Now you see it... now you don't: key legal issues for virtual advertising

Posted in Intellectual property

What is virtual advertising?

Virtual advertising is the insertion of non-physical (virtual) advertising material into a broadcast of a live event. In simple terms, it means that the advertising you see when you watch a broadcast of an event is different from the physical advertising that appears on the ground at the live event. 

Virtual advertising creates opportunities for rights holders to tailor the advertising seen in a broadcast to local viewers, as the signage seen by viewers in different jurisdictions may vary. This enables rights holders to carve up their commercialization activity by territory and has the potential to significantly increase advertising revenues. The technology can also be used to enhance the brand experience for fans, for example by covering advertising signage with team branding if a goal is scored.

The enabling technology for virtual advertising has been available and in use for decades. A search for “virtual advertising” on an online patent register provides hits with priority dates in 1999 and 2000. The technology has been used to cast sponsor branding on to the pitch for broadcasts of grass-based sports or onto surfaces behind playing areas for many years – in fact the United States Major League Baseball was using virtual advertising technology back in 1998[1].

Why the new interest? The underlying technology is being used to map virtual advertising over physical signage, which vastly increases the value proposition for venues, hirers, broadcasters and other interested parties. While the technology has previously been very expensive to develop and deploy, recent advances are reducing the costs significantly. Companies are now looking at ways to utilise 3D graphic software that can be controlled without expensive infrastructure, which in turn reduces costs to deploy the technology.

Where is virtual advertising being used?

Perhaps unsurprisingly, given the globalization of many of the world’s leading sports competitions and the fact that revenue from sports sponsorship in the United States alone is predicted to exceed US$18,000 million in 2019[2], the sports industry is taking up the opportunities that virtual advertising presents.

The NHL and NBL in the United States have been using virtual advertising for some time. For the NHL in particular, virtual advertising helps to overcome some of the challenges advertisers face with catching the viewer’s eye in the background to a fast moving sport on a very large white canvas. There were rumors that the NBA planned to use virtual advertising to cast sponsor logos on player jerseys.

In the last 24 months, virtual advertising has had a demonstrable breakthrough, with a number of football (soccer) leagues approving its deployment. Virtual advertising is now being used in the German Bundesliga and Spanish La Liga. It was successfully trialled by the English Football Association during an England World Cup warm up match, and virtual advertising technology has been installed at a number of Premier League home grounds.

Closer to home in Australia, the National Rugby League was the first major sport to use the technology, and first superimposed signage onto a field in April 2013.[3] Since then, numerous organisations and broadcasters have utilized the technology, including Cricket Australia and Fox Sports.

Key legal issues for virtual advertising

Many of the legal issues that are relevant to traditional advertising practices remain applicable to virtual advertising. There are, however, complexities to consider with the introduction of new stakeholders, territory-specific marketing and the potential curtailing of rights of existing rights holders. 

Some of the legal issues to consider in respect of virtual advertising are highlighted below. 

Who may grant virtual advertising rights to advertisers?

Advertising and marketing rights in respect of a sporting venue, at least in respect of physical in-ground advertising, are typically held by the owner or operator of the venue, or granted to hirers under the relevant hire agreement.  Virtual advertising rights, however, are often granted by broadcasters of the relevant event. This is logical, because virtual advertising involves amending a broadcast of an event so that the advertising seen on screen is different from the advertising seen by spectators at the venue.  

Each deployment needs to be considered on a case-by-case basis because the contractual arrangements for the hosting of a sporting event are complex and numerous. Before new virtual advertising contracts are entered into the existing contractual arrangements for a venue (which may include venue operating agreements, venue hire agreements and broadcasting agreements) need to be carefully considered to establish who holds the rights that are proposed to be granted for each particular code or event. 

Once the party entitled to grant advertising rights has been identified, any rights already granted to existing advertisers for physical advertising at a venue needs to be reviewed, particularly if they have been granted on an exclusive and worldwide basis. This analysis also needs to consider if broader rights have been granted that could capture virtual advertising.  For example, a right of first refusal for new technology at a venue, could extend to rights in respect of virtual advertising.

How does virtual advertising impact on intellectual property subsisting in a broadcast?

Any in-ground advertising content is likely to be protected by copyright.  Adapting an original copyright work constitutes an infringement of the exclusive rights of the copyright owner of that work under the Copyright Act 1968 (Cth). The author of a work also has moral rights in respect of the integrity of their work. The new advertising that is broadcast by the deployment of virtual advertising should entirely replace the advertising shown at a venue to mitigate the risk of infringing the relevant copyright owner’s rights by adapting or reproducing their work. 

Any broadcast of an event is, in many jurisdictions, likely to also be protected by copyright.  In the absence of a written agreement to the contrary, the broadcaster is likely to be the first owner of any such copyright. The copyright subsisting in a broadcast may be infringed by the amendment of the broadcast that would be necessary to deploy virtual advertising. It is unlikely that any statutory exceptions or defences to copyright infringement relating to broadcasts would be relevant (for example, the exception for temporary copies made to replay at a more convenient time).

If the broadcaster is not the party granting the virtual advertising rights, the relevant grantor will need the co-operation of the broadcaster to implement the proposed virtual advertising arrangements (because virtual advertising is deployed by amending the broadcast). Given that the overall success of virtual advertising depends on this co-operation, it should be documented in a written agreement.

How is the technology being acquired?

With significant advances in 3D computer software technologies in the pipeline, for the best outcomes deployment of virtual advertising is likely to require a technology upgrade. Virtual advertising platforms comprise integrated hardware and software.  The hardware may well be protected by registered patents. There will be copyright in the software.  There may be maintenance arrangements and systems integration services that are a fundamental part of installing and operating the platform (and intellectual property rights may well result from such development).

The legal considerations for the procurement of virtual advertising technology are broadly consistent with those applicable to any technology procurement. The starting point is to identify the structure for the procurement and respective stakeholders’ responsibility. Who is buying the technology? Is it a hardware purchase with a software licence or is the arrangement a platform as a service? Who will be using the technology (ie actually deploying the virtual advertising), whatever the model, and do they have the right to do so under the proposed contract structure? 

In addition to these questions, the usual risks for technology contracting need to be considered including in respect of service continuity and availability, intellectual property ownership and licensing, intellectual property infringement claims, data ownership and integrity, and support and maintenance.

Are advertising laws applicable to virtual advertising?

The short answer, is yes. Virtual advertising is no different from other advertising in that it must comply with the relevant local advertising regulatory framework. The requirements of advertising laws will differ from jurisdiction to jurisdiction, and the responsibility for ensuring that advertising is compliant with those laws should rest with the advertiser.            

To mitigate against the risk of non-compliance with advertising laws, the person granting advertising rights should obtain “compliance with laws” warranties from the advertiser and indemnification for any losses or liability resulting from non-compliance with local marketing and advertising requirements. We expect that if the broadcaster is not the party granting advertising rights, it will nevertheless want to seek indemnification from the appointing counterparty since it will ultimately be responsible for communicating the relevant advertising to the public.

What does virtual advertising mean from a consumer law perspective?

Most countries’ advertising laws include some sort of prohibition on misleading or deceptive advertising, to protect consumers.  When virtual advertising is deployed, viewers of broadcasts may be misled or deceived into believing that the virtual advertising that they see in a broadcast is actually a broadcast of the signage seen at the live event. Those deploying virtual advertising should consider the use of disclaimers to mitigate this risk.

Consideration also needs to be given to the handling of complaints and the allocation of liability if the use of virtual advertising technology detracts from the viewing of the broadcast. Indeed, bugs in the technology do show up from time-to-time. 

Virtual advertising proved to be a distraction (perhaps a welcome one, for Wallabies fans) during Fox Sports’ (and Sky Sports NZ’s) broadcast of the Wallabies test match in Japan last year. At a number of times during the match, players’ jerseys and even the ball, were lost or covered by on-field virtual advertising.[4]  Stakeholders need to be clear as to who is responsible for identifying and resolving such issues.

Are there any sport-specific regulations to consider?

Certain international associations and national governing bodies regulate the use of virtual advertising. For example, FIFA’s current Laws of the Game provides that no virtual advertising is permitted on the field, within the goal nets or within 1 m of the boundary lines for the field of play.[5] 

Any rules or regulations applicable to the sport or event in respect of which virtual advertising is proposed to be used need to be reviewed, and any specific requirements should be captured in the relevant advertising agreement.

[1] https://www.wsj.com/articles/SB901747676797483000

[2] https://www.pwc.com/us/en/industry/entertainment-media/assets/2018-sports-outlook.pdf

[3] https://www.theaustralian.com.au/business/media/nrl-tackles-new-world-of-virtual-advertising/news-story/230034b271a2fb345c79aeb836c85469

[4] https://www.sportingnews.com/au/rugby/news/bledisloe-cup-wallabies-all-blacks-advertising-japan-world-cup/8x1jomcfxdha1iptpif43uvl6

[5] FIFA Laws of the Game 2017/18, Law 1, Decision 12 

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