The huge commercial value of the e-Sport industry builds on a well-developed legal system and risk control management. To have a lasting e-Sport business with an improved social value, operators must comply with relevant laws and regulations by starting from the very basics of building an industry.

The electronic sport ("e-Sport"), as a competitive sport, can be defined as a people-to-people intellectual game in a virtual environment created with IT. It is on the basis of electronic games, with IT at its core, software and hardware as its equipment.

Currently, the e-Sport industry is embracing its prime time. According to incomplete statistics, by 2018, there were more than 500 hot e-Sporting events in China, making it the most influential and potential e-Sport market in the world. Yet behind all these attention and applause, what are the regulatory compliance requirements and operational legal risks for this industry? This article systematically explains the history of the e-Sport industry, and the industrial landscape and structure; summarizes the compliance highlights under current laws and regulations; and in view of practices and experiences, concludes with legal risks and according management strategies in the operation of e-Sport.

Brief history of e-Sport in China

1.      Twists and turns

There have been twists and turns in the over ten years of development of the e-Sport industry in China. In 1998, Internet cafes began to emerge, where the prototype of e-Sport club appeared with one leader and several players. The teams were mostly set up by game players themselves. As they were limited to a small number of people, it was difficult to enlarge the scale. It was not until 2014 when web broadcasting proliferated, did e-Sport industry enter into wild growth.

2.      Driven by government policies

The e-Sport industry has been supported and encouraged by central and local government policies in China. On October 25, 2016, the General Office of the State Council issued the Guiding Opinions to Accelerate the Growth of Health and Leisure Industries, in which it explicitly state to promote the healthy growth of e-Sports competitions and events, and develop the related market. The Ministry of Culture and Tourism (former Ministry of Culture) issued the Opinions to Push the Transformation and Upgrade of Cultural and Entertainment Industries, in which it encourages the construction of e-Sport facilities and supports local, national and international e-Sport competitions and events. Moreover, 24 ministries and commissions, including the National Development and Reform Commission, jointly issued the Action Plan to Drive Consumer-led Transformation and Upgrade, which advocates for national or international e-Sport activities, with companies playing a central role, by strengthening collaboration and supervision. In addition, local governments at all levels have published documents to show their support to the e-Sport industry.

3.      Embracing the prime time

In May 2018, six e-Sport competitions, including the League of Legends and the Arena of Valor International, among others, were included in the 18th Asian Games in Jakarta. E-Sports as competitions in Asian Games attracted unprecedented attention from the public.

According to Jingdata, the size of the e-Sport market reached 76.6 billion Yuan in China in 2017, up 46% from the previous year. It grew to 97.27 billion Yuan in 2018. It is expected to reach 100 billion Yuan by 2020. With favorable state policies, technological advancements and participation of capitals in the market, the e-Sport industry is embracing its prime time.

Industrial landscape and structure

The e-Sport industry can be said to comprise two parts, at the core being the industrial chain of e-Sport events and competitions, and the other being the e-Sport ecosystem. The industrial chain of e-Sport events and competitions drive the growth of the e-Sport ecosystem so that a relatively complete industrial industry is formed.

1.      E-Sport ecosystem

Any business can be incorporated into the E-Sport ecosystem, as long as it improves the stickiness of fans, expands the e-Sport user base and contributes to the sustainability of e-Sport. It includes, but not limits to, the building of an alliance system, live streaming of e-Sport competitions, e-Sport big data, e-Sport facilities, e-Sport education, brokerage services, and derivative products.

2.      Industrial chain of e-Sport events and competitions

The industrial chain refers to the upstream and downstream processes with e-Sport events and competitions at the center. A complete e-Sport event covers the following steps: content authorization, event execution, event participation, content production, content broadcasting (live or recorded), and user viewing (see Figure 1).

The event organizer should first obtain, from the obligee of the game concerned, the approval for the use of the contents of the game, then organize the event by inviting e-Sport clubs to participate and create event-based content, then disseminate the content to users through live or recorded broadcasting. It is in this way that an industrial chain is created around the e-Sport event.

3.      Types of e-Sport industry in China

The e-Sport is operated for a profit. Currently in China, the e-Sport industry is mostly operated by game operators. A game operator can hold its events by itself or by authorizing other entities or organizations. In terms of scale and ways of operation, e-Sport competitions can be divided into professional and amateur leagues.

Professional league competition is operated as a business brand, which requires a huge capital investment, long-term training, comprehensive organizational arrangement and a sound management mechanism. Its operation and presentation can compare to the National Basket Ball Association (NBA) and other traditional sporting events.

The amateur league competition, alias "pan-e-Sport", is a more entertaining pattern where anybody can participate and compete. It usually lasts for a shorter period of time and has a lower entry barrier. Despite that, no amateur competitions may be organized until the right to host them is granted.

Regulatory compliance requirements

The judicial system focuses on procedural security and transparency. While protecting IP-related value of the e-Sport industry, it raises regulatory requirements on the operational compliance of the industry. To develop the e-Sport business, the following regulatory requirements at four levels need to be complied with.

1.      Compliance of games

The e-Sport revolves around games, and the games used in e-Sport competitions should comply with relevant laws and regulations from the very beginning. Before the institutional reform of the State Council in 2018, the operator of an online game should act in accordance with the Provision on Administration of Online Publishing Services issued by the State Administration of Press, Publication, Radio, Film and Television (SAPPRFT), obtain a version number pursuant to the Notification on Administration of Publishing Services for Mobile Games, and submit its information with the relevant authority for record under the Interim Measure for Administration of Online Games issued by the Ministry of Culture and Tourism (former Ministry of Culture). After the reform, as the Resolution to Repeal the Interim Measure for Administration of Online Games and the Measure for Administration of Tourism Development Programs (MCT Order No. 2) has been adopted and distributed by the Ministry of Culture and Tourism, the information submission is no longer a precondition for the operation of an online game. However, any game for which no version number is obtained is not allowed to be operated in China. Thus it certainly cannot be used in e-Sport competitions or performances.

2.      Compliance of sports clubs

By far there have been no entry requirements on the legislative level for players participating in an e-Sport competition. No qualifications or administrative permits are expressly required for individuals or organizations to participate in any e-Sport competition or establish an e-Sport club. However, any minor who participates in an e-Sport competition or performance should comply with the state regulation on protection of minors.

In addition, in view of the current demand of the e-Sport business, star players often need to attend commercial activities. Thus, their clubs should meet the regulatory compliance requirements for brokerage services.

3.      Compliance of event execution

No administrative permission is required for any general subject to host an e-Sport competition. According to the Interim Measure for Administration of Electronic Sporting Competitions (of July 24, 2015) issued by the Sports Information Center of the General Administration of Sport of China, no approval is required for any international or national e-Sport competition that is not hosted or managed by the Sports Information Center, including any e-Sport competition of commercial, mass or charitable nature. Such competition may be organized and held by any lawful subject as it deems fit pursuant to relevant laws.

The regulatory compliance requirements for the execution phase of an e-Sport event are basically the same with those for a large concert. All the subjects involved in the execution phase, including the venue operator, the event contractor and the ticket operator, shall each comply with the Regulation for Administration of Profit-Making Performances and the Regulation for Administration of Safety and Security in Large Mass Activities issued by the State Council, the Notification on Regulation of an Orderly Ticket Market for Profit-making Performances issued by the Ministry of Culture and Tourism (which was the former Ministry of Culture), as well as other relevant regulations and specifications.

4.      Compliance of event dissemination

E-Sport competitions and events are disseminated mainly through online live broadcasting platforms and a few TV media. When authorizing the live streaming right to a web broadcasting platform or video platform, the operator needs to examine the qualification of the platform and ensure that it disseminates the event in compliance with relevant laws and regulations. It also should be noted that e-Sport programs are not allowed to be broadcast on a radio or TV station. The specific laws, regulations and specifications involved include the Measure for Administration of Internet Information Services issued by the State Council, the Measure for Administration of Operation of Online Performances issued by the Ministry of Culture and Tourism, the Notification to Prohibit Broadcasts of Computer and Online Game-related Programs, the Notification on Issues Concerning Stricter Administration of Live Streaming Services for Online Audio/Visual Programs, the Supplementary Notification to Further Improve the Administration of Internet Dramas, Mini-films and Other Online Audio/Visual Programs issued by the SAPPRFT, and the Provision for Administration of Online Live Streaming Services issued by the Cyberspace Administration of China.

Control of operational risks

1.      Authorization risk

As a content-based industry, the e-Sport industry revolves around contents. In the practice of the e-Sport business, each and every part is strung on the chain by authorizations. It is necessary to use contracts and other legal instruments to control authorization-level risks.

Take the League of Legends Pro League (LPL) as an example. As a well-known e-Sport brand in China, LPL is the pivot in its authorization system. On one side, LPL needs to obtain the authorizations from the upstream game developer to operate the League of Legends (LOL) competitions, and from sports clubs and players. Moreover, it needs the authorizations from the proprietors of marketing materials and advertisements, background music pieces and other materials involved in the operation of the competition. On the other side, LPL is the authorizing party. It needs to tighten up its rights granted to downstream competitions in their execution and dissemination phases, to the maximum extent possible, in order to avoid unnecessary authorizations (see Figure 2).

In the authorization system, risk management should be prepositioned, as appropriate, to control the compliance risk with respect to, for example, the names of sports clubs and the nicknames of players. Moreover, the trademark portfolio should be introduced as early as practicable to avoid ensuing risks in compliance, intellectual property or unfair completion. If, for example, a club intends to take the name of a character in a well-known wuxia novel and use it as the nickname of a player, it may constitute hitchhiking and leads to unfair competition. If the name is used to apply for a trademark, it may cause the risk that the application might be challenged or rejected so that the right to the exclusive use of the trademark cannot be granted.

2.      Risk of controlling players' behaviors

For the e-Sport organizer, the cost to directly control players will be expensive. It is also hard to protect its commercial interests by pursuing the personal liability of a player. So, the organizer would impose on the sports clubs the obligation to control the behaviors of their players. To prevent any fraud or improper remark of players during the competition in violation of any law or regulation, practice or custom, or fair play, the organizer would enter into contract with the clubs so that it can evade risks, specify rules of conduct and explicitly require the clubs to ensure their players behave well and if not, hold it liable for the breach of contract.

Protect the Contents of e-Sport Competitions

The dramatic growth of the e-Sport industry is short of regulatory supply. In judicial practice, there remains controversies regarding copyright and unfair competition-related issues arising out of e-Sport contents, including whether the continuous pictures of the games used in the e-Sport are of a work, and whether the live streaming pictures of an e-Sport event is protected by the Copyright Law.

There is a difference between the live streaming pictures of an e-Sport event and the live broadcasting pictures of a program that is produced after the event. Whether the continuous e-Sport pictures attribute to a work is still under debate. But, the e-Sport programs produced after comprehensive planning do constitute a work, which cannot be used for live or recorded broadcast without authorization.

As to whether the live streaming pictures of e-Sport constitute a work, one opinion by simply comparing them to the live broadcasting pictures of a sports competition, says that currently most live streaming e-Sport events are in the competition genre. As the e-Sports has been explicitly incorporated as the 78th sports competitions accepted by the General Administration of Sport, and as the live broadcasting pictures of a sports event cannot be deemed to be a work, that of e-Sport pictures is also not a work. But some scholars point out, "the live streaming pictures of an online game is quite different from that of a sports event. The difference is based on the fundamental difference between (virtual) online games and (physical) sports events. The former is always generated from the player's operations using the codes and within the limits that designers of the game have set out in advance. However, the latter is high-level combinations of players' physical and personal skills, without the limitation of any preset codes. For the sake of the difference, the non-work nature of the live broadcasting pictures of the sports event cannot be used to deny the work nature of the living streaming pictures of the e-Sport event."4 The author thinks that, as it is different from a sports event, live steaming pictures of e-Sport should constitute a film-like work that is protected under the Copyright Law as long as it is pleasing to the eye and contains rich and continuous plots.

If the public is viewing the live streaming pictures of e-Sport as if they were a cartoon film. The work attribute of the live streaming pictures should be justified rightfully. The attribute is also derived from the fact that the pictures are manifestations of programming codes written by programmers and fine art materials created by designers in advance. In this process, except it is permitted by the rules of the game (as, for example, in the case of sandbox games), an e-Sport player will not create any new creation by playing the game.

Until it is accepted by the judicial system that the e-Sport gaming pictures should be protected under the Copyright Law, e-Sport operators should pro-actively avoid risks that may arise from the debates in the judicial system. They should set out e-Sport events in a comprehensive and systematic manner, by drafting scripts, adding opening ceremonies, stage effects and singers, and finally producing complete events programs. In this way, a large and complete e-Sport event is made into a work protected under the Copyright Law. Moreover, it may constitute an unfair competitive act if an e-Sport event is broadcast or reproduced through piracy or without authorization. In that case, the rights and interests of the proprietor of the e-Sport event are protected under the Anti-Unfair Competition Law.

To conclude, the huge commercial value of the e-Sport industry builds on a well-developed legal system and risk control management. To have a lasting e-Sport business with an improved social value, operators must comply with relevant laws and regulations by starting from the very basics of building an industry. 

 (Translated by Ren Qingtao)

About the Author: Sun Yufei

Legal Counsel at Tecent

Source: China IP Magazine, Issue 94