4 March, 2021

Spotlight on e-sports: An overview from India

Ranjana Adhikari, co-head media entertainment and gaming practice at Nishith Desai Associates

Immense potential for e-sports in India

With the market for online gaming in India making giant strides, the still nascent e-sports sector is at the verge of seeing a significant boost in the very near future. As per an industry report published in 2020, the estimated number of e-sports users in India is 17 million, and the aggregated revenue of Indian e-sports start-ups in 2020 is approximately $68 million. We have also seen recent reports of Indian e-sports start-ups raising significant capital from investors. These figures are certainly encouraging, and with the growth of cellular internet, as well as more affordable fibre internet connections, there is nowhere to go but up for the e-sports sector in India. While e-sports have not been formally recognised as a sport in India, as it has been done in jurisdictions such as China, an important development in Asia is the announcement that e-sports will be an official medal event at the Asian Games, to be held in Hangzhou, China, in 2022, which is sure to see participation by Indian players.

e-Sports regulation in India

The e-sports Federation of India (ESFI) is a prominent non-profit organisation dedicated to the promotion of e-sports in India, and has been organising and promoting a number of e-sports tournaments in the country. ESFI is not a statutory body, but is affiliated with international organisations such as the Global e-sports Federation and the International e-sports Federation. There is no specific regulation in India to address and regulate e-sports. That said, while there is no license regime for e-sports, there are a number of laws that companies offering and organising e- sports must adhere to while offering the same to Indian customers. These laws may be specific to publishing or regulating the content, and acceptance of any payments from players and prizes distributed, data protection issues, intellectual property rights, consumer protection and tax. The impact of the below laws would also depend on whether a company looks at offering their games from overseas or through an entity incorporated in India. It's important for companies to be carefully structured from a tax and regulatory perspective.

- Content-specific laws (applicable to all types of publications): The content of the game, and the characters within the game, would be governed by applicable content laws, such as the Indian Penal Code, 1860, the Indecent Representation of Women (Prohibition) Act, 1986, the Prevention of Insults to National Honour Act, 1971, or the Emblems and Names (Prevention of Improper Use) Act, 1950. The extension of some of these laws to online medium have also been debatable, with varying approaches adopted by courts. However, it's relevant to consider them while looking at the Indian market. Few of these laws attract criminal penalties as well.

- Payments considerations: The Reserve Bank of India regulates payment systems in India, and prescribes certain norms including know your customer (KYC) requirements, payment gateways and payment aggregators, and pre-paid payment instruments such as in-game wallets, to name a few. In the event it's a foreign e-sports operator offering their game in India, certain foreign exchange restrictions would have to be taken into account, along with restrictions on onboarding local payment gateways.

- Data protection law: Current data protection law prescribes compliance requirements only for Indian entities inter alia collecting and processing certain forms of sensitive data such as financial information, and health and medical information among others. There is a proposed overhaul to the current data protection regime in the form of the GDPR-inspired Personal Data Protection Bill, 2019, that is pending with the Parliament.

- Consumer protection law: India has a new consumer protection law, enacted as recently as July 2020. The consumer protection law among other things protects the consumer from unfair trade practices and misleading advertisements. The recently notified e-commerce rules under the consumer protection law may require overseas entities "systematically" offering their services in India to incorporate an entity in India, as well comply with certain requirements. The applicability of the e-commerce rules on companies offering their games in India would depend on the facts and circumstances of each case and will be required to be evaluated separately. State gaming laws: The industry advocates that e-sports sit as a completely different genre to any other form of gaming. However, one can't ignore the possible application of the gaming and gambling laws of the country, as the laws do not recognise a bifurcation if the format has elements of chance associated with it. The Constitution of India divides legislative powers between the Centre and the States, and the legislative power to make laws on 'betting and gambling' has been vested exclusively with the States. Some States have adopted the provisions of the Public Gambling Act, 1867, a pre-constitutional enactment, while others have introduced their own laws, which are largely consistent with each other. Most gaming enactments prohibit gambling products but exempt games preponderantly of skill. Whether a game, or even specific in-game elements such are loot boxes are exempted or not is a question to be determined on the specific facts of each case.

- Intellectual property laws: There could be a number of intellectual property implications for e- sports companies. For example, the music incorporated in the video game, or the software on which the game runs, are protected under the Copyright Act, 1957. The names and logos associated with a game would be protected under the Trade Marks Act, 1999. The intellectual property laws have been amended to be compliant with the Agreement on Trade-Related Aspects of Intellectual Property Rights.

The PUBG controversy

Though riddled with controversy, one of the most prominent and recent players in the e-sports market in India has been Tencent's Player Unknown's Battlegrounds (PUBG). As per reports, PUBG had approximately 600 million downloads and 50 million active users in India in early 2020, which is an indication of its immense popularity.

However, PUBG came under attack in India for a number of reasons. In early 2019, the police authorities of certain districts in the States of Rajasthan and Gujarat banned PUBG following complaints on the negative effects that the game was having on minors. In 2019, a public interest litigation was filed before the Bombay High Court on behalf of an 11-year-old from Mumbai, where it was argued that PUBG promotes immoral conduct such as violence, murder, aggression, looting, gaming addiction and cyber bullying, and thus should be banned. The High Court did not ban PUBG, but directed the Ministry of Electronics and Information Technology (MEITY) to review the content of PUBG, and issue necessary regulatory directions if it is found to be objectionable. The High Court had also directed the Medical Council of India to decide whether the game had an adverse effect on children.

Unrelated to this Bombay High Court decision, PUBG, being an app based in China, was banned in September 2020 by the Government of India for being "engaged in activities that are prejudicial to sovereignty and integrity, defense and security of the country". Post this ban, PUBG announced that it would soon launch PUBG Mobile India, an app wholly based in India. However, as per news reports, the launch of the Indian focused app is still pending MEITY's confirmation. Similarly a number of other games were also banned by the Indian government that had a similar China connection, like Clash of Clans, Heroes Evolved and Happy Fish.

Cultural and religious sensitivities

There is likely to be pushback in India on games that could be seen to be a danger to children. There has been a number of public interest litigations filed in various high courts that highlight the dangers of addiction to gambling, and the resulting financial crisis that people face. These petitions stress how it's the unemployed youth that are particularly susceptible to addiction to gambling, due to the alluring prize money offered. In fact, as per reports, the National Commission for Protection of Child Rights (NCPCR), created by the Government of India, is against the relaunch of PUBG in India, until legislations are in place for such online games". The NCPCR has spoken out against PUBG in the "past, due to the alleged bad influence on children.

Religious sensitivities run high in India and there have unfortunately been frivolous cases filed in the past on these grounds. For instance, the AR game Pokemon Go had certain in-game items to be collected at temples. This led to a public interest litigation being filed in the High Court of Gujarat alleging that this hurt religious sentiments.

The road ahead

With the immense potential India holds, it's no surprise that there is an increased interest in the sector, with market leaders now focusing on the Indian market. We hope to see the sector growing with leaps and bounds in 2021. And while legislation is still some time away, having a proper framework in place would give this industry stability in policy and much required impetus, going a long way in recognising the legitimacy of the same.

"With the immense potential India holds, it's no surprise that there is an increased interest in the sector, with market leaders now focusing on the Indian market. We hope to see the sector growing with leaps and bounds in 2021."