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Ex-XSET VALORANT Team Sues Over Revenue, Wrong Forum?

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Four professional VALORANT players and their coach have initiated legal proceedings against the XSET organization. The players, namely Zachary “zekken” Patrone, Matthew “Cryocells” Panganiba, Jordan “AYRIN” He, Rory “dephh” Jackson, and their former coach Don “SyykoNT” Muir, have lodged separate cases in the Los Angeles County Superior Court of California. The central issue at hand is the Champions 2022 skin bundle revenue.

Allegations Against XSET

The team members allege that XSET has backtracked on its promise to disburse 50% of the merchandising revenue, which includes XSET’s cut from the Champions 2022 bundle revenue. These cases were officially registered on August 16, 2023. Documents from the court indicate that XSET has abstained from paying any of the ex-team members their entitled share from the sales of digital items. Adding to the contention, the organization is said to have disregarded a letter dispatched in April 2023, which called for good faith negotiations, pushing the matter towards the arbitration process.

Contractual Details

The agreements inked between XSET and the team members lucidly detail the revenue distribution for the in-game skin. The contract reads,

“XSET will share in-game skin [microtransaction] revenue with the team in a 50/50 rev share. Each Player/Coach will receive 8.33 percent of all skin revenue sales.”

An addendum from August 2022 further clarifies XSET’s commitment to allocate 50% of the proceeds from in-game digital item sales to the VALORANT team of that period, which comprised all the plaintiffs and Brendan “BcJ” Jensen.

Arbitration Hurdles

The lawsuits also highlight that XSET is allegedly not complying with its own arbitration agreement terms. The organization is accused of declining a directive from Judicial Arbitration and Mediation Services (JAMS) to remit a USD 2,000 non-refundable filing fee, a mandate under the JAMS “Policy on Employment Arbitration Minimum Standards of Procedural Fairness.”

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Plaintiffs’ Demands

The aggrieved parties are now rallying for a court order that mandates XSET to enter into arbitration over the disputed revenue shares. Additionally, they demand XSET to cover all administrative expenses and lawsuit-related costs.

XSET’s Response

In a counter to these charges, XSET conveyed a statement to Dot Esports. The organization voiced its dismay over the contractual disagreements, emphasizing that such rifts are an unfortunate but real aspect of professional sports. XSET staunchly refuted the assertions made in the complaint and expressed its determination to validate that the contracts remained unaltered as claimed. The statement culminated with XSET’s unwavering support for its players and the overarching esports realm.

Photo by Colin Young-Wolff/Riot Games

Muir Don aka SyykoNT v XSET Inc., Case Number: 23STCP02986

Counsel to Muir Don aka “SyykoNT”

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  • Caterina Tiffany Rose

Counsel to XSET Inc.

  • Unknown

Author

  • Leonid Shmatenko

    Leonid Shmatenko is part of Eversheds Sutherlands’ data protection and technology law team. He has vast experience in regulatory and general issues in the areas of eSports and Blockchain. He advises eSports associations and clubs on all legal issues, advises and supports crypto startups in all matters from planning, preparation to execution of private and public token offerings (so-called Initial Coin Offerings or ICOs). Furthermore, Leonid Shmatenko specializes in international arbitration and has participated in several arbitration proceedings (SAC, ICC, DIS, UNCITRAL, ICSID, ad hoc) as a party representative and secretary of the tribunal. Leonid Shmatenko studied at the Heinrich Heine University in Düsseldorf and is currently pursuing a PhD in international law. After his successful first state examination (2011), he completed his legal clerkship, inter alia, at the German Embassy in Lima and within international law firms in Düsseldorf and Paris. He passed the second state examination in 2015. He is an external lecturer at the National Law University of Ukraine “Yaroslav Mudryi”, where he teaches International Investment Law. He is admitted to the Bar in Switzerland and Germany. Before joining Eversheds Sutherland, Leonid Shmatenko worked as an attorney at leading law firms in Geneva, Munich and Paris. View all posts

Labor&Immigration

Moist Esports’ Legal Battle with U.S. Immigration over B1-Visas

The esports industry has recently been thrust into a legal spotlight due to Moist Esports’ initiation of a lawsuit against the U.S. Department of Immigration. This action follows a series of visa denials for the Australian contingent of their Apex Legends team, a pivotal challenge given the team’s qualifications and the implications of their participation in critical esports tournaments. This article offers an in-depth analysis of the legal and procedural aspects of the case, referring to foundational visa policies as discussed in our previous coverage on esports and U.S. immigration law.

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U.S. Immigration

Case Background

Charles ‘MoistCr1TiKaL’ White Jr., the founder of Moist Esports, has publicized the organization’s struggles with obtaining U.S. visas for its players. Despite qualifying for a major tournament in Los Angeles, the team faced repeated visa rejections. The U.S. immigration authorities challenged the veracity of the team’s professional status and ranking, leading to initial visa applications being denied. Subsequently, the players were compelled to abandon their team visas and individually apply for B-1 business visitor visas instead of P-1 or O-1 visas, which are typically issued for attending conferences or consulting with business associates. The last-minute approval of these visas allowed the players minimal preparation time for the tournament.

The lawsuit is built on allegations of procedural mishaps and the potential misinterpretation of eligibility criteria under U.S. immigration laws concerning professional esports players. As detailed in “An Overview of Esports and United States Immigration Law,” the specific visa requirements and criteria for esports athletes are intricate and often subject to the discretionary powers of immigration officials. The denial of P-1A visas, intended for internationally recognized athletes, to Moist Esports players suggests a significant disconnect between the recognition of esports in legal versus operational realms of immigration policy.

The case unfolds under the shadow of sovereign immunity, which may limit the scope of recoverable damages against a government agency, as hinted by MoistCr1TiKaL’s commentary on constitutional constraints. The discretionary nature of visa issuance, particularly under the P-1A category, often leaves substantial room for subjective decision-making by immigration officers. This aspect makes legal challenges arduous and sets a high bar for proving any claims of improper handling or bias in visa processing.

Economic Impact and Organizational Disruption

The visa denials and subsequent legal battles have wrought considerable financial strain on Moist Esports. The inability to compete under the organization’s banner not only resulted in direct financial losses but also diminished potential sponsorship and earnings from the tournament. These disruptions underline the significant stakes that immigration decisions hold over esports organizations, which operate in a rapidly globalizing competitive field.

Concluding Observations

This lawsuit may serve as a critical juncture for the recognition and handling of esports professionals within U.S. immigration frameworks. It challenges the consistency of the application of immigration laws to esports athletes, a relatively new area where traditional sports and modern digital competitions intersect. Whether or not Moist Esports succeeds in its legal claims, the outcome will likely influence future policy considerations and the operational practices of immigration authorities dealing with similar cases.

Image source: VisaService.de

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Author

  • Leonid Shmatenko

    Leonid Shmatenko is part of Eversheds Sutherlands’ data protection and technology law team. He has vast experience in regulatory and general issues in the areas of eSports and Blockchain. He advises eSports associations and clubs on all legal issues, advises and supports crypto startups in all matters from planning, preparation to execution of private and public token offerings (so-called Initial Coin Offerings or ICOs). Furthermore, Leonid Shmatenko specializes in international arbitration and has participated in several arbitration proceedings (SAC, ICC, DIS, UNCITRAL, ICSID, ad hoc) as a party representative and secretary of the tribunal. Leonid Shmatenko studied at the Heinrich Heine University in Düsseldorf and is currently pursuing a PhD in international law. After his successful first state examination (2011), he completed his legal clerkship, inter alia, at the German Embassy in Lima and within international law firms in Düsseldorf and Paris. He passed the second state examination in 2015. He is an external lecturer at the National Law University of Ukraine “Yaroslav Mudryi”, where he teaches International Investment Law. He is admitted to the Bar in Switzerland and Germany. Before joining Eversheds Sutherland, Leonid Shmatenko worked as an attorney at leading law firms in Geneva, Munich and Paris. View all posts

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Labor&Immigration

Tribunal Judiciaire de Paris: Rethinking the Esports Employment Contract

The Paris Tribunal Judiciaire issued a landmark ruling on 27 March 2024, that has significant implications for the contractual relationships within esports. This decision, which reclassified an esports player’s service contract as an employment contract, marks a pivotal shift in how employment relationships are perceived and regulated in the rapidly growing esports sector. The ruling not only emphasizes the need for a clearer understanding of employment laws in new-age digital and entertainment industries but also potentially sets a precedent for future contractual disputes in esports across jurisdictions.

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Esports Employment Contracts ELN | Tribunal Judiciaire de Paris

Statement of Facts

The case, TJ Paris, ps ctx protection soc. 3, 27 mars 2024, n° 22/02668, involved an esports player who had entered into a contractual agreement with an American esports club to participate in Counter-Strike competitions from 2016 to 2017. The employment contract in question was titled a “self-employed worker contract,” under which the player was ostensibly hired as an independent contractor. This classification has significant legal and financial implications, primarily regarding tax and social security liabilities.

The French URSSAF Caisse Nationale, responsible for the collection of social security and family benefit contributions, challenged the contractual classification. URSSAF initiated a recovery action claiming that the income derived by the player under this contract should be subject to contributions as “non-commercial profits,” according to Article L131-6 of the French Social Security Act. The agency’s position was that the player’s engagement bore all the hallmarks of traditional employment rather than those of an independent contractor.

The player contested URSSAF’s assessment, arguing that despite the contractual designation as a self-employed worker, the actual terms and conditions of his engagement demonstrated a dependency and subordination typical of an employment relationship. This challenge led to judicial scrutiny of the nature of the contractual relationship between the player and the esports club.

The tribunal’s analysis centered on distinguishing between self-employed status and employment based on the degree of subordination to the employer, as characterized by French labor law. Article L.8221-6-1 of the French Labour Code defines independent contractors as follows:

“is presumed to be an independent contractor, any individual whose working conditions are defined exclusively by himself or in a contract, in conjunction with his customer”.

The French Labour Code stipulates that individuals registered as self-employed service providers are generally assumed not to have an employment contract with their clients while carrying out their activities. Nevertheless, this assumption can be challenged. The same legal provision notes that an employment contract may still be recognized if the registered individual delivers services in circumstances that create a continuous subordinate relationship with the client.

The judges meticulously reviewed the contractual obligations and daily activities imposed by the esports club on the player, which included:

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  • Mandatory participation in specific competitions as directed by the club.
  • A set schedule for training and streaming that the player was required to follow.
  • Requirements to wear the club’s uniform during official events and partake in promotional activities.

These conditions, alongside regular monthly payments and the provision of accommodations and travel arrangements by the club, clearly illustrated an employer-employee relationship, as the club exerted substantial control over the player’s professional activities.

Analysis of the Tribunal’s Ruling

The judges’ assessment focused on various aspects of the player’s contract and daily work engagements that pointed toward an employment relationship. The following elements were particularly influential in the tribunal’s decision:

  • Subordination and Control: The club required the player to participate in specific competitions, adhere to a strict training schedule of 15 hours per week, and engage in a minimum of 20 hours of streaming per month. Such requirements are indicative of an employer’s control over the employee’s work activities.
  • Contractual Obligations: The contract stipulated that the player wear the team uniform during competitions and participate in marketing activities dictated by the club. These obligations demonstrate the club’s control over the player’s professional image and public engagements, further evidencing an employment relationship.
  • Economic Dependency: The regular payment between EUR 4,000 and EUR 5,000, alongside provisions for accommodation and travel for competitions, indicated an economic dependency typical of an employment relationship rather than freelance or self-employed arrangements.
  • Termination Conditions: The contract allowed the club to terminate the agreement if the player failed to meet the set obligations or was unable to provide services for at least 30 consecutive days. This level of control and the potential for penalization align with the characteristics of an employee-employer relationship.

Implications of the Ruling

For Esports Clubs: The reclassification of service contracts to employment contracts suggests that esports clubs need to meticulously review and possibly revise their contractual practices. Clubs may face increased financial liabilities due to obligations to pay social security contributions and potential penalties for previously undeclared work, as outlined in articles L8223-1 and L8211-1 of the French Labour Code. This ruling may compel clubs to establish clearer, more structured employment agreements, potentially increasing operational costs but providing more stability and clarity for both parties involved.

For Players: Esports players may find this ruling beneficial as it provides a clearer path to securing employment benefits, including social security, health insurance, and guaranteed wages. This could also empower players to challenge unfavorable contractual terms and seek reclassification as employees to gain the protections and benefits that employment status confers.

For the Esports Industry: The decision may prompt a broader reevaluation of how esports professionals are classified across the industry. It challenges the current contractual norms and may lead to more standardized employment practices. While this could increase costs for esports organizations, it also has the potential to professionalize the industry further, attracting more stable investments and improving the overall working conditions for players.

Conclusion

The Paris Tribunal Judiciaire’s decision of 27 March 2024 is a very important one for the esports industry. As the sector continues to grow and professionalize, the legal definitions and frameworks that govern these professional relationships will be crucial. Esports organizations and players must take these changes carefully into account, balancing competitive interests with legal compliance and fair labor practices.

Via: Victoire-Avocats

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Author

  • Leonid Shmatenko

    Leonid Shmatenko is part of Eversheds Sutherlands’ data protection and technology law team. He has vast experience in regulatory and general issues in the areas of eSports and Blockchain. He advises eSports associations and clubs on all legal issues, advises and supports crypto startups in all matters from planning, preparation to execution of private and public token offerings (so-called Initial Coin Offerings or ICOs). Furthermore, Leonid Shmatenko specializes in international arbitration and has participated in several arbitration proceedings (SAC, ICC, DIS, UNCITRAL, ICSID, ad hoc) as a party representative and secretary of the tribunal. Leonid Shmatenko studied at the Heinrich Heine University in Düsseldorf and is currently pursuing a PhD in international law. After his successful first state examination (2011), he completed his legal clerkship, inter alia, at the German Embassy in Lima and within international law firms in Düsseldorf and Paris. He passed the second state examination in 2015. He is an external lecturer at the National Law University of Ukraine “Yaroslav Mudryi”, where he teaches International Investment Law. He is admitted to the Bar in Switzerland and Germany. Before joining Eversheds Sutherland, Leonid Shmatenko worked as an attorney at leading law firms in Geneva, Munich and Paris. View all posts

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Gambling

Alleged Video Games Addiction Leads to Lawsuit (Updated)

In a developing legal battle reminiscent of the Colvin et al v. Roblox Corporation et al case that challenged Roblox’s alleged facilitation of illegal gambling with minors, a new lawsuit has been filed in Missouri against major players in the video game industry alleging video games addiction.

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Video Games Addiction

This lawsuit, just like Casey Dunn et al. v. Activision Blizzard et al., on which ELN reported before, accuses companies, including Epic Games, Mojang Studios, and Roblox, of designing games that create an excessive video games addiction in children, leading to serious detrimental effects on their physical, social, and mental health.

Context and Background of the Case

In a legal filing that marks a significant escalation in the scrutiny of video game companies’ practices, a lawsuit has been filed in the U.S. District Court for the Western District of Missouri, Central Division. The case, bearing the number 2:24-cv-4055, has been initiated by Carey Courtwright, representing her minor child K.C. This legal action addresses serious concerns about the design and operation of video games that allegedly lead to addiction among young players. K.C., who began engaging with video games at the tender age of six, is presented as a victim of these manipulative gaming practices.

Defendants in the Lawsuit

The defendants listed in this lawsuit are some of the most prominent names in the gaming industry:

  • Epic Games, known for Fortnite
  • Mojang Studios, the creators of Minecraft
  • Meta Platforms, the conglomerate formerly known as Facebook
  • Roblox Corporation

These companies are accused of creating and maintaining gaming environments that exploit psychological vulnerabilities in children.

Detailed Allegations of Video Games Addiction Triggers

The lawsuit articulates specific tactics employed by the defendants which are purportedly designed to foster addiction:

  • Reward Systems and Feedback Loops: Games are structured to release dopamine in response to achievements within the game, perpetuating a cycle of engagement that can lead to excessive and unhealthy gaming habits.
  • Limited Transparency and Predatory Monetization: The true costs of in-game transactions are often concealed or minimized, exploiting cognitive biases and leading players, particularly young ones, to spend money without a full appreciation of the cumulative costs.
  • Fear of Missing Out (FOMO): By introducing time-limited events and exclusive in-game items, the games tap into a player’s fear of missing out, which can compel continuous or increased expenditure to remain competitive or included in gaming communities.
  • Targeting of ‘Whales’: These companies strategically identify and exploit major spenders within their games — often referred to as “whales” — by encouraging them to spend large amounts of money through tailored incentives.
  • Lack of Parental Controls: The complaint criticizes the insufficient mechanisms provided to parents to monitor and control their children’s gaming activity effectively, which exacerbates the problem of unregulated access and expenditure.

Human Costs and Plaintiff’s Burden

The complaint vividly describes the adverse effects on K.C.’s life due to the alleged gaming addiction. These include a noticeable decline in academic performance, social withdrawal from peers and activities, and the development of physical symptoms such as pain in the hands, eyes, and back, as well as disrupted eating patterns. Moreover, K.C. has reportedly suffered from mental health issues, including depression and anxiety, which were intensified by the inability to disengage from gaming. The plaintiff, Carey Courtwright, shares the emotional and financial burden inflicted by this ordeal, emphasizing the considerable expenses accrued through medical treatments and in-game spending by K.C.

This lawsuit is part of an emerging trend where legal actions are increasingly highlighting the potential negative impacts of video games on minors. Similar to the issues raised in Colvin et al v. Roblox Corporation et al, this case underscores the urgent need for the industry to adopt more ethical practices in game design and marketing. The outcome of such lawsuits could potentially lead to stricter regulations and standards governing game development and marketing, particularly regarding the mechanisms that promote prolonged engagement and spending in games.

Entertainment Software Association’s Statement (Update)

Having read our article, the Entertainment Software Association (ESA) has provided a statement that offers a broader industry perspective. The ESA, a trade association that represents the U.S. video game industry and includes several of the defendants in the lawsuit as its members, has articulated its stance on the issues central to the lawsuit.

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The ESA emphasized its commitment to player safety and digital wellness, stating:

“Video games are among the most dynamic, widely enjoyed forms of entertainment in the world. We prioritize creating positive experiences for the entire player community and provide easy-to-use tools for players, parents, and caregivers to manage numerous aspects of gameplay.”

Moreover, the ESA addressed the claims made in the lawsuit directly, noting:

“Claims that say otherwise are not rooted in fact and ignore the reality that billions of people globally, of all ages and backgrounds, play video games in a healthy, balanced way.”

This statement underscores the ESA’s viewpoint that while the lawsuit raises important concerns about player safety and addiction, the claims do not necessarily reflect the broader reality of gaming as an activity enjoyed healthily by a vast global audience.

Conclusion

This lawsuit could set important precedents regarding the accountability of video game developers and platforms in safeguarding the well-being of their youngest and most vulnerable users. The broader implications for the industry could include a reevaluation of game design ethics, the introduction of more stringent parental controls, and a more transparent communication regarding the costs associated with in-game content. The video game industry may need to balance commercial interests with a heightened responsibility towards its user base, especially children, in light of growing legal scrutiny.

Image source: DallE3

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Carey Courtwright, individually and on behalf of K.C., a Minor v. Epic Games et al

Court: United States District Court for the Western District of Missouri, Central Division
Case No.: 2:24-cv-4055

Defendants

  1. Epic Games
    • Counsel not listed
  2. Mojang Studios
    • Counsel not listed
  3. Meta Platforms
    • Counsel not listed
  4. Roblox Corporation
    • Counsel not listed

Plaintiff

  1. Carey Courtwright (Individually and on behalf of her minor child, K.C.)
    • Counsel to Carey Courtwright:
      • Tyler W. Hudson, Eric D. Barton, and Melody R. Dickson of Wagstaff & Cartmell LLP
      • Breean “BW” Walas, Tina Bullock, and Danielle Ward Mason of Bullock Ward Mason LLC
      • Charles M. Stam of Thompson Stam PLLC

Author

  • Leonid Shmatenko

    Leonid Shmatenko is part of Eversheds Sutherlands’ data protection and technology law team. He has vast experience in regulatory and general issues in the areas of eSports and Blockchain. He advises eSports associations and clubs on all legal issues, advises and supports crypto startups in all matters from planning, preparation to execution of private and public token offerings (so-called Initial Coin Offerings or ICOs). Furthermore, Leonid Shmatenko specializes in international arbitration and has participated in several arbitration proceedings (SAC, ICC, DIS, UNCITRAL, ICSID, ad hoc) as a party representative and secretary of the tribunal. Leonid Shmatenko studied at the Heinrich Heine University in Düsseldorf and is currently pursuing a PhD in international law. After his successful first state examination (2011), he completed his legal clerkship, inter alia, at the German Embassy in Lima and within international law firms in Düsseldorf and Paris. He passed the second state examination in 2015. He is an external lecturer at the National Law University of Ukraine “Yaroslav Mudryi”, where he teaches International Investment Law. He is admitted to the Bar in Switzerland and Germany. Before joining Eversheds Sutherland, Leonid Shmatenko worked as an attorney at leading law firms in Geneva, Munich and Paris. View all posts

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