“And I heard ‘em say, nothin’ ever promised tomorrow today;” [1] That is, unless, that promise was memorialized into a properly drafted and negotiated brand licensing agreement. Brand licensing agreements are essential for companies that want to create a successful, long-term business strategy. Licensing allows companies to leverage a brand’s image, reputation, and power to create a mutually beneficial relationship.
In the fallout of the most recent (among a long list of) Kanye West-related debacles—the severance of the brand partnership between Kanye West (or “Ye”) and Adidas in connection with the Yeezy-branded shoes amid outrage sparked by Ye repeatedly espousing anti-Semitic comments—and against the background of a marketing and advertising landscape that is increasingly dependent on influencers, ambassadors, and celebrity spokespeople, businesses should take this opportunity to evaluate their brand licensing arrangements. Today, we examine some elements of a brand licensing agreement that businesses and public figures should each consider in light of the very public breakup of Adidas and Ye.
Companies and their enlisted army of influencers and brand ambassadors, while sharing a common end goal of enhancing product sales, oftentimes have diverging interests when it comes to intellectual property ownership for the underlying products and services and protecting against the risk of reputational damage that may result from the endorsement relationship. To ensure a successful brand licensing agreement, there are a few best practices that should be followed. First, it’s important to clearly define the scope and terms of the agreement. This should include a comprehensive list of the rights and responsibilities of both parties, ownership of the underlying intellectual property, as well as a timeline for the agreement. It’s also important to consider the market potential for the product or service being licensed and the potential for brand dilution. It is essential that a company understands the risks and potential rewards of the agreement before entering into it. Second, companies should ensure that their licensing agreement is legally binding and enforceable. This includes conducting thorough due diligence on the other party, as well as having a qualified attorney review the agreement. Companies should also have a system in place to monitor compliance with the agreement and ensure that the agreement is being followed. Finally, companies should consider creating a licensing committee or other body to oversee the licensing agreement, which may include the monitoring of a particular influencer/partner to ensure compliance with morality provisions.
Intellectual Property in Brand Licensing Agreements
Intellectual property (“IP”) clauses in brand licensing agreements are an important and necessary part of any legally binding agreement. These clauses ensure that the licensor owns the right to use and control the IP, while the licensee has the right to use and protect the IP. IP clauses generally include provisions on the ownership and use of trademarks, copyrights, patents, trade secrets, and other forms of intellectual property. The first step in analyzing IP clauses in a brand licensing agreement is to determine the scope of the license. The licensor must specify which rights are included in the license, and the licensee must ensure that the license covers all of the rights that are necessary for the licensee to use the IP. In addition, the licensor should include provisions that specify how the licensee can use the IP, including any restrictions on the use of the IP. The second step is to consider the specific terms of the IP clauses. These terms should clearly define the rights of the licensor and the licensee and should specify how the IP can be used and protected. The terms should also include provisions on the duration of the license, the royalty payments to be made, and any other relevant information.
In a typical endorsement relationship, a company will engage a familiar, or in some instances an unfamiliar but relatable and emerging, personality to promote the company’s products and services through various forms of media via content creation, public appearances, commercial appearances, and overall brand adoption. Predictably, the efforts expended by the influencer/ambassador/spokesperson can result in the creation of valuable intellectual property, most commonly through the generation of copyrightable works. When the endorser/ambassador is more akin to a brand partner—versus just a paid spokesperson—additional intellectual property may be generated, such as trademarks, service marks and design patents. It should be clear from the onset of the relationship which party owns what.
It is extraordinarily common, and therefore expected, for companies to retain ownership of all conceivable intellectual property generated prior to, during the course of, and following the termination or expiration of the endorsement relationship. In many circumstances, particularly when the relationship involves influencers, the company is able to achieve this through positioning at the bargaining table—influencers typically need the company more than the company needs the influencer. In other words, it is much easier for a company to present the proposal to an influencer on a take-it-or-leave-it basis. That is not necessarily a bad thing for an influencer or brand ambassador—their likeness has the potential to gain huge exposure through brand endorsement relationships, opening the door to future revenue-generating opportunities with other brands and media outlets. However, it is important for companies and influencers alike to recognize instances where the intellectual property generated or brought to the table by each party is of more value together than the sum of its parts.
Take for example the Adidas/Ye relationship, which came to life in 2016. This strategic partnership blossomed into an enormously successful sneaker line sold under the brand name “Yeezy.” As it appears from reporting on the subject, Ye, through a holding company, retained full ownership of the Yeezy trademark, and Adidas was a licensee of the relevant marks. In connection therewith, Ye was restricted from using, wearing, sponsoring, promoting, marketing, advertising, endorsing, designing, manufacturing, licensing, selling, or providing consulting services with respect to various products (robust categories of footwear, apparel and accessories) under the Yeezy trademark (among other trademarks), or Ye’s likeness or any other identifiable attribute or indicia of Ye. In terms of the actual products, the sportswear company retained full ownership of the designs as part of the deal, along with certain trademarks, copyrights, and patent registrations for popular sneakers issued to Adidas. [2]
Morality Clauses in Brand Licensing Agreements
Sometimes, when a brand ambassador can feel the pressure, and is under more scrutiny, they will act more stupidly [3]—as demonstrated by Ye doubling (and tripling) down on antisemitic commentary. When faced with mounting pressure, Adidas unilaterally terminated the Yeezy partnership, likely relying on a “morals” or a “morality” clause. Morality clauses are contractual provisions used in a variety of contexts that allow one of the parties to terminate the agreement if the other party’s conduct is deemed to be immoral or offensive. These clauses are used primarily in entertainment contracts and employment contracts, although they may also be found in other types of agreements. From a legal standpoint, morality clauses are generally enforced as long as they are not overly broad and do not infringe on protected First Amendment rights. Generally speaking, courts will not enforce morality clauses that are so broad that they would prohibit activities that are not actually immoral or offensive.
Morality clauses generally come in two forms: (1) “bad behavior” and (2) “reputational”. A bad behavior morality clause generally prohibits the brand ambassador, spokesperson, endorser, or influencer from committing certain categories of bad acts, or specifically delineated ones (such as criminal felony offenses), and permits the Company to unilaterally terminate the relationship in case the clause is triggered. Such bad behavior clauses allow room for negotiation because the categories or list of bad acts may be limited more narrowly, or triggered only upon certainty that the bad act occurs. An example of a bad acts morality clause is one that was in place between Warner Brothers and Charlie Sheen:
If Producer in its reasonable but good faith opinion believes Performer has committed an act which constitutes a felony offense involving moral turpitude under federal, state or local laws, or is indicted or convicted of any such offense, Producer shall have the right to delete the billing provided for in this Agreement from any broadcast or other uses which are thereafter made of the episode(s) in which Performer appears. In addition, to the extent such event interferes with Performer’s ability to fully and completely render all material services required hereunder or Producer’s ability to fully exploit the Series, Producer shall have the right to treat such act as a default under the applicable provisions hereof. [4]
In a reputational morality clause, the commission of a certain act is not necessarily required; instead, the clause can be triggered when the endorser causes him/herself and/or the company to be the subject of disrepute. In making the determination of whether the clause has been triggered, a court would likely require the company to utilize its discretion through the lens of the implied covenants of good faith and fair dealing. [5] Thus, it may be in the best interest of the company to insert a reasonableness requirement if requested by the ambassador. For example, an example morality clause may look something like this:
If the Influencer is brought into public disrepute, contempt, scandal, or ridicule, or has been or becomes involved in any situation or occurrence reasonably tending to offend, shock, or insult any person or class of persons, or which reflects unfavorably upon the Company or its products or services, the Company has the right to terminate this Agreement in its sole and reasonable discretion upon five (5) days’ notice to the Influencer of its intention to do so. [6]
Conclusion
Morality and intellectual property clauses are only two aspects among a plethora of other components comprising a brand licensing agreement. For example, the activities of the respective parties will be subject to scrutiny by the Federal Trade Commission, and language should be built into the agreement to address required disclosures. Now, you might not need a stylist when you shop so much that you can speak Italian, [7] but you should enlist an experienced legal counsel to represent your interests while negotiating, carrying out, and exiting a brand licensing relationship. A qualified attorney will be able to assist you in all aspects of brand licensing, including developing a plan to run away fast as you can [8] in case the relationship sours.
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[1] Kanye West, “Heard ‘Em Say” from Late Registration
[2] Ye, through a holding company, is the sole holder of the trademark rights in (and registrations for) “Yeezy” and “YZY” for use on footwear and apparel. Ye’s corporate entity licensed to Adidas for use in connection with the Yeezy collaboration. Adidas, however, holds the rights in the Yeezy footwear designs, with specific Adidas designers listed as inventors of the patents for the Yeezy 750 Boost and the classic Yeezy boost sneaker and variations thereof. “All of the patents, and a similar copyright registration, are assigned to – and thus, owned by – adidas, and West receiving royalties based on sales in connection with the use of his Yeezy marks.” Kanye West’s Yeezy Venture is a Multi-Bilion Dollar Business and Still Growing, The Fashion Law (Mar. 17, 2021), available at https://www.thefashionlaw.com/kanye-wests-yeezy-venture-is-worth-1-billion-and-growing/.
[3] Kanye West, “Can’t Tell Me Nothing” from Graduation
[4] Eriq Gardner, Charlie Sheen’s Contract: Was There Actually a Morals Clause? (Analysis), Hollywood Rep. (Mar. 8, 2011, 9:13 AM), https://www.hollywoodreporter.com/thr-esq/charlie-sheens-contract-was-actually-165309.
[5] See, e.g., Mendenhall v. Hanesbrands, Inc., 856 F. Supp. 2d 717 (M.D.N.C. 2012).
[6] Annamarie White Carty, Cancelled: Morality Clauses in an Influencer Era, Lewis & Clark L. Rev. Vol. 26.2, 565, 606 (2022).
[7] Kanye West, “Champion” from Graduation
[8] Kanye West, “Runaway” from My Beautiful Dark Twisted Fantasy
