Category: business law

Mobile App Real-Money Skill Games: Google Play Says No Thanks.

The skill-based real-money gaming market is red hot in the United States, fueled in large part by the ubiquity of smart phones. We all play games on our phones and real-money gaming provides a quick, fun way to win some money for casual players. The games are not difficult to learn, offer free practice play, and have varied stakes to suit almost any level of risk tolerance. Full-scale casino apps are only available in a handful of states that have legalized full-scale online gambling, and while daily fantasy sports is more widely available, its appeal is limited. On the other hand, real-money skill-based games are available in most states. The preferred medium is the mobile app – as there are an estimated 222 million smart phones in the United States, split about 55% Android and 45% iOS. However, only Apple’s App Store offers skill-based real-money apps. Google’s Play store does not.

On March 1, 2021, Google changed its policies to allow “real-money gambling apps.” This definition expressly refers to licensed gambling products, meaning online casino apps for the few jurisdictions that have legalized online gambling. Google also allows daily fantasy sports apps that meet certain requirements. At the same time, Google expressly excludes any type of real-money skill gaming. Specifically, “we don’t allow content or services that enable or facilitate users’ ability to wager, take, or participate using real money…to obtain a prize of real monetary value. ” Critics have pointed to the fact that this encourages “sideloading,” (downloading the app through a website, as opposed to the official app store) which presents potential security risks and opens the door for true scams. Google’s policy also makes it more difficult for international companies to enter the U.S. skill-based market, as consumers may be even more reluctant to “sideload” an app from a foreign website, even if they would otherwise get the app through the Google Play store. At the same time, Google’s position is explained by the lack of clear regulation for real-money skill-based gaming. Google clearly does not want to police or vet the various iterations of skill-based games or review them for state-specific legality. Instead, it is relying on state licensing to authorize real money gaming. This position excludes most real-money games that are neither licensed nor regulated under most states’ laws.

Apple’s App Store Review Guidelines remain the same. “Apps that offer real money gaming…must have necessary licensing and permission in the location where the app is used, must be geo-restricted to those locations.” For real-money skill-based games that do not need a special license in about 80% of the United States (because they do not depend on “chance” and are not otherwise regulated), this is a green light to make their apps available on the App Store. There are many such games available in the App Store, including hundreds of titles offered through the Skillz.com platform, which is a large California-based, publicly-traded company. For the time being, Apple seems comfortable with hosting real-money skill-based gaming, so long as the developers comply with the geolocation requirements and are only operating in those states where a license is not required.

Developers looking to distribute their games in the United States should look toward iOS for the time being. The legitimacy of “official” app store distribution is especially valuable in the real-money gaming market. Note that Apple still requires “geo-restricting” to those jurisdictions where the app is legal. Federal law does not regulate most skill-based real-money gaming, but the state-level analysis remains unsettled. In fact, even the large industry participants like Skillz, WorldWinner, and others cannot agree on a uniform list of states where their products are legal. In other words, if you are operating unregulated and without a license, you must absolutely consult with a legal expert and determine your risk tolerance before defining your geolocation parameters.

Have more questions? Do you need help getting your app through the review process? Contact Dan Artaev today by emailing dan@artaevatlaw.com or by phone or text at (269) 930-0254.

Disclaimer: This guide is not intended to be and does not constitute legal advice. It is for informative and promotional purposes only. Do not take any action or refrain from taking any action based on this guide, and always consult with a qualified professional about the circumstances of your particular case. Each set of facts is unique and different circumstances apply to each individual business.

© 2021 Artaev at Law PLLC. All rights reserved.

Ask the Crypto Tax Lawyer: How Can I Reduce My Crypto Taxes?

Important: The information in this article applies to individual investors and LLCs that are taxed as pass-through entities. The rules are different for corporations and LLCs electing to be taxed as a corporation and are not addressed here. This article is for informational and promotional purposes only and, as always, you should consult with a professional about your specific tax situation before taking any action.

Despite its name, cryptocurrency or “crypto” is not really currency. For tax purposes, it is treated as “property,” which means it is taxed similar to stocks and bonds. As I previously wrote, buying and selling crypto is subject to capital gains tax. Paying for goods and services with crypto is likewise subject to capital gains tax. Exchanging one crypto asset for another is a taxable event as well.

“Crypto tax” has a nice ring to it, but it is nothing more than the application of ordinary capital gains tax to cryptocurrency transactions. The most important aspect of crypto investing – whether individually or as part of a business – is good record keeping. Exchange platforms like Coinbase can generate basic reports to use at tax time. But remember that you must also keep records when you pay for goods and services with crypto or receive payments in crypto. For tax purposes, when you pay someone in Bitcoin or Ethereum, the IRS considers that you have sold the cryptocurrency for cash (and realized a capital gain or loss). When you receive crypto as payment for goods and services, you acquired ordinary income in the amount equal to the market value of the crypto at the time of the transaction. In short, keep good records, you will need them.

What are some top strategies to minimize capital gains tax from cryptocurrency investing? As with any other investment, a little bit of planning can help you minimize your tax bill at the end of the year.

  1. HODL. The capital gains tax rate is different for short-term and long-term gains. Purchasing and selling crypto within a 365 day period is considered the short term, and any gains during that period are taxed like ordinary income (i.e. wages). Short-term crypto income will be taxed between 10% and 37%, depending on your tax bracket. On the other hand, selling crypto more than a year after buying it lets you take advantage of the lower long-term capital gains rate. Depending on your income level, long-term capital gains are taxed at either 0%, 15%, or 20%, with most people falling into the middle 15% bracket. For example, if you are paying a 22% rate on ordinary income, but are in the 15% bracket for long-term gains, you will end up with significant savings on your tax bill.
  2. Offset. Of course, not everyone buys crypto for long term investing. If you are trying to time the market and profit from crypto’s volatility, holding to gain favorable capital gains treatment may not be a feasible strategy. Tax law generally allows offsetting capital gains with losses, but the strategy does have limitations. Losses must first be used to offset gains of the same kind – for instance, short-term losses must be used to offset short-term gains, and only if you have excess short-term losses can you shift them over to reduce your long-term capital gains. If you still have remaining losses, you can take an ordinary income deduction of up to $3,000 for the tax year and retain the balance to offset next year’s gains and income.
  3. Decrease Taxable Income. Like with other “property,” you can time your sales to your specific income situation. You may want to sell appreciated crypto when you have less income than you anticipate in the future. Or, you may accelerate 401k/IRA contributions to take advantage of the up-front tax break. Health Savings Account contributions are another taxable income reduction alternative, especially if you are anticipating significant health care expenditures in the near future. For businesses, business expenses can be used to reduce taxable income, but be sure that the expense is both “ordinary” and “necessary.” For example, renting a building and paying electricity costs for your Bitcoin farm are probably ordinary and necessary expenses. Also, be careful to properly categorize any business start-up costs, assets, and improvements, which are treated as capital expenses (and therefore are different than your ordinary business expenses).
  4. Set up a self-directed IRA. Self-directed IRAs or SDIRAs are little-known but powerful investment tools for the sophisticated investor. They allow you to take full control of your retirement investments and direct the funds into non-traditional assets. Commonly used for holding real estate, private company stock, and precious metals, SDIRAs can certainly be used to buy and hold crypto. Most bank-managed retirement plans can be converted to the self-directed kind, but there are additional fees and special rules about what your SDIRA can and cannot do to retain the tax-favored treatment by the IRS. In essence, the SDIRA can be used to convert all or part of your retirement portfolio into an investment “checkbook” that you can then use to purchase and hold assets like crypto for the benefit of your retirement.
  5. Move, gift, donate, or leave it to your heirs. Depending on your situation, there are other options that may be used to optimize your tax situation. If you are in a state that imposes its own income tax, you may want to consider moving to a no income tax jurisdiction. Or potentially incorporating and locating your Bitcoin mining company there. Likewise, depending on your future goals, retirement situation, and estate planning, it may be advantageous to shift some of your crypto holdings (especially those where you are looking at a significant gain) towards those objectives. For example, if you leave your crypto portfolio as part of your estate, heirs would receive a “step up” in basis and receive the crypto at the fair market value at the time of death. This significantly reduces their tax bill and something to consider if a crypto portfolio is part of your estate planning.

There are other strategies that may be available based on your particular situation. Remember to keep good records, plan ahead, and get a professional to answer all your crypto tax questions.

Contact Dan Artaev by email or call or text to set up your initial consultation.

Disclaimer: This guide is for general informational and promotional purposes only. Nothing herein constitutes legal, investment, or tax advice. Every situation is different and faces its own unique set of challenges. Do not take any action or sign any contract until you have obtained specific guidance from a qualified professional.

© 2021 Artaev at Law PLLC. All rights reserved.

Real-Money Skill Gaming in the U.S: Is Your Game More Fantasy Sports or Pure Contest?

In 2021, there are many opportunities to play games for real money online, even if your particular state does not offer full-scale online casino operations. Daily Fantasy Sports (or “DFS”) is one hugely popular entertainment option. Real-money pure-skill contests are another. Video game tournaments, leaderboards, and prize pools are also available, as well as countless other options. Entrepreneurs all over the world want to enter the red-hot United States gaming market, but need to understand the legal nuances in order to effectively distribute their product and avoid legal issues with regulators, banks, and app platforms like the Apple App Store.

With skill-based games, it is important whether your game is more like fantasy sports or whether it a pure-skill contest. This distinction is critical because it determines where your game is legal (and whether you need a license) – and also affects your tax obligations to the IRS.

The following chart illustrates the three categories of games and the applicable regulations:

Description/type of gameCategoryRegulations
Players determine the amount of the wager and may apply certain level of skill to increase odds of winning (like hit or stay in blackjack), but odds always against the player. Winner is determined primarily by chance or chance is the dominant factor in determining outcome. Game is similar to a casino game like slots, blackjack, keno, or bingo. Game is a poker-like game. Game features a random mechanism, like a shuffled deck of cards, roll of the dice, or a spinning wheel. Bet is on the result of a single athletic competition, event, or performance of a single player.GamblingHighly regulated, illegal and criminalized activity (without a license)in all 50 states. Federal law also applies, including the monetary transaction restrictions through the Unlawful Internet Gambling Enforcement Act (“UIGEA”).
Players pay an entry fee, and then use research, data analysis, or other skill to build a team or portfolio to compete against other player-chosen teams or portfolios. Points or scores assigned based on real-life performance. Player does not control the performance of the players, stocks, currencies, or other portfolio components. Real-world events determine outcome. Similar to fantasy sports or a fantasy league. Prize pool must be known and fixed ahead of time.FantasyFantasy sports are expressly excluded from the scope of the UIGEA. Fantasy sports and leagues are permitted in about 80% of the states, but license and revenue tax is required in some. IRS views fantasy wagers as gambling bets and no different than sportsbook betting for tax purposes. Potential exposure to excise tax for providers.
Players pay an entry fee into a sports tournament or skill contest for the chance to win a prize (whether cash or otherwise) based on their own participation. Players determine the outcome through pure skill, such as strength, speed, agility, mental knowledge, mental quickness, or other physical or mental factor. Chance has minimal or no role in the outcome. Head-to-head games of timed solitaire, chess, checkers, blockbuster, Tetris-like puzzle games. Trivia contests. Most video game tournaments. Golf or tennis tournaments, hole-in-one contests.Pure Skill ContestUnregulated and not considered gambling in about 80% of the states. Regulated pursuant to license or outright prohibited in the remaining states. Not regulated under federal law. The IRS does not consider entry fees or skill wagers to be gambling bets.
Copyright 2021 Artaev at Law PLLC. All Rights Reserved. May not be reproduced without the express written permission of the author.

As a gaming company providing a new product, you obviously want to steer clear of classification as a gambling game. Unless you are a licensed casino (or working in partnership with a licensed casino) in one of the few states that have legalized online gambling, real-money gambling games are illegal. Not only do you risk fines and prosecution from state and federal law enforcement, but you will not be able to pass Apple or Google’s app vetting process, advertise on Facebook, or use a mainstream payment processor like PayPal.

Skill-based real money games are those where the outcome is not determined by chance. These games fall either into the “fantasy sports” or “pure skill contest” categories. In either category, the argument is that where chance is not a dominant factor, the game is skill-based and falls outside the definition of regulated “gambling.” Many real-money skill-based gaming platforms have adopted this “if it is not prohibited, then it is legal” approach to offer their products in about 80% of the United States. But there is a difference between the so-called “fantasy sports” and “pure skill contest” categories. The first difference is regulatory – state law treats “fantasy sports” and “pure skill contests” differently.

To fully understand the difference, it is important to know that the “it’s not gambling” argument is not new. In the early 21st century, it was widely used by online poker providers and then daily fantasy sports operators. Recall that between the early 2000s and 2011, Texas Hold’em became huge in the U.S., helped by online pioneers like PokerStars and PartyPoker that allowed anyone to play online poker from anywhere. ESPN was airing the World Series of Poker as part of its routine sports coverage. The 2006 James Bond franchise reboot Casino Royale even focused on high-stakes no-limit hold’em (as opposed to Baccarat in Ian Fleming’s original book treatment).

The primary argument for legality was that poker is a game of skill, not chance, and therefore not gambling. Advocates pointed to the fact that skilled poker players were consistently able to beat their opponents, even though the game did involve the element of chance with a random shuffle of a card deck. In response to growing concern about unregulated real-money poker, a number of courts concluded that chance played a significant role in the outcome and Texas Hold’em is indeed gambling. The federal government took further regulatory action by enacting the Unlawful Internet Gambling Enforcement Act (“UIGEA”). The UIGEA essentially killed off any off-shore poker and other grey-market online gambling operations by targeting U.S. banks and payment providers and prohibiting them from facilitating wagering transactions. Those providers that continued to offer U.S. players real money poker games were shut down through federal law enforcement action on so-called “Black Friday,” April 15, 2011, and their executives charged with a number of felonies, including money laundering and fraud.

Daily Fantasy Sports emerged as an entertainment alternative around 2007 and relied on the same “it’s not gambling” argument as poker. Players would stake real money for a chance to play in a fantasy sports contest, where they would set a daily lineup of their own fantasy team and compete against others for the highest score. The highest score or scores would be awarded cash prizes. DFS relied on the definition of “bet or wager” in the UIGEA that expressly excluded fantasy sports contests. But, just because DFS is not illegal under the federal UIGEA (and MasterCard or Discover can process the associated wagering transaction) does not mean it is automatically legal. Some states concluded outright that DFS is “gambling” and is illegal. Others enacted legislation that DFS is not gambling. And some have done nothing at all. Thus, DFS offerings vary state-by-state: as of the date of this article, DraftKings and FanDuel both offer DFS in 41 of the 50 states. But DFS law is far from settled and remains in a state of flux; for example, in New York, DFS was authorized by the state legislature, but a lawsuit challenging the constitutionality of the law is pending on appeal. Texas is another example – in 2016, the Texas attorney general issued an opinion that DFS is illegal gambling, but both FanDuel and DraftKings continue to offer DFS in Texas pending the final outcome of various lawsuits.

On the other hand, games that are head-to-head contests of pure skill are legal in most states because they fall outside the state’s definition of “gambling.” These games – whether online or in person – allow participants to pay an entry fee and compete for a prize (monetary or otherwise). Even if the game is played on a smartphone, it is no different than paying a fee to play in a money tennis or golf tournament. Or paying an entry fee to participate in an arm wrestling contest at the state fair. In fact, certain states expressly exclude so-called “bona fide contests of strength, skill, or speed” from the definition of gambling, provided that the only persons making the wagers are the participants themselves. But although the analysis seems straightforward, providers of pure-skill contests disagree about where exactly real money games are legal. Various platforms have different lists of “restricted jurisdictions,” demonstrating their different tolerance for risk, and that the law remains unsettled in this area.

The second difference between fantasy and pure skill is tax treatment. Under the Internal Revenue Code, gambling winnings are taxable income, but may be offset by gambling losses. In 2020, the IRS decided that wagers made on DFS constituted a “wagering transaction” (i.e. gambling) under Section 165(d) of the Internal Revenue Code and the Tax Court agreed. This ruling was consistent with another 2020 internal IRS memo that concluded DFS wagers were subject to an excise tax, which is normally applied to wagers made at sportsbooks. The IRS’s analysis and conclusion that DFS is essentially the same as sports gambling has significant legal implications. Not only does it potentially expose DFS providers to millions of dollars in unpaid excise tax liability, but it is also an indicator of how the nature of the game may determine the outcome of “is it gambling” analysis. A game could very well be “gambling” for tax purposes, but at the same time “not gambling” under a state’s definition of “gambling.”

The skill-based gaming market is an attractive, fast-growing industry in the United States. However, it is also plagued by an uncertain legal landscape and inconsistent treatment at the federal and state level. Tax implications are also something to consider when designing your game. Whether you are a start-up or a well-established company looking to introduce a new game product, Artaev at Law can provide you with consulting and legal analysis required to do it right.

Have more questions? Do you need help getting your app through the Apple, Google, or Facebook review process? Contact Dan Artaev today by emailing dan@artaevatlaw.com or by phone or text at (269) 930-0254.

Disclaimer: This guide is not intended to be and does not constitute legal advice. It is for informative and promotional purposes only. Do not take any action or refrain from taking any action based on this guide, and always consult with a qualified professional about the circumstances of your particular case. Each set of facts is unique and different circumstances apply to each individual business.

© 2021 Artaev at Law PLLC. All rights reserved.

The Facts About Real-Money Skill Gaming: Dispelling 5 Common Internet Myths.

Artaev at Law advises companies looking to launch new technologies and tap into the skill-based real-money game market in the United States. In keeping up with the latest legal and regulatory trends, we do a lot of research, and we have seen a lot of misleading and downright false information on the internet. Do not be deceived and get the facts backed up by legal analysis – Artaev at Law is the trusted, experienced, and accurate source to answer your questions and dispel the most common myths about real-money skill gaming.

1. MYTH: Online gambling games are the same as “real-money games of skill.”

FACT: No. Words matter. “Gambling” is term of art used in state laws across the United States to define heavily-regulated casino-type activities, usually with reference to an element of “chance.” Federal laws like the Unlawful Internet Gambling Enforcement Act (“UIGEA”) also regulate and prohibit banking institutions from facilitating unlawful gambling. But paying an entry fee to a cash-prize tournament or wagering on yourself in a head-to-head contest is not the same thing as “gambling.” These real-money games of skill rely on the relative skill of the players to determine the outcome and do not involve any element of chance, so they cannot be considered “gambling,” which has a specific definition under the law. I have even seen other law firm websites make this mistake and misuse the term “gambling” to refer to anything that involves the wagering of real money. There are also a lot of questionable websites that attempt to equate online casinos to video games or pure-skill games in an attempt to confuse and generate clicks and get people to transfer money to off-shore operations. Do not be deceived – and contact a knowledgeable lawyer if you have questions.

2. MYTH: States only regulate “games of chance” and if the real-money game does not involve “chance,” the game is automatically legal everywhere.

FACT: No. There are 50 states in the United States and each one of them has their own laws that regulate gambling. Each state has its own definition of “gambling” and what exactly is and is not allowed depends on the nature of the game offered, as well as specific regulations. Some states specifically allow participants to wager real money on “bona fide contests of skill.” Others prohibit wagering any real money on any game, even if chance is not involved. Note that wagering on the play of others, even if they are involved in a contest of skill, is prohibited as gambling. After all, that is how sportsbooks work – wagering on the competition of others. This is a constantly evolving regulatory area – the major real-money gaming websites themselves disagree where to offer real-money gaming – some offer cash games in 45 states, others in 41, others in 35, etc. Whether your particular game is legal (and where) is a case-by-case analysis that requires an up-to-date legal opinion.

3. MYTH: Real-money games of skill are those shifty-looking slot machines that you see at truck stops or those internet cafes that offer sweepstake games.

FACT: No. Those slot machine looking things are in fact slot machines (with some extra features added to attempt to claim that they involve “skill”) and internet cafes try to disguise game of chance gambling as sweepstakes. Law enforcement in many states have used existing gambling laws to shut down these establishments. Real-money games of skill are in fact played predominantly on mobile devices or computers at home. They are nothing like slot machines or sweepstakes and allow players to compete head-to-head for real cash prizes. There are card based games (like Solitaire that awards points based on speed to completion), bubble shooter games, Tetris clones, knife throwing games, and many others. The head-to-head (or tournament) contests are more akin to entering a pool tournament for a chance to win a cash prize, rather than any sort of randomized game of chance.

4. MYTH: Skill games or are just a different type of gambling video game that Las Vegas using to try to appeal to Millennials who are not interested in the traditional casino games.

FACT: No. Skill-based real-money gaming is not something that involves or depends on land-based casinos. While the regulatory bodies in states like Nevada and New Jersey did adopt regulations to encourage a new type of slot machine that involves an element of skill, there is no indication that these types of machines enjoy any sort of popularity. Like many other forms of entertainment in 2021, skill-based real-money games are based online. Advanced internet and mobile phone technology and accessibility is making these games an especially lucrative business.

5. MYTH: There are no legal implications for organizing or running a real-money video game tournament (FIFA, Tekken, Magic: The Gathering, etc.) because the outcome depends on the skill of the players.

FACT: No. There are two distinct problems with this assumption. One, is that legality depends on the nature of the game being played. Is there an element of chance? This could be determined by not only the nature of the game, but how the match-making or team selection function works. If chance is present, how much, and does it predominate over the skill element? That will determine whether the particular game passes the state-level “gambling” test. Two, there are intellectual property issues. The game studios own copyright and trademark rights in their games and do not endorse third party websites that enable real-money wagering on their games. Studios like Epic Games have publicly announced their view that these websites are misappropriating their intellectual property, and legal action is likely forthcoming.

Skill-based real-money gaming is an exciting and emerging form of entertainment worldwide. But there is a lot of misinformation online. The regulatory landscape is always changing, and Artaev at Law are the experts on the facts, trends, and the law about real-money skill-based (or pure-skill) gaming.


Contact Dan Artaev by email or call or text to set up your initial consultation.

Disclaimer: This guide is for general informational and promotional purposes only. Nothing herein constitutes legal, investment, or tax advice. Every situation is different and faces its own unique set of challenges. Do not take any action or sign any contract until you have obtained specific guidance from a qualified professional.

© 2021 Artaev at Law PLLC. All rights reserved.

Can a Self-Directed IRA (“SDIRA”) Invest in Cryptocurrency and NFTs?

Photo by Roger Brown on Pexels.com

Self-directed IRAs (“SDIRAs”) can be a powerful investment tool when used the right way. Instead of relying on a bank or brokerage to hold and invest your retirement accounts, the SDIRA gives you direct control over what to invest in for your retirement. Best of all, the SDIRA is not limited to the traditional stock and bond market portfolios. Savvy and knowledgable investors willing to take on high levels of risk can direct their tax-advantaged savings into private companies, debt portfolios, real estate, and other non-traditional assets. While the personalized control and expanded investment opportunities may sound great, SDIRAs are subject to complex tax rules and other pitfalls, including extreme volatility and investment risk. The government rules and regulations ensure that individuals are not abusing the tax advantaged status of their retirement accounts. The Internal Revenue Code (“IRC”) governs what retirement accounts (including SDIRAs) can and cannot invest in.

What about cryptocurrency like Bitcoin? Can an SDIRA invest in cryptocurrency? Yes. In general, the IRC prohibits any IRAs (including self-directed ones) from owning life insurance, S-Corporation stock, and collectables. 26 USC 408. The term “collectable” includes art, antiques, collectable stamps, coins, alcoholic beverages, and “any other tangible personal property” specified by the IRS. Pursuant to Notice 2014-21, the IRS considers cryptocurrency to be intangible property for the purpose of taxation. This means it is treated the same as stocks or bonds – if you sell at a profit, you are paying capital gains tax. Note that cryptocurrency is not treated the same as cash – this also means that if you are paying for a product with Bitcoin, it is a taxable event. For the purposes of an SDIRA and retirement investment, you can certainly buy and hold (or HODL) cryptocurrency. Or sell it for a gain – the tax consequences are the same as they would be with a stock or bond portfolio (depending on whether you have a 401k or Roth-type setup). Remember that any profits that an SDIRA makes go right back into the SDIRA and may only be withdrawn for the benefit of the individual under certain conditions (like being 59 and a half years old) to retain the tax advantage. With cryptocurrency, it is critical to set up an SDIRA-owned LLC to establish and own the cryptowallet in conjunction with a bank account. The LLC structure allows the SDIRA beneficiary to act as a manager and direct investments right from the bank account rather than going back to the SDIRA custodian and waiting for an approval of a particular transaction. However, remember that the manager cannot receive compensation or commingle personal and SDIRA assets, accounts, or cryptowallets.

What about non-fungible tokens or NFTs? Can an SDIRA invest in those? Maybe. NFTs are digital property that exist only online, but unlike “traditional code,” NFTs are unique and cannot be copied. More accurately, they can be copied (like a print of the Mona Lisa can be copied), but there can be only one original. In that sense, they are like real-world property and their non-fungibility creates scarcity, and theoretically value. Although NFTs are based on the Ethereum blockchain (and Ethereum is a cryptocurrency like Bitcoin), cryptocurrency and NFTs are not necessarily treated the same way. As explained above, the IRS treats cryptocurrency the same as intangible property for the purposes of taxation – meaning like stocks, bonds, and mutual funds. Section 408 of the Internal Revenue Code prohibits any IRA from investing in art, antiques, collectable stamps, coins, alcoholic beverages, and “any other tangible personal property” specified by the IRS. 26 USC 408. Will the IRS treat NFTs like cryptocurrency and therefore permitted SDIRA investments? Or will NFTs be treated like restricted collectables?

The IRS has not issued guidance on this matter. Some commentators (including the top search result on Google as of the writing of this article) have concluded that the IRS treats NFTs as collectibles and therefore they subject to a “higher minimum gains tax rate of 28%.” This is simply not true. While the IRS certainly treats NFTs as taxable property, it remains uncertain exactly how the IRS will tax these digital assets.

At its core an NFT is code. Cryptocurrency is also code, which the IRS expressly treats like “property” for the purpose of taxation. It follows that NFTs are also “property” for the purpose of taxes. But what kind of property? Are NFTs always considered art or collectibles? Or are they cryptocurrency and can be owned by an SDIRA? What about NFTs that represent virtual real estate in “worlds” like Decentraland, Cryptovoxels, Somnium Space, Sandbox? What if the NFT is an avatar, a name, a virtual outfit? There are several possible ways for the IRS to treat NFTs:

  • One, the IRS can take a pragmatic approach and tax them in accordance with what they would represent in the real world. Some NFTs have real-world counterparts – for example, Forbes reported that a digital collectible startup called Ethernity is set to auction limited edition real world baseball bats that include an NFT counterpart. Nike also patented something called “CryptoKicks,” which presumably will tie real sneakers to some sort of digital authentication certificate. If an NFT represents art, then it is treated like art for tax purposes. If an NFT is a trading card, then it is treated like a collectible. If the NFT represents virtual real estate, it is treated and taxed like real estate (which raises a whole different set of questions).
  • Two, the IRS can take a simple approach and classify NFTs as “property” that is treated exactly like cryptocurrency regardless of what the NFT “represents.” This second approach avoids litigation over what how a particular NFT should be taxed – for example, is an in-game avatar “art”? The second approach also would give SDIRA investors the flexibility to invest in virtual assets, including virtual real estate.

Finally, is the IRS really going after unreported cryptocurrency and NFT transactions? Absolutely. In 2020, the IRS established the Office of Fraud Enforcement and announced in 2021 that a special investigative team was conducting “Operation Hidden Treasure” to identify individuals who failed to report cryptocurrency (and presumably NFT assets).

Investing in cryptocurrency and NFTs is a hot trend in 2021. Although these digital assets may “exist” only as part of the virtual blockchain, the IRS considers them very real and very taxable. This is a constantly changing and developing area, so it is especially critical to consult a tax and legal professional before making any investment decisions. As I pointed out in my earlier post about SDIRAs, even if you are right, you may still end up litigating against the IRS in Tax Court.

More questions? Thinking about investing in cryptocurrency or NFTs? Funding your retirement through an SDIRA? Contact Dan Artaev by email or call or text to set up your initial consultation.

Disclaimer: This guide is for general informational and promotional purposes only. Nothing herein constitutes legal, investment, or tax advice. Every situation is different and faces its own unique set of challenges. Do not take any action or sign any contract until you have obtained specific guidance from a qualified professional.

© 2021 Artaev at Law PLLC. All rights reserved.

Esports. So Hot Right now: Advice from an Esports Attorney for Players and Teams.

Metro Detroit is uniquely poised to become the next epicenter of a growing industry: Professional competitive video gaming, or simply esports. An emerging and growing form of entertainment, the Michigan esports scene is rooted in its strong high school and collegiate programs. Professional esports actually had its first major metro Detroit debut August 2019, when Little Caesars Arena hosted the League of Legends Championship Series summer finals. Detroit’s storied sports history, as well as its growing reputation as a technological pioneer made it particularly attractive to Riot Games when it decided to bring this event to the Motor City.

The tournament attracted more than 10,000 live fans to the city and the arena, with tens of thousands more watching a stream on Twitch. Metro Detroit is also home to gaming lounges, arcade bars. Since 2019, the pandemic obviously shifted demand away from in-person events, but fans still continue to follow their favorite players remotely. California remains the epicenter (no earthquake pun intended) of the American video game industry, which is still dwarfed by the Asian market. Still, there is a robust esports community in Michigan, which bodes well for Michigan continuing to attract professional events and business in the future.

Despite the industry’s potential, there are no dedicated esports law firms or esports lawyers in Michigan, and Artaev at Law is the only Michigan law firm that specializes in video game law. If you search for “Michigan gaming lawyer,” the results come up for casino gaming lawyers, which is probably not the type of gaming you are looking for.

Why do you need a lawyer in the first place? Professional esports, like professional football, tennis, baseball, etc., is a legal minefield for the unwary. Intellectual property issues are front and center. Contract law and employment law concerns abound. Additionally, esports participants and professionals tend to be younger, often without professional representation, and especially vulnerable to predatory market practices. The unique nature of the industry and legal issues facing participants also requires specialized knowledge base and background from your lawyer.

Get someone who knows both the law and video games. The classic “Legend of Zelda” line rings true: It’s dangerous to go alone! Take this (advice):

  • Before signing ANY contract with ANY team, sponsor, representative, etc., consult with an attorney. It is a worthwhile investment in your future and you must understand all of the rights, costs, and benefits that you are agreeing to. Obtaining a professional consultation before you enter an agreement is far cheaper than trying to get out of a contract after the fact or worse, having to defend against a lawsuit for breaching that contract.
  • An esports attorney can act as your agent and advise you regarding things like your rights and obligations, contract termination, payments, taxes, and other legal aspects. An esports attorney can help you protect your career, revenue stream, and potential winnings, while you can completely focus on the gaming and building your brand.
  • Do not assume that because you are part of a school team that you are automatically protected. Professional esports is all about money and like any other industry, it is a business first. Treat your involvement just like you would any other serious business transaction.
  • Merchandising and general intellectual property are big money, but often overlooked. As a pro gamer, you will likely receive a salary, but you also stand to make a lot of money through sponsorship. For example, if Mountain Dew calls you up and offers big money to drink their products during your live stream, who owns those rights? Who gets the money?
  • Like with any business, the more it grows the more trouble it attracts. Did you create a signature kill shot or a unique move that gained you 1,000 new followers on Twitch? What rights do own to that creation? What about your unique online persona? What happens to your creations after you sign a professional contract or a sponsorship deal?
  • Another question that will come up sooner rather later is how to deal with the social media aspects – especially the negative trolls. Can you send “cease-and-desist” letters? What legal options do you have when someone defames you online?

Video games are big business and are a growing sector of the entertainment world. The $1 billion (plus) global industry is continuing to expand worldwide, including to Metro Detroit. The emerging market means there are more players, more teams, more brands, and more potential pitfalls than ever before.

Have more questions? Contact Michigan’s video game lawyer Dan Artaev at dan@artaevatlaw.com or 269-930-0254 with any questions and professional representation in the esports or video game industry.

© 2021 Artaev at Law PLLC. All rights reserved.

What Should You Know Before Buying Into a Business? 5 Key Considerations for the Informed Investor.

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Buying into a business can be an exciting next step in your career and present uncapped opportunities for growth. It can be especially lucrative from a financial perspective, as well as the professional allure of working for yourself. For example, if you are a doctor working for a clinic, you may be given an opportunity to buy into as a partner. Or, as an employee you may be presented with an option agreement that lets you purchase a membership stake in your employer. Note that this discussion is limited to privately held companies – if you are buying stock in a publicly-traded company (or receiving stock options as part of your compensation) or otherwise investing in an SEC-registered security, you may encounter different issues.

Here are 5 key considerations when faced with a (private) buy-in opportunity:

1. Retain an attorney to represent you. Buy-in options often come from a boss or trusted partner with whom you have an existing relationship. You may even be friends outside of work, which may make you reluctant to involve an attorney. However, you owe it to yourself to treat this as a business deal – because it is a business deal – and it is better to get professional advice now, rather than try to undo something years down the road. There are countless court cases that develop from one person trusting the other too much, people taking advantage of each other, or even a fundamental miscommunication or difference in expectations.

2. Review the operating agreement or the bylaws of the business. As part of your fundamental due diligence, you must ask for the basic formation documents. For a corporation, the foundational document is called the bylaws and for a limited liability company (LLC) the document is called the operating agreement. This document describes the rights and obligations of members, distributions, voting, buy-sell rights, mandatory offers to sell in situations like death, divorce, or insolvency of a member, and other important provisions. Be especially careful if you are buying a minority stake, which does not give you voting control If the company is governed by a majority vote and one person owns the majority, it is effectively at the control of that majority shareholder. Make sure you know what your rights are as a minority shareholder before you invest – you certainly want to avoid a situation where you are “frozen out” or otherwise oppressed, with no remedy other than potentially going to court.

3. Do not assume that you will receive distributions just because you are now part owner. As a shareholder or equity owner, you are also sharing in the losses of the business, as well as its gains. Just because you paid $50,000 into the business, you are not guaranteed a return or any profit at all. Again, it is important to understand the operating agreement or bylaws of the business. When are distributions paid? Monthly? Yearly? Who decides how the gross income of the business is allocated? What happens if the business loses money? Are the owners required to contribute additional capital? Can the majority owner issue additional shares and introduce new members?

Additionally, when you buy into a private company, you cannot cash out your investment very easily. Even if an operating agreement or bylaws include a mandatory sale clause, there is a matter of determining the sale price and the company may very well not have the assets to buy out your shares, even if you try to sell them back. Further, private companies restrict the ability of its owners to sell their shares to third parties or on the open market. In other words, an investment in a privately-held company is an investment for the long-haul, and you should be financially and psychologically prepared for that fact.

4. Get familiar with your new tax status and obligations. If you were a W-2 employee, your tax situation is relatively simple. But if you switch to partnership status, suddenly you will be responsible for paying your own taxes (quarterly), calculating the right amount of self-employment tax, and setting aside sufficient funds for future tax obligations. You will likely receive a new document from the business – a K-1 form – which will change the way you do taxes. Also, any retirement contributions (401k, IRA, etc.) will need to be reassessed in light of your new partnership status. It may be a good time to consult with an accountant as well.

5. Take the time to do your due diligence. Because you are likely dealing with a familiar person when buying in, you may feel pressure to act quickly or forgo asking the tough questions. Again, this is a business deal and a significant financial obligation that you are assuming. Just because your boss assures you that “this is a great opportunity and we will be millionaires” does not make it so. In addition to reviewing the business forms, you should ask for and review (with your lawyer and/or accountant) the financial documents like profit and loss statements, assets and liabilities, projections, and the business plan. After all, you would not buy a house without an inspection and a walkthrough, nor would you buy a car without test driving it first. Even if you think you know the business from working there as an employee, ownership is a different game and it is in your best interest to gather as much information as you can before making a significant financial investment.

Business ownership presents an exciting opportunity. As long as you are proceeding patiently and consulting outside professionals, you will be able to make a fully informed decision. And remember, even if presented with an option to buy-in, it does not mean you have to take it now or even take it at all. It is called an “option” because it optional and should be exercised only if it is in your best interest.

More questions? Contact Dan Artaev by email or call or text to set up your initial consultation.

Disclaimer: This guide is for general informational and promotional purposes only. Nothing herein constitutes legal advice. Every situation is different and faces its own unique set of challenges. Do not take any action or sign any contract until you have obtained specific guidance from a qualified professional.


© 2021 Artaev at Law PLLC. All rights reserved.

Categories
independent contractors

Are Non-Compete Agreements Enforceable Against Independent Contractors in Michigan?

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This is one of those gray legal areas where the answer is “it depends on the facts of the situation.” Previously, I wrote about the basics of non-compete and non-solicitation agreements that are becoming increasingly common in all industries. At their core, non-compete agreements restrain the free labor market, and are therefore analyzed under the Michigan Anti-Trust Reform Act (“MARA”) (MCL 445.774a), which sets out a four-factor “reasonableness” test for the agreement. To be enforceable, the non-compete must: (1) Protect a reasonable competitive business interest; (2) Be reasonable in terms of duration; (3) Be reasonable in terms of geographical area; and (4) Be reasonable in terms of the the type of employment or business affected. Although the four-factor test in MARA expressly refers to “employer” and “employee,” lawyers and businesses frequently cited the same test when evaluating non-competes in other relationships, such as between two sophisticated business entities or an independent contractor.

In a 2017 opinion, Innovation Ventures v. Liquid Manufacturing, the Michigan Supreme Court clarified that the MARA test only applies to employment relationships. A different test applies to commercial agreements between sophisticated business entities. The case involved the manufacturer of 5-Hour Energy, and the Court looked at the plain language used by the Legislature to determine that the test does not apply to agreements between businesses. The Court further explained that MARA does not set forth a test for commercial agreements, but instead instructs courts to look to federal anti-trust law for similar legal analysis. The applicable test is the so-called “rule of reason,” which can be summarized as whether, under all relevant facts, the covenant unreasonably restrains competition. While the test may seem similar to the MARA four-factor analysis, it is different because it focuses on the reasonableness of the effect on the free market, rather than the impact on the restrained party.

What about independent contractors? Can a hiring party insist on a non-compete as part of the independent contractor agreement? And if so, what are the parameters for a valid non-compete for an independent contractor? First, parties are generally free to contract for anything, and so an independent contractor may certainly agree to a non-compete clause as part of their contract. Second, the non-compete will be evaluated under the same “rule of reason” as an agreement between two sophisticated commercial entities. This is because an independent contractor is not an employee – thus MARA’s four-factor test does not apply. Where MARA does not apply, the Legislature instructs courts to look at federal anti-trust law. Thus, the outcome is the same as with commercial contracts under Innovation Ventures. That means the rule of reason applies and the court will look at the effect of the restraint on the relevant market.

In applying federal anti-trust law, there is also a concept called a “per se” anti-trust violation. A “per se” violation is conduct that violates Section 1 of the Sherman Anti-Trust Act by its very nature and does not require proofs of the actual anti-competitive effect or the relevant market. Simply put, a “per se” anti-trust violation is one where there is no redeeming competition-facilitating effect. A classic example in the employment arena is the low-wage hourly worker non-compete. A restraint on an $11-per-hour janitor precluding him or her to work for a competitor serves no legitimate purpose whatsoever and is clearly abusive. A court will not enforce such a “per-se” violation. The independent contractor analysis would be similar – if there is no legitimate pro-competitive justification for the non-compete, it may not be enforceable.

One final word of warning. If you are a business considering or using non-compete clauses in your independent contractor agreements, some courts consider such clauses indicative of an employment relationship. If an individual or government agency (like the worker’s compensation agency) challenges your classification, a non-compete clause is evidence of control that weighs in favor of finding someone is an employee. And, if someone is misclassified as an independent contractor, there are a myriad of penalties, fines, and other problems that you may face.

Non-compete and non-solicitation clauses and contracts are becoming more and more standard. However, it is a mistake to blindly use them for all your employees or independent contractors. Each situation warrants its own analysis. Otherwise, your business risks not only losing non-compete litigation, but also risks other unintended adverse effects, such as a finding of an employment relationship where one was not intended.

More questions? Need a non-compete reviewed or drafted for your situation? Contact Dan Artaev by email or call or text to set up your initial consultation.

Disclaimer: This guide is for general informational and promotional purposes only. Nothing herein constitutes legal advice. Every situation is different and faces its own unique set of challenges. Do not take any action or sign any contract until you have obtained specific guidance from a qualified professional.


© 2021 Artaev at Law PLLC. All rights reserved.

Who Owns Your Invention? The Concepts and Inventions Assignment Clause, Work-For-Hire, and the Shop Right Doctrine.

In the modern employment context, there are plenty of on-boarding documents, including a handbook, that the employee may be asked to sign as part of getting hired. Lurking in these pages of seemingly innocuous workplace policies may be critical obligations and restrictions that significantly restrict the employee’s rights. For example, non-compete and non-solicitation clauses are becoming more and more common in all industries. Also, there may be another Trojan Horse to watch for, especially in high-tech industries – the so-called “concepts and inventions assignment clause.” This clause essentially assigns all of the employee’s inventions, innovations, and discoveries that they make or create while working for the employer to the employer. And even in the absence of such a clause, the employer may claim rights as work-for-hire, or have limited rights under the “shop right doctrine.”

A “concepts and inventions clause” is a contractual obligation that is becoming increasingly standard in employment documents. It can be stand-alone, part of an employment contract, or even hidden in an employee handbook or manual. The clause gives the employer automatic and exclusive rights to inventions, conceptualizations, and other ideas created during the employer-employee relationship. The idea is that since the employer is paying the employee to dedicate 100% of his or her time to the business, and the employer is also providing the tools, space, and other means for the employee to work, the employer owns all of the fruits of the employee’s labor. The scope and breadth of the contract is up to the parties. However, some states (most notably California), limit the scope of such agreements by law. In those states, the agreement may not cover independent inventions – meaning inventions that are created on the employee’s own time without using any of the employer’s resources. For example, if an employee is a software designer, but goes home and creates a new type of mechanical circular saw in her garage during evening hours. Even if there is a general assignment clause, it likely would not be enforceable. Michigan does not have a law limiting the scope of the assignment clause/contract, which means that a Michigan employer could potentially claim rights to the new saw design, even if the invention has nothing to do with the employer.

In a high-tech context, a “concepts and inventions clause” may also list express exclusions. If Company A is hiring an inventor, the inventor would list all of the prior inventions that Company A has no rights to and the inventor retains. At the same time, the list benefits Company A because the inventor cannot later claim rights to an invention that is not on the list. Additionally, the clause (whether it is stand-alone or part of a broader employment agreement) often contains an integration clause, which prevents parties from claiming they had a side-deal or different understanding. And, there are “teeth” to provide that in case of a litigated dispute, the losing party would pay the prevailing party’s attorney fees, thereby discouraging lawsuits over ownership of an invention.

A similar situation occurs when an employer hires an employee for a specific purpose – that is to create a work-for-hire. Even without a contractual assignment clause, the employer will own the rights to any resulting invention where it is the outcome of the specific employment relationship. For example, Company A hires an engineer to invent a new chassis platform to use across Company A’s pickup truck line. The work results in a patentable invention and Company A owns 100% of the rights to the chassis. Even if the inventor did some of the work on his or her own time or otherwise made out-of-work contributions to the project, it would be considered a “work-for-hire” where the employer – or the “hirer” – owns all rights to the resulting innovation. The owner Company A is then free to license, sell, or otherwise assign the patent rights, and keep all of the profit, without providing the inventor with any additional compensation.

What about the situation where there is no “concepts and inventions clause” and there is no specific “work-for-hire” arrangement? Does the inventor always own 100% of the rights to his or her invention, even if created on company time? No, because of something called the “shop right doctrine.” The doctrine is a common-law concept (meaning it is a principle created by the courts, as opposed to the legislature). In general, the doctrine allows the employer to continue using the invention, but precludes the assignment or licensing of the invention to third-parties. In other words, the employer gets a royalty-free limited license to use the invention, but cannot sell it. The doctrine also requires that the invention be created using an employer’s resources, such as a laboratory, computer, or analytical equipment. The shop right doctrine is a defense to patent infringement that the employer can rely on if sued by the inventor – it is not an affirmative or assignable right.

What does this mean for employers and employees? If you are hiring or being hired, and anticipate the relationship may produce a valuable invention, concept, or other innovation, you should consult with an attorney to ensure your rights are protected. After-the-fact litigation is not only costly, but incredibly uncertain in outcome, and should be avoided as much as possible. As an employer, you want to make sure to have solid and well-defined assignment clauses for your employees to sign. And, because at least 9 states have statutory limitations on the scope of the assignment agreement, it is best practice to draft any assignment to be enforceable across the entire United States. As an employee, you need to make sure you are not inadvertently signing away more rights than you intend to, and are fully aware of your respective rights and obligations.

On a final note, these concepts (as well as other intellectual property concerns) also apply in the university context. Professors and graduate students are constantly innovating and creating, but whether they or the university own the final outcome may be something that they have not considered. In a famous example, Larry Page (one of the founders of Google), is listed as an inventor on one of the key patents that served as the foundation for Google. However, Stanford University owns the patent because Larry Page was a Ph. D. student there at the time of the invention. Consequently, Google had to license the patent from Stanford University for a hefty nine-figure sum. So while a university may not claim rights to inventions made by students as a matter of policy, they will likely claim rights to inventions made by employees. A graduate student or a post-doc is like a professor, in the sense that they are often employees of the university. Your specific institution likely has a tech transfer department, as well as its own policies and regulations. Again, an experienced attorney can help you protect yourself and stay informed of your rights and obligations.

Questions or concerns about your situation? Contact Artaev at Law PLLC to set up your initial consultation or call or text Dan today.

Disclaimer: This guide is for general informational and promotional purposes only. Nothing herein constitutes legal advice. Every situation is different and faces its own unique set of challenges. Do not take any action or sign any contract until you have obtained specific guidance from a qualified professional.


© 2021 Artaev at Law PLLC. All rights reserved.

What’s New for 2021: An Updated Guide for Michigan Employers Navigating COVID Regulations.

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2020 is finally over, yet we are still in the middle of a pandemic, continued restrictions, ever-changing mandates, and regulations. So what’s new for business owners? Restaurants, entertainment venues, and other businesses are slowly seeing a transition to increased capacity. Vaccines are rolling out. There is new interim guidance for athletics from the MDHHS to review if you are in the sports business. Remember that the the federal Families First Coronavirus Response Act (“FFCRA”) expired on December 31, 2020 and has not been extended or renewed. Recall that the FFCRA required paid medical leave, paid child care leave, and offered extended FMLA benefits – including to employees who would not normally qualify for FMLA. While these benefits are no longer mandatory, employers who continue to offer paid sick time for COVID-related reasons, as well as extended FMLA benefits will continue to be eligible for a tax credit to compensate them for benefits offered through March 31, 2021.

From a Michigan law perspective, make sure that you are familiar with the the Michigan COVID-19 Response and Reopening Liability Act, which gives retroactive immunity from tort liability to businesses that have been following the various COVID-19 laws and regulations. Additionally, know your obligations under the new COVID-19 Employment Rights Act, MCL 419.401 et seq., which formally protects employees from COVID-related retaliation and imposes a mandatory quarantine period for employees of at least 10 days from the onset of symptoms, even if they test negative.

I am continuing to update my guide to give business owners some direction in this time of uncertainty. I generally recommend that business owners stay the course and continue doing what they have been doing with respect to COVID safety and employee treatment. You should maintain the same protocols for your customers and employees because OSHA and the Michigan Department of Health have the statutory authority to issue (and have issued) many of the same safety protocols that were previously enacted through executive orders. If you are unsure about your current protocols or otherwise have compliance concerns, retain an attorney to advise you.

Further, even if you are not concerned about government agencies, there is always civil liability. The new Michigan anti-retaliation law imposes retroactive liability to March 1, 2020, and the tort liability shield only applies to businesses who follow current government regulations.

Make no mistake, plaintiffs’ lawyers are already filing a number of COVID-related lawsuits against employers. If you are still without a compliance plan, or your plan is out of date, consider hiring an attorney.

Review the latest guidance from the CDC and the State of Michigan.

The State of Michigan maintains a very helpful State of Michigan COVID FAQ that answer some of the most common questions, including concerns about unemployment insurance, layoffs, and other related concerns. OSHA also maintains an informative industry-specific guide for COVID compliance. Also, review the latest orders from the Michigan Department of Health and Human Services that in large part reenact the same mask and gathering restrictions that were in effect under the Governor’s executive orders.

Pay special attention to the latest MDHHS guidelines for face coverings and social distancing. These regulations expand the capacity restrictions to certain business activities, such as retail stores, libraries, museums, gyms, other recreational sports activities, and others. Specific face covering rules are in effect for all nonresidential gatherings, businesses, and offices. Restaurants are subject to revised and expanded regulations, including limits of six people to a table, table spacing at least six feet apart, and limiting the total number of patrons to 50% of capacity. The MDHHS Epidemic Orders page also contains helpful FAQs, summaries, and infographics to distill the essentials for easy implementation.

The CDC continues to update its guidance for employers, including strategies for reducing COVID transmission risk among employees. These strategies include:

  • requiring sick employees to stay home;
  • identifying where and how workers may be exposed;
  • isolating sick employees; and
  • educating employees about safe practices.

The CDC guidance also has specific business continuity strategies to implement, such as appointing a COVID coordinator, assessing feasibility of remote work, and implementing social distancing and sanitizing policies and practices.

Assess your obligations under OSHA

Even if you run your business from an office building and have never given a second thought to OSHA (Occupational Safety and Health Administration) standards, you need to revisit the applicable safety standards. Under both state and federal workplace safety laws, employers have an obligation to provide a workplace free from recognized hazards that may cause death or serious physical harm to employees. COVID is a source of such potential harm and an employer risks OSHA fines and other sanctions if the employer does not take steps consistent with their general duty. Further, OSHA investigations and violations often form the basis for civil negligence and tort liability, increasing liability potential for employers.

Federal OSHA (which is part of the U.S. Department of Labor) has its own set of guidance for COVID, but at a minimum you should consider whether PPE (personal protective equipment) is required and whether respiratory protection regulations apply.

Develop and implement a COVID preparedness and response plan.

When it comes to defending against an employment lawsuit, there is no substitute for having and implementing a written plan. A written plan is not only an effective management strategy – it is also evidence of due care and compliance with the various governmental rules and regulations. Indeed, if your business is doing in-person work, you are required to have such a plan. If you are still remote and are preparing for a transition to in-person work in the future, having a written plan on day one is a wise and prudent management strategy.

OSHA’s workplace preparedness guide offers a good outline for such a plan. Essential steps include the following:

  • Specifically identifying sources of potential exposure, including risks of exposure to employees from home and community settings, and then specifically matching the controls necessary to address these sources;
  • Updating employee handbooks and issuing interim, COVID-specific policies and guidance to address business management;
  • Reviewing and amending any existing sick leave policies to encourage workers to stay home when feeling ill, and to ensure that existing policies are consistent with the latest governmental regulations that protect employees;
  • Addressing and planning for any business disruption due to reduced hours, remote work, and supply chain modification;
  • To the maximum extent possible, promoting remote work, staggered shifts, or other flexible work arrangements to minimize in-person contact;

Ensure that current polices and practices are free from discrimination.

Having polices in place is all well and good, but does you no favors if they are implemented in a discriminatory manner. Reminder: discrimination remains illegal both under federal and state law. Specifically, new state- and federal-level protections are in place that prohibit adverse employment actions against employees under certain COVID-related circumstances. In short, you cannot discharge, discipline, or otherwise retaliate against someone who is sick, is quarantined, or has contact with sick individuals (like family members.) The Michigan COVID-19 Employment Rights Act prohibits adverse employment actions against employees who do not report for work due to COVID-19 symptoms, report violations, or otherwise opposes an employer who is violating the law.

What this means in practice is that if you are terminating employees, reducing their hours, or even cutting pay, you should do so only after consulting with your attorney. Even if you are not intentionally discriminating against someone, you may be opening yourself up to a complaint or civil rights lawsuit by an employee who feels wronged. Remain flexible, and if you do need to reduce staff, salaries, or hours, do so in an open, even-handed manner that is supported by documented and legitimate business reasons.

Also, remain sensitive to individual employees’ situations. Even if you have a legitimate business reason for discharging someone, you may have to defend against allegations of pretext – meaning that the real reason for the adverse action is due to an employee’s status as a member of a protected class. In other words, if you terminate someone who is a single parent, or has a special health condition, or cares for an elderly individual, you may face a charge of discrimination even if your motive was purely financial and not pretextual.

As always, general anti-discrimination laws still apply. Be sure to provide appropriate training and information on appropriate workplace behavior, and follow all applicable privacy guidelines (HIPPA) when dealing with information about employee health status.

Know that you are allowed to institute certain policies to keep employees safe.

Normally, the Americans with Disabilities Act (ADA) precludes inquiring about an employee’s health information. However, special rules apply during the pandemic, and the following actions are permitted (and in fact, are recommended as best-practice):

  • Asking employees who call in sick regarding whether they are experiencing COVID symptoms;
  • Measuring employees’ temperatures before they are allowed to enter the workplace;
  • Mandating employees leave the workplace and stay home if they experience COVID symptoms; and
  • Requiring that employees returning to work provide statements or other certifications of being fit for duty (i.e. COVID-free).

Employers may also screen potential employees for COVID symptoms as part of the hiring process, provided they do so in a uniform and non-discriminatory manner. A good rule of thumb is if you ask one applicant to take a temperature test, you better be asking all applicants to do the same.

The Michigan COVID-19 Employment Rights Act expressly prohibits employees who test positive for COVID-19 or who experience principal symptoms from coming to work. Likewise, an employer may not terminate an employee on grounds that they are unable to work due to COVID. Additionally, federal emergency legislation continues to require two weeks of paid sick leave for employees who have COVID-19 or are caring for those with the illness.

Make sure to account for and pay hourly employees for all the time worked remotely.

Hourly workers are a special challenge during COVID and the shift towards remote work. The Michigan Wage and Hour Division (which investigates and prosecutes wage complaints) is looking into many cases where hourly employees are not being paid for all time worked. Make sure that your time records are accurate and policies about reporting remote hours worked are clear and in writing.

Underreporting or failing to pay for actual time worked is a serious issue that exposes employers to significant fines and civil liability. This is an area where clear, written polices, as well as communication with your employees is a must.

What else?

There are a number of other topics that employers must be aware of when navigating the myriad of COVID rules and regulations. Here are some additional topics to discuss with your attorney, management, and other outside consultants like CPAs and insurance contacts:

  • Worker’s compensation issues and whether there are any special changes to your insurance policy;
  • Unemployment benefit changes; and
  • WARN Act obligations if you are an employer with more than 100 employees are are considering mass layoffs or plant closures.

The bottom line is plan ahead. While it is impossible to foresee every problem that will arise, a solid plan and a clear set of workplace policies will go a long way. Whether you have resumed in-person work or are getting ready for such work to resume, sound legal advice and consultation is a solid investment.

Dan Artaev is a former Assistant Attorney General with the State of Michigan in the Labor Division, and in private practice has represented numerous employers with respect to employment law matters, including responding to EEOC and wage and hour complaints. Email Dan at dan@artaevatlaw.com or call or text (269) 930-0254 to set up your consultation.

Disclaimer: This guide is for general informational and promotional purposes only. Nothing herein constitutes legal advice. Every business is different and faces its own unique set of challenges. Do not take any action with respect to your business until you have obtained specific guidance from a qualified professional.

© 2021 Artaev at Law PLLC. All rights reserved.

Your Twitch Channel is Worth How Much? Protect Your Right of Publicity in the 21st Century.

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Did you know that celebrities, professional athletes, actors, and other famous people have a valuable property right in their very persona? That property right is called the “right of publicity” and extends to gaming, particularly as streaming platforms like Twitch allow gamers to develop their own brand and following. There is no question that internet personalities like Ninja, Dr. Disrespect, Summit1G, Shroud, and others have their own brands – unique styles that have helped them gain millions of fans. That branding naturally translates into lucrative sponsorships and 6, 7, and even 8-figure exclusive streaming deals that are similar to those enjoyed by celebrities in movies, music, and sports.

However, you don’t have to have millions of followers to develop a brand that has value and should be protected. As a streamer, eSports professional, tournament organizer, or commentator, you may have developed a persona, a unique style, catchphrases, signature moves, and other aspects that may make you especially attractive to your audience. That unique brand is called your “right of publicity.” And protecting that right is protecting your brand – so it is not only critical to protect it from misappropriation (just as you would with a trademarked logo), it is also critical to ensure that you do not unwittingly sign a contract that transfers that valuable right without you receiving appropriate compensation.

The first step to protecting yourself is to educate yourself. Read on.

The International Trademark Association defines the “right of publicity” as:

An intellectual property right that protects against the misappropriation of a person’s name, likeness, or other indicia of personal identity – such as nickname, pseudonym, voice, signature, likeness, or photograph – for commercial benefit.

– http://www.inta.org/topics/right-of-publicity/

Unlike patents, copyrights, and trademarks, the “right of publicity” is not found in any federal statute. Rather, it is a matter of state law and thus varies from state to state. What is more confusing is that some states (like California) have specific laws that expressly protect certain aspects of a person’s identity and set out a statutory process to enforce that right. Other states (like Michigan) do not have statutes that protect the “right of publicity” but recognize that right through the common law (meaning there are court cases that can be cited to support a claim). However, even where a state like California protects only certain aspects of a person’s identity under state law, a person can still raise common law claims to other aspects – in other words, California statutory scheme is not exclusive of the common law. For example, a celebrity’s distinctive voice is expressly protected under California law, but an imitation of that same voice is not. However, a celebrity may still file suit against an unauthorized imitator under the common law even in states where there is a statute. Confused? The main point is regardless of which state you are in, you have rights and remedies to protect your persona from misuse and misappropriation.

So what do you need to prove for a right of publicity claim? Generally, the plaintiff needs to show (1) the use of “identity”; (2) the appropriation of the plaintiff’s “identity” to the defendant’s advantage, whether commercial or otherwise; (3) lack of consent; and (4) resulting injury. The term “identity” is defined broadly and essentially protects any unique personal aspects, such as tone of voice, manner of dress, catchphrases, color schemes, and many other categories. Recently, I wrote about Detroit’s Eastern Market Brewing Co. dealing with a cease-and-desist from Barry Sanders after the brewery released Same Old Lager (a play on the phrase “same old Lions” that describes the teams consistently underwhelming performance and leadership turmoil). The problem was not the slogan or the riffing on the Lions – rather, it was the brewery’s can design featuring a pixilated football player wearing the Lions’ silver uniform with Sanders’ number 20. According to Sanders’ legal team, the brewery misappropriated his “identity” and thereby implied an endorsement or connection that did not exist. In response, the brewery changed the can design to replace the football player with the brewery’s own mascot and Same Old Lager is available once again.

What about parodies and fair use? The right of publicity is not absolute and cannot suppress the right to free speech protected by the First Amendment. Parody, commentary, news, and other so-called “fair uses” are protected from right of publicity claims. Because each situation is different, there is no bright line test, and judges are essentially called on to serve as art critics to determine what merits protection. As a guideline, the courts rely on the “transformative use test” to determine whether the derivative work sufficiently “transforms” the original to acquire its own independent economic value. For example, a t-shirt with a charcoal drawing of the Three Stooges failed the transformative test because the primary value of the t-shirt came from the identity of the Three Stooges. The defendant t-shirt maker misappropriated the economic value associated with their identity, and the fact that the image was a charcoal drawing (as opposed to a photograph) was an insufficient creative element to predominate the work. See Comedy III Productions Inc. v. Gary Saderup Inc., 25 Cal. 4th 387, 58 USPQ2d 1823 (Cal. 2001). In contrast, a comic book series featuring characters based on Johnny and Edgar Winter as half-human/half-worm villains was sufficiently transformative to defeat the musicians’ right of publicity claim. Despite the similarity in names and depiction with long white hair and pale complexion, the court noted that the primary economic value of the comic book was in the “fanciful, creative characters” and not the actual identity of the Winter brothers. See Winter v. DC Comics, 30 Cal. 4th 881, 66 USPQ2d 1954 (Cal. 2003) (66 PTCJ 210, 6/13/03).

As video games have become more sophisticated, they have also become targets of right of publicity claims. In a recent case, Arizona State’s quarterback prevailed against Electronic Arts when their NCAA football game omitted the quarterback’s name, but used his number, position, height, weight, and other characteristics. Other football game cases against Electronic Arts established amateur and retired athletes’ rights to their likeness, even where the publisher changed the jersey numbers and physical likeness. There are many unsettled questions with regard to the law of publicity, especially as new kinds of celebrities and mediums are examined, and the law is constantly evolving.

What does this mean for streamers, eSports professionals, and tournament organizers? Initially, that means you have a protected and valuable right in your identity. For example, there is little doubt that Ninja (probably the most famous Fortnite player and streamer) has a protected right in his image. That includes not only his name and likeness, but his distinctive hairdo, characteristics of his gameplay, and other aspects. Also, be careful what you sign. The right of publicity, like other intellectual property rights, is assignable and can easily be transferred as a part of a contract. For example, many professional eSports contracts require the player to transfer all rights of publicity to the team organization. As an up-and-coming player you may not necessarily care or gloss over that part, but what happens if you develop an independent celebrity? What if you come up with a move, look, style, catchphrase that goes viral? The team would own it, and even if you left, it is possible that the team could successfully enforce that right to your own creation against you. As one of the more bizarre examples, Twitch suspended Dragonforce guitarist Herman Li for playing his “own” music. While details are murky and Li is back on Twitch, the likely reason is that Li assigned his rights to a label, and the label holds the right to demand a proper license from a streamer for the music’s reproduction. Music streaming licenses are a whole different issue – read my FAQ on playing music on Twitch to learn more.

Now that you are educated, the second step to protecting yourself is is retaining the right counsel who knows gaming. Intellectual property rights and licenses are paramount in the digital age. It is more important than ever to consult with a knowledgeable attorney before signing that team contract or sponsorship deal. And, when marketing a new product, attorney review is likewise essential to avoid legal issues that derail your launch. Remember, sharing your marketing idea, new product, or other money-making scheme with your attorney is confidential and is protected by attorney-client privilege. At the same time, failing to consult an attorney at the start can cost you much more later on in responding to cease-and-desist letters and even dealing with a lawsuit. Finally, if you suspect your persona or brand is being misused by someone else, talk to an attorney who can advise you of your rights, and if there is a violation, send a takedown demand or a cease-and-desist letter.

On a final note, the same principles apply to Instagram influencers, podcasters, Twitter accounts, and essentially anyone else who has built an online brand through an online presence. Protect yourself and your labors by doing it right.

Need an attorney who knows gaming law? Contact Dan Artaev by email or by call or text to set up your consultation.

Disclaimer: This article is not intended to be and does not constitute legal advice. Do not take any action or refrain from taking any action based on this article, and always consult with a qualified professional about the circumstances of your particular case.

© 2020 Artaev at Law PLLC. All rights reserved.

Employers: Know Your Obligations Under Michigan’s COVID-19 Employment Rights Act

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In late October 2020, Michigan enacted several important laws that affect employers’ rights and obligations in dealing with the COVID-19 pandemic in the workplace. I have updated my general COVID-19 guide for employers every month, and I have also written specifically about the COVID tort liability shield. Governor Whitmer also signed the COVID-19 Employment Rights Act (“COVID ERA”) – a significant set of Michigan-specific protections for workers that every employer should make sure they know and follow.

The Act itself is not lengthy or complicated. In general, it does two things: (1) imposes a mandatory quarantine for workers and sets forth specific criteria before they can come back to work; and (2) protects workers from retaliation for quarantining due to COVID. Employers must be familiar with and follow the Act for several reasons. The Act authorizes aggrieved employees to file suit in circuit court and collect a minimum of $5,000 in damages. Also, failure to enforce the quarantine mandate in the Act risks losing the tort liability protections of the COVID-19 Response and Reopening Liability Act. The tort liability shield is only available to those businesses that follow all applicable COVID laws and regulations – so a failure to follow the mandatory quarantine requirements in the COVID ERA may be used against employers in a subsequent lawsuit. For example, if the employer fails to enforce the 10-day quarantine, an employee comes back early and infects a customer, the customer may successfully pursue a negligence tort claim based on the fact that the business ignored the COVID ERA 10-day quarantine period.

Here is a more detailed summary of what the new Act requires:

First, the COVID ERA imposes a mandatory quarantine for workers and prohibits them coming to work if the worker:

  • Tests positive for COVID;
  • Is experiencing the principal symptoms of COVID; or
  • Has had close contact with another person who either tests positive for COVID or displays principal symptoms of COVID.

If the employee either tests positive or is experiencing principal symptoms (regardless of whether a subsequent test comes back negative) may not come back to work until:

  • It has been at least 24 hours since the employee’s fever has stopped without the use of fever-reducing medication and the other principal symptoms have improved; and
    • At least 10 days have passed since the onset of the COVID symptoms (even if testing yielded negative results); or
    • At least 10 days have passed since a positive test.

Employees who have had “close contact” with individuals who have tested positive for COVID or are experiencing principal symptoms must quarantine for at least 14 days or until the contact individual receives a medical determination that they did not have COVID at the time of the close contact.

Second, the COVID ERA prohibits employers from discharging, disciplining, or otherwise retaliating against employees who are observing the mandatory quarantine. Note that under the federal FFCRA that has been in effect since March, employees taking time off due to COVID are still entitled to 2 weeks of paid sick leave. This means that you will have to pay an employee observing the mandatory quarantine under the COVID ERA. Remember that a tax credit is available to offset the cost of this paid sick leave. Also, the FFCRA expires on December 31, 2020, and it is unclear if it will be extended or replaced at this time.

In addition, employers may not discharge, discipline, or otherwise retaliate against employees who “oppose a violation of this act [the COVID ERA]” or who report health violations related to COVID-19. In essence, employers may not retaliate against COVID whistleblowers.

To enforce the COVID ERA, the aggrieved employee may file a lawsuit in the circuit court, may seek an injunction and damages, and if the employee prevails, they are entitled to at least $5,000 in damages. This minimum damages provision is intended to encourage employees to enforce their rights under the COVID ERA and to allow them to secure representation, even where the actual damages may be difficult to prove or may be too small to justify legal action.

Finally, the COVID ERA applies retroactively to March 1, 2020, so an employer who illegally retaliated against an employee any time after March 1 can still be sued under this new Act. Note however that workers’ compensation applies to any employee injuries as a result of COVID. Thus, if an employee gets sick and blames their employer, their claim will likely fall under Michigan’s Worker’s Disability Compensation Act.

Questions about compliance with the COVID laws? Confused about the interplay between the various state and federal statutes? Contact attorney Dan Artaev by email or by call/text to set up a consultation.

Disclaimer: This guide is not intended to be and does not constitute legal advice. It is a summary of legislation for informative and promotional purposes only. Do not take any action or refrain from taking any action based on this guide, and always consult with a qualified professional about the circumstances of your particular case. Each set of facts is unique and different circumstances apply to each individual business.

© 2020 Artaev at Law PLLC. All rights reserved.

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