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By now, almost everyone knows that esports is a ginormous business, topping more than a billion dollars in annual revenue and set to do even better this year thanks to the largely virus-proof scene of video game play. But the inner economy, the personalities involved, and the way that esports has evolved into an amalgamate of entertainment, sports, and technology is about to be featured in a huge, show-stopping trial. On Thursday, a New York federal judge paved the road for one by largely denying summary judgment motions in a dispute between one of the world’s biggest Fortnite stars and one of esports’ top organizations.
More than a year ago, Turner “Tfue” Tenney sued over what he claimed to be an “oppressive” contract, one that limited Tenney to deals sourced exclusively by FaZe Clan.
Can an esports star be chained? That’s one of the first big questions for U.S. District Court Judge Jed Rakoff after deciding that Tenney is subject to New York jurisdiction thanks to a forum clause in his contract. Rakoff’s opinion comes close to breaking ground. He leaves open the possibility that restrictions in Tenney’s contract violates California Business and Professions Code Section 16600 — where non-competes in contracts are voided when they restrain anyone from engaging in a lawful profession. (That’s been a hot area of law of late.)
“The Gamer Agreement contains three such restrictions on Tenney’s right to compete with FaZe Clan, all lasting for as long as the agreement remain in force,” notes Rakoff. “Specifically, the Gamer Agreement provides, first, that Tenney grants FaZe Clan an exclusive license to his name and likeness; second, that Tenney agrees not to work for a gaming organization other than FaZe Clan or endorse any product not approved by FaZe Clan; and third, that Tenney grants FaZe Clan a right to approve any third-party request for his services.”
FaZe Clan argued that that 16600 didn’t bar in-term restraints in contracts between an employer and employee, but the judge writes that Tenney is an independent contractor, not an employee. He turns to a recent non-precedential decision involving a film company and an actor (ITN Flix v. Hinojosa) for the proposition that non-competes are impermissible in such a working relationship. As such, FaZe Clan continues to face the possibility that its deal with its former top star is illegal.
On the other hand, Tenney suffers setbacks too.
Regardless of whether his contract should be voided, Tenney wanted Rakoff to rule that the Gamer Agreement with FaZe Clan had expired due to a failure to pay him on a timely basis. The judge rejects that motion because of a genuine dispute of fact whether the contract remained in force on an implied basis.
“Here, notwithstanding Tenney’s position in this litigation, the facts suggest that the parties continued to act until May 2019 as though the Gamer Agreement were in force,” writes Rakoff. “As explained in a declaration from FaZe Clan’s CEO Lee Trink, for several months after the contract’s purported expiration, Tenney continued playing on FaZe Clan’s Fortnite team. And, with FaZe Clan’s permission, Tenney continued to use FaZe Clans’ branding and logo in videos and social media posts.”
The judge also reckons with FaZe Clan’s counterattack against Tenney, not the ones where he allegedly used trade secrets to launch a competitor, but rather how Tenney is said to have disparaged Trink’s crew and interfered with the group’s deals with brand partners.
The judge points to Tenney’s deposition for evidence that contrary to his arguments, he had knowledge of those deals. He also points to Trink’s declaration that FaZe Clan lost a deal with brand partner Digital Storm when Tenney went to the computer manufacturer to negotiate his own sponsorship agreement. The summary judgment opinion also states, “Additionally, Tenney’s public statements against FaZe Clan in May 2019 had a materially negative impact on FaZe Clan’s ability to maintain its relationships with these brand partners, which suggests, in light of this context, that Tenney may have intended for his public statements to induce the brand partners to breach their contracts with FaZe Clan.”
Elsewhere in this opinion, Rakoff refuses to grant summary judgment for the FaZe Clan on its claim that Tenney breached his gamer contract by not sharing revenue earned for designed “skins” within Fortnite. The judge says there’s “overwhelming evidence” that the parties didn’t mean to include “in-game merchandise” among other reasons why Tenney could ultimately be headed for a win on the subject.
Here’s the full 29-page opinion showcasing what will potentially be headed to a jury.
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