Transfer Restrictions and Legal Challenges for Players in eSports

Consultation Cases and Basic Legal Perspectives

We received a consultation from an eSports team operator regarding contractual transfer restrictions to prevent players from being poached by other teams.
While there is a certain level of reasonableness recognized from the perspective of protecting the costs involved in player development, careful consideration is necessary in relation to the protection of rights under the Japanese Constitution (1947) and regulations under Japanese competition law.

Legal Environment Surrounding Transfer Restrictions

With the development of the sports business, legal issues related to player transfers have become increasingly important.
In particular, in the field of eSports, the rapid market expansion and globalization have brought the legal regulations concerning player transfers to the forefront as a new challenge.

A fundamental legal point regarding transfer restrictions is their consistency with the freedom of occupational choice guaranteed by the Japanese Constitution.
Article 22, Paragraph 1 of the Constitution guarantees all citizens the freedom to choose their occupation, and this right extends to activities as competitive athletes.
Therefore, excessively strict transfer restrictions may be deemed to infringe upon this constitutional right, potentially rendering them ineffective.

Considerations in Contract Law

Examination from the Perspective of Non-Compete Obligations

The issue of transfer restrictions can be legally viewed as a matter of non-compete obligations.
In this regard, a precedent (Foseco Limited Japan Case, Nara District Court, October 23, 1970 (Showa 45), Hanji No. 624, p. 78) provides a framework for assessing the validity of non-compete obligations by comprehensively considering the following factors.

Firstly, the legitimacy of the purpose for imposing the restriction is examined.
The perspective of protecting investments in player development by eSports teams is considered to have a certain degree of legitimacy.
However, restrictions based solely on the intent to limit competition beyond this purpose would likely be deemed lacking in legitimacy.

Secondly, the status and role of the players subject to the restriction are considered.
The reasonableness of restrictions may differ between top-level players and those in the development stage.

Thirdly, the appropriateness of the scope of the non-compete restriction is questioned.
Factors such as duration, geographical scope, and the nature of the competition are examined to ensure they are not excessively broad in relation to the purpose.

Fourthly, the existence and sufficiency of compensatory measures for the restriction are considered.
The provision of appropriate compensation or development opportunities, and the specific benefits offered to players, are important.

Considering these factors, if the restrictions exceed a reasonable scope, they are deemed invalid as a violation of public order and morals under Article 90 of the Japanese Civil Code.

Possibility of Contract Termination

The possibility of contract termination by the player varies depending on the type of contract.
If structured as an employment contract, under Article 627, Paragraph 1 of the Japanese Civil Code, a contract without a fixed term can be terminated by the player with two weeks’ notice.

Even in contracts with a fixed term, if the player qualifies as a “worker” under the Japanese Labor Standards Act, contracts exceeding three years are prohibited under Article 14, Paragraph 1 of the same law, and under Article 137, the player is allowed to resign at any time after one year from the start of the contract period.

Even if the contract does not qualify as an employment contract, case law suggests that contract termination may be recognized in the following situations.

In the Tokyo District Court ruling on July 18, 2001 (Heisei 13), Hanji No. 1788, p. 64, termination was recognized in cases of unavoidable circumstances.
Additionally, in the Tokyo District Court ruling on June 13, 2000 (Heisei 12), Hanta No. 1092, p. 199, termination was recognized by analogy to Article 651, Paragraph 1 of the Japanese Civil Code, as a quasi-mandate contract or a similar unnamed contract.
Furthermore, in the Tokyo High Court ruling on January 25, 2017 (Heisei 29), Hanji No. 2355, p. 13, termination was recognized when the trust relationship between the parties was destroyed.

Detailed Analysis from the Perspective of Competition Law

Trends in Global Legal Regulations

One of the personalityistics of eSports is its global reach.
Therefore, the relationship with the competition laws of various countries becomes an important consideration.

In Europe, the Bosman ruling (Union Royale Belge des Societes de Football Association v. Jean-Marc Bosman (Case C-415/93) (1995)) serves as a significant precedent.
This ruling clearly demonstrated that the freedom of player transfers within the EU is protected from the perspective of the freedom of movement for workers under EU law.

Additionally, the European Commission’s decision against the International Skating Union in December 2017 is noted for clarifying the applicability of competition law to restrictions on athletes’ activities by sports organizations.
This decision provides important implications for restrictions on player activities in the eSports field as well.

In the United States, judgments concerning antitrust law on player transfer restrictions in professional sports, such as the Mackey v. National Football League ruling (543 F.2d 606 (8th Cir.1976)), have been accumulated.
These precedents offer crucial guidance on the permissible scope of transfer restrictions under competition law.

Evaluation of Competition Law in Japan

In Japan, the Japan Fair Trade Commission’s “Report on the Study Group on Human Resources and Competition Policy,” published on February 15, 2018, points out that transfer restrictions on athletes could pose issues under the Japanese Antimonopoly Act.

The report outlines the following factors for determining the validity of transfer restrictions:

Firstly, the content and duration of the restrictions must not be excessive in light of their purpose.
Particularly, restrictions that effectively make future transfers or career changes impossible are evaluated as having extremely significant disadvantages.

Secondly, the existence and level of compensatory measures for athletes are considered.
Whether sufficient compensation is provided in line with the restrictions is a crucial factor in the assessment.

Thirdly, the procedural aspect of whether sufficient consultation with the athletes was conducted when imposing the restrictions is also evaluated.

Fourthly, whether there is discriminatory treatment compared to other athletes is also taken into account.

Practical Guidelines for Implementation

Based on the above legal analysis, when an eSports team establishes transfer restrictions in contracts with players, it is essential to consider the following points:

Firstly, it is crucial to clearly define the purpose of the transfer restrictions and limit them to the minimum necessary to achieve that purpose.
Specifically, it is important to restrict the duration and geographical scope to a reasonable extent, ensuring that the player’s career development is not excessively hindered.

Next, appropriate compensatory measures for the transfer restrictions must be implemented.
This includes not only financial compensation but also providing opportunities that contribute to the player’s skill enhancement and career development.

Furthermore, when setting contractual clauses regarding transfer restrictions, it is important to conduct thorough discussions with the players and establish mutual understanding of the content.
Imposing unilateral restrictions can increase the risk of future disputes.

Additionally, it is important to regularly review the contract content to maintain and strengthen the trust relationship with the players.
In particular, a flexible approach to adjusting contract terms in response to environmental changes due to the rapid development of the eSports industry is required.

Summary

Regarding the restrictions on the transfer of eSports players, it is necessary to examine this issue from multiple legal perspectives, including the protection of rights under the Japanese Constitution (1947), contract law, and competition law. In particular, considering the global nature of eSports, attention must also be paid to international legal regulations.

When setting transfer restrictions, it is crucial to appropriately balance the legitimate protection of the team’s interests with the safeguarding of the players’ rights. Excessive restrictions not only carry legal risks but may also lead to a decline in player motivation and the team’s competitiveness.

As the eSports industry continues to develop, legal issues related to transfer restrictions are expected to become increasingly significant. Each team is required to strive for both proper management of legal risks and the establishment of good relationships with players.