e-sports and online gaming sector. There is still a lack of a governing body along with industry standard norms and regulations, which is generally overlooked. There is no effective procedure for resolving issues, settling disputes or understanding the game’s laws in general without a regulatory structure. Traditional sports governance is mostly dependent on output legitimacy, which is established by the model’s outcome. To a large extent, e-sports governance is built on input legitimacy standards. This is because e-sports are mostly supervised by the game publishers, who oversee competitions for their individual games.

The Role of Global Sports Governance Bodies in traditional sports is predominantly decided, like the formation and implementation of rules and regulations, establishing the ethical code of conduct, and maybe the limits for prize distribution, sponsorships etc. In the case of e-sports governance, there would be a limited role of the governance body. Nonetheless, the main aim would be to protect the integrity of the game. The rules and regulations within the e-sport would be anyways specified by the tournament organiser or the publisher of the game.

The Esports Federation of India (ESFI) is the current governing organisation for digital gaming in India. It is a member of the International Electronic Sports Federation (IESF) and the Asian Electronic Sports Federation (AESF).

CONTRACTUAL ISSUES ARISING OUT OF ESPORTS

Generally, there is no age restriction to participate in an e-sports tournament except for in a few circumstances. An esports contract between a clan (an e-sports team) and the player is quite similar to an employment contract specifying the conditions of work, remuneration, duties, liabilities and additional clauses, predominantly decided amongst the clan and the athlete. However, there is no accurate framework governing e-sports contracts which leads to lack of protection. In India, the primary legislation governing contracts is the Indian Contract Act, 1872 (“Contract Act”). Most of the e-sports athletes are under the age of 18 in India. According to Section 11(4), of Contract Act, a minor is incompetent to contract and contract with a minor is void ab initio.

Ergo, in terms of an e-sports contract, the enforceability would be a major issue. Furthermore, most e-sports contracts involve a non-compete clause which restrain the athlete to have engagements with other teams post the term of the agreement. Such non-compete clauses and predatory contracts violates section 27 of the Contract Act which stipulates that restraining a person from practising their trade would be void and not voidable. In light of such issues, contractual instability arises.

INTELLECTUAL PROPERTY

The income in e-sports is generated from sources such as, inter alia– sponsorship, advertising, sale of streaming rights. Other significant revenue sources include- in-game purchases, sale of loot boxes, clan or league merchandise. Unlike traditional sports like cricket or basketball, any e-sports discipline is the intellectual property of the developer of the game. Prime examples would be Players Unknown Battlegrounds (“PUBG”) & FIFA, owned by Tencent and EA Sports respectively. IP owners can safeguard their copyrights, patents, and trademarks if they are aware of their ownership interests and take steps to control them. E-sports’ problem stems from a slew of intertwined issues.

Primary question is who owns the rights to e-sports related intellectual property and who has the authority to broadcast and stream such games, and on what basis? What are the game publisher’s rights in terms of exploitation of such games, and how broadly can they be defined?

There is lack of a standard guideline for broadcasting and streaming rights. There is also no code of conduct for streamers. Some e-sports depict violence and obscenity which may be harmful for teenagers and children watching those streams. Hence, there should also be a code of conduct in place for streaming.

For tournament organisers, a similar question arises. Is there any intellectual property that favours commentators, players, or teams in general? Who holds the intellectual property over the tags owned by athletes representing a certain clan.

Can ‘game-modding’ be classified as a kind of intellectual property infringement? To be eligible for damages, you must show that the infringing behaviour is evading the developer’s protective rights and creating an unhealthy competitive environment by promoting uneven chances. The US Court of Appeals for 9^th Circuit had in past, decided in the favour of the copyright holder that game modding is a commercial activity and violates the universal right of the holder of the copyright.

[Video game modding (short for “modification”) is the process of alteration by players or fans of one or more aspects of a video game, such as how it looks or behaves, and is a sub-discipline of general modding.]

CHEATING AND E-DOPING CONCERNS

Someone or the other would always try to destroy the integrity of a game, try to bend the rules in their favour or simply take the easy way out, just like in any professional competition. Cheating and hacking have been hanging around in any game since ages. The majority of the times, it is utilised to make single-player games easier with cheat codes placed into the game by the creator. Over the period of time, games have become more difficult and competitive and as a result, this practice of cheating and destroying the integrity of the game has arisen. Subsequently, the concept of technological doping comes into the talks. Technological doping refers to the ‘use of software cheats, applications and server attacks’ by a player to gain a competitive edge in the game.

In the midst of the expansion, it’s easy to overlook the fact that the new industry is going through some growing pains. Attempts at match-fixing and cheating are among them, and they can jeopardise the entire industry’s legitimacy. The World Anti-Doping Agency and ESL (an e-sports producer and organiser of various esports tournament) collaborated to develop the industry’s premier “Anti- doping policy”. Furthermore, e-sports tournament organisers have taken help of the Valve Anti Cheat Software (VAC) to combat hacking and cheating issues. Still, it is worth noting that there has been no significant reduction in the number of cheaters across the games, and it still lacks a major governing body. It is high time for a regulatory mechanism imposing strict punishments to tackle these concerns.

SUGGESTIONS AND CONCLUSION

Regulation of e-sports has provided a headache to industry as a whole and stalwarts are perplexed as to by whom and how the e-sports industry should be regulated.Legal and ethical difficulties come frequently in any emerging huge business.Most of us might be aware of the common legal issues arising out of e-sports, but their application in this ever dynamic esports industry is quite a challenge. This rapid growth of e-sports around the world, paired with its distinct qualities, has brought with it a tangle of issues, both legal and ethical that the industry as a whole is actively attempting to resolve.

While the United States, China, and Korea continue to dominate the e-sports prize pool, India is slowly making its mark as well. The primary reason for the slow growth of e-sports in India is lack of sufficient knowledge of industry and poor management. The government should play the role of a guide or nurture the industry to help it grow to its full potential. Emphasis should be placed upon a more centralised approach to governance, with the establishment of a single global standard set of regulations, which is the need of the hour to replace the fragmented structure utilised by various tournaments, leagues and competitions.

*For any query, feedback, or discussion, Swayam Samarth can be contacted at [swayamsamarth@gmail.com]

*NOTE- The opinions and views expressed in this article are that of the Author(s) and not of SLPRR- the expressed opinions do not, in any way whatsoever, reflect the views of any third party, including any institution/organisation that the Author(s) is/are currently associated to or was/were associated to in the past. Furthermore, the expressions are solely for informational and educational purposes, and must not be deemed to constitute any kind of advice. The hyperlinks in this blog might take you to webpages operated by third parties- SLPRR does not guarantee or endorse the accuracy or reliability of any information, data, opinions, advice, statements, etc. on these webpages.

PREFERRED CITATION: Swayam Samarth, Breaking down the legal challenged faced by the e-sports industry – A legal puzzle, SLPRR <https://sportslawandpolicyreviewreporter.com/?p=1959(opens in a new tab)> June 14, 2022.