Regulatory Issues in Video Gaming E-sports (Part 2)

ENTERTAINMENT & SPORTS - February 2024

Legal and Regulatory Issues in Video Gaming and Esports (Part 2)

By Lau Kok Keng, Edina Lim and Yong Yi Xiang (Rajah & Tann Singapore LLP)

I. Introduction

In the first part of this article, we had provided an overview of the governance of e-sports and the current legal issues facing the e-sports industry. In this second part, we will deal with more specific issues that arise in the e-sports industry, such as the types of disputes that have arisen and the available platforms to resolve such disputes, the sportification of e-sports and gamification of traditional sports, as well as the state and future of e-sports technology.

II. E-sports Disputes

E-sports is a rapidly developing part of the digital entertainment industry. As participation and investment in the industry rises, so does its value, and with that, the number and variety of disputes that may arise. Several notable disputes have already arisen in the esports industry. These include:

Blizzard Entertainment's (“Blizzard”) licensing dispute with the Korea E-sports Association (“KeSPA”) over the unauthorised broadcast of games in e-sports competitions: In 2010, Blizzard, the developer and publisher of the StarCraft series, sued KeSPA, the governing body of professional StarCraft leagues in South Korea, for infringing its intellectual property rights. Blizzard claimed that KeSPA managed StarCraft tournaments which were broadcasted by cable channels without their authorisation, and demanded a share of the revenue. KeSPA argued that Blizzard had no right to interfere with its established e-sports ecosystem and that it had invested a lot in developing the StarCraft scene. ^[1] The dispute was settled out of court in 2012, with both parties agreeing to cooperate and share the rights and responsibilities of StarCraft e-sports.^[2]
The SpectateFaker case, involving a dispute between streaming services Azubu, SpectateFaker and game publisher Riot Games over the broadcasting of League of Legends (“LoL”) player Lee "Faker" Sang-hyeok gameplay: In 2015, LoL streamer Lee Sang-Hyeok, also known as “Faker”, was in exclusive arrangement with a streaming platform, Azubu to stream his gameplay. However, Azubu then discovered the existence of a channel on streaming platform Twitch called “SpectateFaker’, which also broadcasted Faker’s games. Azubu promptly filed a complaint against Twitch under the US Digital Millenium Copyright Act (“DMCA”), and Twitch complied with the takedown notice. This was even though Faker did not even have any intellectual property rights over the broadcast of his games to grant to Azubu in the first place, as the rights in his game play belonged to publisher Riot Games. Riot Games eventually filed its own DMCA complaint against SpectateFaker, which has since been taken down by Twitch. The takedown was premised on the licence terms for the use of LoL, which although generally allowed all LoL players to exploit its intellectual property, was subject to Riot Games’ power to revoke such rights at any time and for any orno reason.^[3]
Multi-jurisdictional litigation between rival game publishers Riot Games and Netease: In 2022, Riot Games, the publisher of PC video game Valorant, sued NetEase, publisher of mobile video game Hyper Front, in the United Kingdom, Germany, Brazil and Singapore, for copyright infringement, passing off and unfair competition on the basis that Hyper Front had substantially copied Valorant characters, maps, weapon designs, skins and graphic user interfaces.^[4] The dispute was ultimately settled.
Copyright litigation between Krafton and Garena: Krafton, publisher of PlayerUnknown’s Battlegrounds, sued Garena, developer of Free Fire, alleging that the latter had copied multiple aspects and unique features of the former’s battle royale video game, including in-game items, weapons and maps.^[5]
Allegations of cheating during an e-sports competition at the SEA Games 2023 in Cambodia: A dispute arose during a Valorant SEA Games gold medal match between the e-sports teams of Singapore and Indonesia. There were known bugs in the game which involved an in-game camera that allowed a team to track their opponents' movements. During rounds 9 and 14 of game 2, the Indonesian team complained about usage of the bug by Team Singapore, which responded that the bugs were well-known to all participating teams and that the rules of the tournament did not prohibit the use of the bugs. The match was paused for the tournament organisers to decide how the matter should be dealt with. It was eventually decided that the score, which was at 10-4 in Singapore’s favour, should be rolled back to 5-5. The Indonesian team rejected this decision and forfeited the match. Team Singapore was then awarded the gold medal, but upon reconsideration by the organizers, a joint gold was subsequently awarded to both teams.^[6] This incident shows that there is the need for clear game rules and for video game publishers to work closely with competition organisers to resolve disputes. This is especially since e-sports currently lacks a centralized and unified international governing body with regulatory powers and oversight over international e-sports competitions.

III. Dispute Resolution Mechanisms

Given the lack of a centralized and unified international governing body for e-sports with a judicial body and an avenue of appeal to the Court of Arbitration for Sport, traditional litigation in national courts and commercial arbitration under the rules of an established arbitration institution remain the most common forums for resolving disputes arising from e-sports. However, there may be a need for multi-jurisdictional parallel proceedings in cases that involve infringement of intellectual property rights due to the territorial nature of such rights. This is likely to result in substantial and multiple sets of costs being incurred by the rights proprietor, in addition to the risk of having contradictory outcomes from the different jurisdictions involved. Should the e-sports dispute be one that is suitable for resolution by arbitration or mediation, the services of neutral international institutions such as the World Intellectual Property Organization Arbitration and Mediation Centre (“WIPO Centre”) may be used.^[7] The WIPO Centre provides access to a diverse pool of experts with specialised knowledge in video games and e-sports, and its caseload includes disputes relating to copyright infringement, royalty payments and breaches of contract.^[8]

Additionally, a few gaming industry specific dispute resolution organisations have emerged to provide tailored services designed to address the unique challenges within the e-sports ecosystem. One such organisation is the World E-sports Association (“WESA”), which has established the Arbitration Court for E-sports (“ACE”) to serve as an independent platform for resolving e-sports-related disputes fairly and efficiently.^[9]

Another possible avenue for the resolution of e-sports dispute resolution would be the Court of Arbitration for Sport (“CAS”) headquartered in Lausanne, which is the supreme tribunal for the sporting world and whose Ordinary Arbitration Procedure enables commercial disputes to be submitted to the CAS, so long as the parties agree to do so. While it appears that no major e-sports publisher has as yet submitted a dispute to the CAS for arbitration under its Ordinary Arbitration Procedure, in October 2023, the Bahrain E-sports Federation (“BESF”) lodged an appeal to the CAS over a contentious refereeing decision during the Asian Games in Hangzhou. The complaint was that the decision to call for a re-match on the basis of procedural irregularities after the Bahrain team had won two out of three matches, and the purported unfair treatment of the Bahrain player during the match, allegedly deprived the Bahrain team of a medal in the EA Sports FC Online event.^[10] Notably, the e-sports technical handbook for the Hangzhou Asian Games did not contain any provision for appeals to the CAS. Instead, the rules provided for disputes to be resolved firstly by the National Technical Officials, followed by the International Technical Officials, and subsequently the Esports Commissioner, and lastly the Jury of Appeal chaired by the Technical Director and comprising three International Technical Officials independent of and unrelated to the parties to the appeal. It was also stated in the rules that the decision of the Jury of Appeal would be final. It remains to be seen whether the CAS will accept jurisdiction to hear this dispute and how it will approach the resolution of such e-sports disputes, amid growing concerns about the suitability of the CAS to handle the unique challenges posed by esports^[11].

IV. Convergence of E-sports and Traditional Sports

In recent years, the distinction between e-sports and traditional sports has become increasingly blurred due to the continuing convergence of gaming and sports. The two simultaneous processes driving this convergence are the sportification of video gaming, and the gamification of sports.

Sportification of video gaming has been defined as “the continuing institutionalisation and professionalization of video gaming”.^[12] This includes the introduction of sporting rules and performance (such as creation of e-sports and game broadcasting), and sport components into video gaming such as professional teams, prized gaming tournaments and athlete endorsements.^[13] Other examples of how traditional sports elements have crept into the video gaming industry include:^[14]

The licensing of trademarks and merchandising rights by major sports leagues and traditional sporting clubs to game developers. For example, Paris Saint-Germain (“PSG”), a leading professional French football club, teamed up with mobile game developer Supercell in 2019 to allow the latter to use their football stars like Kylian Mbappé, Neymar Jr, Angel Di María and Julian Draxler to promote the game Brawl Stars;^[15]
The development of sports video game franchises like NBA 2K and FIFA by various professional sports leagues; and
The participation in e-sports by traditional sporting teams. For example, PSG launched a professional esports club in 2016 whose teams currently compete in EA Sports FC, Dota 2, League of Legends, Rocket League and Arena of Valor.^[16] The Singapore Premier League launched the league’s own football video game tournament, the eSPL, in 2020, while the Malaysia Football League partnered with EA Sports to launch the eMFL, which is played exclusively on PlayStation platform.

On the other hand, the gamification of sports refers to the creation of gaming experiences for sports, and game-based sport products. This can occur in a few ways:^[17]

Gamification design in sports products, where game-based design elements are applied to sports products. An example is fantasy sports;
Creation of gamified sports, where traditional sports are converted into video games. Examples include sport gaming simulators and sport video games like Zwift and Gran Turismo 7; and
Generation of gaming content in sports to transform, supplement and replace existing sporting structures and products. Examples are betting on e-sports, and the inclusion of e-sports programs in traditional sport media/business, such as where video games like League of Legends and Rocket League are broadcasted on television channels which traditionally only broadcasted traditional sporting events.

Perhaps the convergence between sports and video gaming is best illustrated by the introduction of the Olympic E-sports Week by the International Olympic Council, which featured virtually simulated sporting competitions through the use of virtual technologies. The virtual shooting competition was based on the popular first-person shooter video game Fortnite.

The convergence of e-sports and traditional sports offers promising opportunities for growth in the e-sports industry. However, this could also lead to a decline in popularity for traditional, physical sports. It remains to be seen what the impact of such sportification of games and gamification of sports will have on the playing of traditional sports.

V. The State and Future of E-sports Technology
Technological developments have also spurred the growth of the e-sports industry and will continue to do so.

A. Advancements in Immersive Technologies

The advent of immersive technologies such as Extended Reality (“XR”) technology allow for the alteration and/or enhancement of the e-sports user’s perception of reality by the introduction of virtual content into the user’s environment, blurring the lines between virtuality and reality.^[18] Currently, the market for XR technology is valued at US$92.5bn, and is forecasted to reach about US$1,900bn in 2032 because of its immense potential.^[19]

XR generally comprises three sub-categories: Virtual Reality (“VR”), Augmented Reality (“AR”) and Mixed Reality (“MR”) technologies.

Virtual Reality

VR refers to technology that creates a completely immersive digital 3-D environment that blocks out and replaces the user’s physical environment. This is done by digitally generating the environment, and adjusting what the user sees according to the user’s physical actions in real time. They may also allow for the interaction with the virtual objects present in the environment.^[20] VR technology can and has already been applied in the gaming industry to create a fully immersive gaming experience. For example, Meta has developed the Oculus Quest 2 VR headset that allows users to feel like they are inside the game, interacting with the game’s environment as if they were actually there.^[21] The playing of e-sports can be enhanced with VR technology. A glimpse of this potential can be gleaned from a Virtual Table Tennis Match exhibition at the Olympic E-sports Week 2023, where a table tennis game was played using VR Technology in full view of spectators.^[22]

Augmented Reality

AR Technology overlays digital elements such as images, texts, and 3D models into the real-world environment, but with limited interaction between them.^[23] This allows for enhancement of the user’s perception of the real world. AR has similarly been applied to games, using real-world locations to enhance the gaming experience and to increase interactivity. The game Pokemon GO uses AR to allow the user to “see” a Pokémon in the real world.^[24] AR has been used in e-sports to enhance the experience of spectators as well, such as provision of information (like game stats and player positions) to the spectators via overlay of graphics on the broadcast.^[25]

Mixed Reality

A hybrid of VR and AR technology,^[26] MR technology not only allows for the imposition of digital elements into the real world, but also allows for the interaction between the digital and physical components.^[27] The racing game Mario Kart Live demonstrates how MR has been applied to gaming.^[28] The game creates a racetrack based on the user’s real environment. The user can then race on the created racetrack in-game. For e-sports, MR has been used to develop and improve skills and teamwork of e-sport athletes.^[29]

Undoubtedly, the use of such immersive technologies will increase the accessibility and diversity of e-sports, given that anyone with a VR headset or AR device can participate or watch e-sports from anywhere in the world. However, there are potential legal and regulatory concerns that may arise from the use of such technologies in e-sports. For example:

Privacy and data protection: Devices with immersive technologies potentially collect vast swathes of personal and sensitive data from users, which may include biometric data, behavioural data or location data. Such data can be used for various purposes, which users may not necessarily be aware of. While such data collection would necessarily be subject to general data privacy laws, given the extent and sensitivity of the personal data that may potentially be collected through the increasing deployment of such immersive technologies, it may be ideal for the promulgation of specific regulations which set out the permissible boundaries of personal data collection, use and disclosure in the context of the deployment of such immersive technologies.
Consumer protection: The use of immersive technologies may increase certain types of physical risk to users. For instance, they may experience motion sickness, eye strain, vertigo or other physical injuries from prolonged use of devices with such technologies. It would be necessary to establish who would be responsible and accountable for such risks and harms, and what remedies would be available to users.

B. Use of AI in E-sports and Gaming

The rise of Artificial Intelligence (“AI”) technology is another notable recent development which has been increasingly applied in gaming. For example, some games like Dota 2 use AI to control non-player characters (“NPCs”). These NPCs simulate competition from real opponents, allowing players to enjoy the game without the need to play against human players.^[30] AI has also been used in the control and regulation of negative player behaviour such as cheating and bullying. The AI can detect such behaviour and deal with them accordingly, like issuing warnings or bans.^[31]

E-sports athletes have also used AI-based coaching apps like SenpAI.GG to analyse and improve their in-game performance.^[32] E-sport teams have used tools like Rival.ai to assist in the analysis of player performance and to give reports when scouting for talent.^[33] Publicity managers of e-sport teams and athletes employ AI to create highlight reels of their gameplay, as the AI can analyse video game footage to determine what actions are noteworthy.^[34]

C. Tokenisation in Video Games and E-sports

Another growing trend in the e-sports industry is the increasing tokenisation of e-sports. Tokenisation of assets is the digital representation of the right to an asset on a blockchain, which provides digital proof of ownership of the asset. The digitalised asset (known as a digital token) can then be sold and/or traded without the need for intermediaries. Transactions are secure given the immutability of blockchains, thus reducing the likelihood of fraudulent dealings.

Tokenisation brings exciting opportunities for the gaming and e-sports industry. In the context of video games and e-sports, examples of assets that can be tokenised are in-game items, characters and even the game itself.^[35] Axie Infinity is an example of a game that utilises tokenisation.^[36]

Since in-game items can be tokenised, it allows players to own, sell and trade their in-game items on external marketplaces for other items and/or real money.^[37] There is also potential for monetisation by game developers as they can sell or lease in-game items to players as tokens.^[38] Game developers may also raise funds by tokenising their games to create security tokens, which can be sold to investors^[39] who will get to own a share in the game, and accordingly any income derived from it.^[40] E-sports teams may also raise funding via tokenisation. This can be done by tokenising rights to the e-sports team and selling them as fan tokens, or even tokenising and thus selling a team’s potential future winnings.^[41]

However, tokenisation also poses legal challenges and risks for the e-sports industry:

There is legal uncertainty surrounding the status and regulation of digital tokens, especially security tokens and utility tokens. Depending on the jurisdiction concerned, different laws and regulations (such as securities, tax, consumer protection, anti-money laundering and data protection laws) may apply to the creation, issuance, distribution and trading of tokens.
Another risk is the security and reliability of the technology and platforms involved in tokenisation. Since tokens are stored and transferred on blockchain networks, they are vulnerable to cyberattacks, hacking, phishing, malware and other forms of fraud and theft. Moreover, since blockchain transactions are irreversible, any loss or theft of tokens may be difficult or impossible to recover. Therefore, there may be a need for additional regulation surrounding the tokenisation of e-sports.
Lastly, tokenisation may also raise gambling law issues, particularly if there is an element of chance involved in the process. Games which involve the creation of tradable tokens through processes that are determined by chance elements may potentially raise gambling law issues. There have been attempts to use tokenisation to fund the creation of virtual casinos. One firm that was building virtual casinos tried to tokenise the rights to the profits of the casinos to form non-fungible tokens for sale to the public. The sale was stopped by the Texas State Securities Board as it potentially constitutes securities fraud.[42]

IV. Conclusion

E-sports is a rapidly growing and evolving phenomenon that challenges the boundaries and definitions of traditional sports. As e-sports becomes more mainstream and professionalised, it will also encounter various commercial disputes and regulatory conflicts which may require the establishment of a centralized and unified e-sports international governing body as well as an e-sports-centric international dispute resolution body. E-sports is at the forefront of technological innovation and experimentation, and stands to exploit the potential of immersive technologies, artificial intelligence and tokenisation to enhance the gaming experience and create new forms of revenue, value and engagement.

AUTHOR INFORMATION:

Lau Kok Keng is a Partner and Head of the Intellectual Property, Sports and Gaming Practice at Rajah & Tann Singapore LLP.
Email: kok.keng.lau@rajahtann.com

Edina Lim is an Associate in the Intellectual Property, Sports and Gaming Practice at Rajah & Tann Singapore LLP.
Email: edina.lim@rajahtann.com

Yong Yi Xiang is an Associate in the Intellectual Property, Sports and Gaming Practice at Rajah & Tann Singapore LLP.
Email: yixiang.yong@rajahtann.com

REFERENCES

[1] https://www.engadget.com/2010-12-04-report-blizzard-suing-over-korean-starcraft-broadcast-rights.html?_fsig=0xU37LaPZ.0IeXjGFpJauw--%7EA

[2] https://complexity.gg/blizzard-and-kespa-settle-over-sc-broadcasting-rights/

[3] https://innovatus.com.tw/streaming-league-of-legends-and-spectatefaker-would-arbitrary-game-licensing-rules-curtail-free-speech-like-the-digital-millennium-copyright-act/?lang=en

[4] https://www.polygon.com/23500704/riot-games-netease-lawsuit-valorant-hyper-front

[5] https://www.theverge.com/2022/1/13/22882796/pubg-developer-krafton-suing-apple-google-garena-free-fire-max

[6] https://sea.ign.com/valorant-pc/198967/news/sea-games-controversial-valorant-grand-final-ends-in-historic-joint-gold-for-indonesia-and-singapore

[7] https://www.wipo.int/amc/en/center/specific-sectors/videogames

[8] https://arbitrationblog.kluwerarbitration.com/2023/07/18/resolution-of-video-games-and-esports-disputes-through-wipo-adr-a-game-changer/

[9] https://elibrary.law.psu.edu/cgi/viewcontent.cgi?article=1245&context=arbitrationlawreview

[10] https://esportslegal.news/2023/10/30/bahrain-files-esports-dispute-to-the-tas-cas/

[11] https://esportslegal.news/2023/10/30/bahrain-files-esports-dispute-to-the-tas-cas/