Esports- relevance and future perspective for the provision of legal services for esports in Ukraine
06 Апреля 2021 Организация бизнеса в Украине
The development of the Esports industry in Ukraine started in the late 1990’s continuing into the early 2000’s. At first events consisted of small tournaments held in computer clubs where players competed with each other. Since 2010 the industry has transformed, both at a national and international level. Professional Esports organizations have formed to oversee participation at international tournaments in various disciplines: Counter-Strike, FIFA, World of Tanks, Starcraft in various multi-jurisdictional areas (USA, South Korea, Australia, China, etc.). Prize funds at these competitions now run into several hundred millions of dollars anually.
Cybersport or Esport is a video game competition and sport in which players develop and train both mental and physical skills.
1.The use of intellectual property rights in Esports
Unlike other sports, each Esport discipline has its own developer and copyright holder. The copyright holder controls the use of their game. A computer game publisher (the copy-right holder) is able to choose from several legal options and mechanisms to govern the use of their IP for Esport tournaments. This can range from low levels of control allowing users to use their game to hold championships free of charge with minimal formalities, to more regulation and agreements governing the conduct of games and income from competitions. In the latter scenario, the publisher independently sells the right by concluding a license agreement (tournament license) for a fee. The publisher can monitor the competition because the name of the game registered as a trademark, prevents anyone from using the commercial name of the game.
Therefore, copyright holders can either promote a discipline or restrict it by restricting access.
2.Regulation of national and international legislation in Esports
In general, legal aspects of the ESport industry are regulated by the national legislation of respective countries. In Ukraine however there exists no specfic legislation aimed at sustainable sport and which deals with the specificity of Esports. Unlike in classic sports where associations and federations organise relationships between stakeholders (individuals or legal entities that have a legitimate interest in the activities of the organization, that depend on it or influence its activities), the Esports industry is not governed by laws, regulations or rules of sports federations or associations. Instead, relevant agreements are concluded directly between interested parties (for example, on cooperation between the player and the club, on the transfer of the player from one club to another, on the organization of competitions, marketing agreements, license agreements for a tournament, etc.).
In Ukraine, the legal regulation for the provision of legal services for contractual relationships, including the conclusion of sponsorship agreements for Esports tournaments between the publisher of games, tournament organizers and e-sportsmen, is regulated by domestic law, namely:
- The Civil Code of Ukraine;
- Economic Code of Ukraine;
- Code of Labor Laws in Ukraine;
- Law of Ukraine “On Advertising”.
One of the key problems of Esports at an international level is that there are no uniform “rules of the game” to cover all disciplines. Strict regulation of rules and associated powerful legal mechanisms for their implementation do not exist, as is the case with football, hockey, basketball where international organizations (FIFA, the NHL, NBA) tightly control the game. The legislation of many countries around the world does not have specific laws for the Esport industry.
In 2008, at the international level, the International Esports Federation (IeSF) was established, with its headquarters in Busan, South Korea. As of the 9th September 2020, it has 82 national member states, including Ukraine.
3.Contractual relations of advertising and sponsorship in Esports
Contracts in the field of advertising and sponsorship are by their nature service contracts. According to Art. 901 of the Civil Code of Ukraine, under the contract for the provision of services one party (the “Contractor”), undertakes on behalf of the other party (the “Customer”) to provide a service to carry out certain actions or activities, and the Customer undertakes to pay the Contractor unless otherwise provided by the contract.
According to Art. 638 of the Civil Code of Ukraine, the contract is concluded if the parties have duly agreed on all the essential terms of the contract. The essential terms of the contract are the conditions forming the subject of the contract, the conditions defined by law as essential or necessary for contracts of this type, as well as any further conditions which at the request of at least one of the parties have been mutually agreed.
According to Article 1 and paragraph 1 of Article 5 of the Law of Ukraine “On Advertising” sponsorship is voluntary, material, financial, organizational and other support of individuals and legal entities of any activity to promote only their name, name and their mark for goods and services. In TV, radio programs, materials in other mass media, entertainment and events created and held with the participation of sponsors, it is prohibited to provide any information of an advertising nature about the sponsor and / or his products, except for the name or name and mark of the goods and sponsorship services.
In TV programs it is forbidden to provide any information of an advertising nature, which is presented in the form of narration and / or sound, about the sponsor – the producer of alcoholic beverages, his name (name) and / or mark for goods and services belonging to the sponsor.
4.The conclusion of employment contracts in Esports
Concerning employment between Esports and organizations, contracts used in Esports are similar to those used in traditional sports. In fact, a significant number of Esports contract provisions have been borrowed from contracts in other sports. These for example can be a unilateral contract in which the e-athlete receives a salary, regardless of whether he plays in the second team or in the first, or a bilateral contract which sets out in detail the various conditions under which the athlete must perform and in which team or league they must play.
A special form of employment contract may be established by agreement and can cover the term, rights, obligations and responsibilities of the parties (including material), conditions of material support and organization of the work of the employee, conditions of termination of the contract, including early termination. The scope of the contract is determined by the laws of Ukraine and applies only to certain categories of employees.
Also in the Esports industry, so-called “smart contracts” are becoming increasingly popular. These make use of blockchain technology to automate the process of executing the contracts. Smart contracts can govern eSports relationships such as fees and player transfers, sponsorship and sale of media rights, advertising deals, and tournament prize money, as well as the use of Cryptocurrency for payment. Smart contracts are signed and executed via one of the many existing blockchain platforms, some of which already specialize exclusively in Esports.
The advantage of smart contracts is their autonomy and economy as parties can do without the services of lawyers, banks and various intermediaries. Smart contracts are inherently reliable, because the process of their implementation involves cryptographic tools and encryption of Internet pages which provides documents with a high degree of protection. The disadvantage of choosing this method of registration of legal relations can be considered the lack of regulation at the legislative level in Ukraine and an insufficient understanding of the legal nature of such contracts.
5.Dispute resolution in Esports
The most common form of dispute resoluation in the Esports industry is negotation and mediation, given the evolving nature of the industry.
In exceptional cases, parties can apply to a court of relevant jurisdiction or arbitration. Unlike in mainstream sports, in Esports there is no balanced regulation by independent international sports associations.
At an international level, Esports disputes can be resolved, for example, in the International Court of Arbitration for Sport or in a special Esports arbitration court ad hoc at the World Esports Association. If parties to the arbitration agreement (the “arbitration clause”) do not have a clause on the referral of the dispute to arbitration or on the law of the country to resolve the arbitration dispute, they must refer to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 10.06.1958.
Arbitration disputes may involve a breach of contractual obligations, licensing and sponsorship agreements, transfer of players from one club to another, doping, manipulation of results, distribution of winnings, royalties, etc.
Based on the above, we conclude that the development and prospects for providing legal services in the field of Esports in Ukraine is gaining momentum with the increasing popularity and market size of the industry. In some instances, Esports have already overtaken some traditional sports.
In Ukraine there is a need to adopt relevant legislation, in particular, the “Sports Code”, which will regulate sports and legal relations between athletes, e-athletes, national associations, federations. Today, relations in Esports are governed by the general rules of civil and commercial law, as well as internal rules of specialized organizations. So, careful reconciliation of VAT within periods, the correct accounting system and the confirmation primary documents, allows the company to pretend for VAT reimbursement into bank account and to not “freeze” funds, but to re-invest them already in development. Completing of contract conditions: payment from the buyer to the supplier and delivery of goods/services to the buyer is enough background to pretend for VAT reimbursement. Any additional conditions proposed by fiscal authorities, for example, fact of commissioning or anything else, are illegal and may be successfully claimed.
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