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LEGAL PITFALLS

Star Wars: Steer Clear of Celebrity Licensing Pitfalls by Adding 7 Protections to Your Contract

Licensing a celebrity’s brand is a great strategy for selling consumer products. But it’s also risky. Celebrities are temperamental, especially where their brand is concerned. And if a dispute ensues, that same fame that attracted you to the celebrity in the first place could work against you. Although each case is different, break-ups tend to follow common patterns. The key to protecting your product is anticipating these patterns and ensuring your contract protects you against any and all of them.

3 Basic Ways to Leverage a Celebrity

The first thing to consider when teaming with a celebrity is how to structure your deal. Possibilities range from:

  • Traditional endorsements in which the celebrity gets a fee for promoting a product, such as Beyoncé’s endorsement of Pepsi;
  • Licensing arrangements in which celebrities allow their name, likeness or works to be used to develop new products in exchange for royalties or fees, such as Nike’s “Air Jordan” sneakers; and
  • Joint ventures in which the celebrity teams up with the manufacturer and shares the risks and profits of the enterprise, such as Madonna’s venture with Iconix on the “Material Girl” apparel line.

Defining Our Terms

This article focuses on the second arrange ment although much of the analysis overlaps with and is also relevant to traditional endorse ment contracts and even joint ventures.

1. Celebrities Become Radioactive

Problem: Your pristine celebrity may become the next O.J. Simpson or Lindsay Lohan.

Solution: One solution is a Morals Clause letting you terminate if the celebrity’s behavior doesn’t meet a specific standard.

Example: Hanesbrands relied on a “morals clause” to end its endorsement deal with NFL player Rashard Mendenhall for making con troversial tweets about Osama bin Laden and 9/11 such as, “We’ll never know what really happened [on 9/11]. I just have a hard time believing a plane could take a skyscraper down demolition style.”
Morals clauses are highly controversial and likely to spark intense negotiation, the outcome of which will be dictated by leverage. The best outcome for the licensee is a broad clause like the following:

BROAD MORALS CLAUSE

If at any time, in the opinion of Licensee, Celebrity becomes the subject of public disrepute, contempt, or scandal that affects Licensee’s image, reputation, products, or goodwill, including but not limited to Celebrity’s communications on social media and/or Celebrity’s participation in potentially offensive, controversial, inappropriate, or objectionable public activities, Licensee may, upon written notice to Celebrity, immediately suspend or terminate this License Agreement without owing Celebrity any further royalties or fees.

The celebrity will likely want to remove or at least significantly narrow the clause.

NARROW MORALS CLAUSE

Licensee may terminate this Agreement if Celebrity is convicted of a felony or misdemeanor of moral turpitude that is likely to cause a diminution in the value of Licensee’s commer- cial association with Celebrity, upon 60 days’ written notice, in which case, Licensee must pay Celebrity any sums that may be due for services then already rendered or for authorized expenses incurred by Celebrity or payments due prior to the date of termination.

2. Celebrities Lose Their Mojo

Problem: You also need an out in case the celebrity’s brand ebbs for reasons not involving crimes, misdemean ors and controversy.

Examples:

  • Jemella Group ended its haircare endorsement deal with Katy Perry because of her waning popularity in Europe;
  • Genomma Labs, which sells beauty creams under the tagline “feel 17 again,” pulled the plug on Thalia endorsement deal after the Spanish starlet got pregnant. “The image of a pregnant woman doesn’t correspond to the one stipulated in the agreement,” according to a company press release.

Solution: Get the flexibility to jettison a celebrity with an eroding brand. Options:

  • Try to avoid long-term deals and guarantees, e.g., over 3 years;
  • Get the right to terminate early if the celebrity is killed, injured, incapacitated or loses effectiveness (according to your judgment); and/or
  • Be prepared to pay the celebrity an exit fee for exer cising the option.
CHECKLIST OF KEY CELEBRITY LICENSING CONTRACT TERMS

Make sure your licensing contract with celebrities covers the following:

  • Parties: Clearly and specifically identify the parties, including not just the celebrity and licensee but agents, marketing representatives and other intermediaries
  • Authority to Bind: Include a warranty of the parties’ authority to enter into a binding contract
  • Definitions: Define all key contract terms, e.g., Celebrity, Licensee, Royalties, etc.
  • Term: Specify how long the contract lasts
  • Termination: Describe how the contract is terminated and renewed, including:
    • Any early termination rights and their triggers
    • Triggers for early termination, such as celebrity impairment
    • Notice required for early termination
    • Consequences of early termination, such as whether additional royalties or fees are due
  • Morals Clause: Establishes a standard of conduct that the celebrity must meet and provides for termination in the event of failure to do so
  • Reverse Morals Clause: Establishes a standard of conduct that the licensee and its officials must meet and provides for termination in the event of failure to do so
  • Geographic Scope: Identifies the territory the agreement covers
  • Scope of Services: Identifies the specific service obligations of each side, including the celebrity’s duty with regard to photo shoots, commercials, infomercials and public appearances
  • Intellectual Property: Describes the intellectual property rights in the celebrity granted to the Licensee and requires the celebrity to respect the Licensee’s own trademarks and other intellectual property
  • Exclusivity: Spells out if the celebrity may endorse, directly or indirectly, or use competing products
  • Consideration: Sets out the royalties, licensing fees, payments and other compensation to which the celebrity is entitled
  • Method of Payment: Explains how and when consideration is paid
  • Accounting Rights: Sets out the celebrity’s accounting or audit rights
  • Retirement, Injury, Death, Impairment: Describes the consequences of each of these things
  • Insurance: Indicating which, if any, kind of insurance is required, such as “key person” life insurance on the celebrity
  • Force Majeure: Lists the legal consequences to each side in the event of terrorist attacks, strikes, changes of law, natural disasters and other uncontrollable events
  • Dispute Resolution: Lists the method to be used to resolve disputes under the agreement, such as arbitration or mediation rather than litigation

3. Celebrities Think You’re Hurting Their Brand

Problem: Early exit works both ways and celebrities may want protection in case associating with you hurts their own brand.

Example: The Kardashian sisters pulled out of a licensing agreement with Revenue Resources Group after the Connecticut Attorney General said the prepaid debit Kardashian Kard was laden with hidden, predatory and potentially illegal fees.

Solution: Options include adding a “reverse morals” clause letting the celebrity terminate if your company or a high ranking official engages in illegal, immoral or controversial conduct.

4. Celebrities Object to How You’re Using Their Brand

Problem: Disputes may arise over how licensees actually use the celebrity’s name, image, etc.

Example: Gwen Stefani and No Doubt claimed Activision’s use of their images in a video game as “avatars” that players could unlock and manipulate to conduct unflattering actions like using Stefani to sing Rolling Stones songs in a husky male voice exceeded the scope of the license.

Solution: Specifically describe your rights to the celebrity’s name, image and characteristics and how they’ll be used. Indicate who will control use and list any uses requiring the celebrity’s consent.

5. Celebrities Don’t Support the Product

Problem: Failure of celebrities to support the product bearing their name or image is a frequent cause of licensee complaints.

Example: Selena Gomez, Paris Hilton and Jessica Simpson were all sued by their licensees for not showing up for promotions, using or supporting the personal brands developed for them.

Solution: List what you expect the celebrity to do to support the product, including with regard to photo shoots, commercials and infomercials, and personal appearances—how many, how often, how scheduled, how long, which location, etc. Make failure to provide such support a “material breach” justifying termination.

6. Celebrities Use Competing Products

Problem: Another common problem is a celebrity’s use of a competitor’s products. Examples:

  • Charlize Theron’s being photographed wearing Christian Dior and Mont Blanc watches despite exclusive endorsement deal with Raymond Weil;
  • Paris Hilton allegedly appearing in public wearing a competitor’s hair extensions in violation of her $3.5 million endorsement contract with Hairtech;
  • Jessica Simpson’s citing True Religion rather than her own personal brand JS-Princy as her favorite jeans in an interview.

Solution: List your expectations regarding exclusivity and ban the celebrity from endorsing, directly or indirectly, and using competitive products that are inconsistent with those expectations.

7. Celebrities Cite Oral Agreements

Problem: Celebrities may claim they’re entitled to money or rights under oral or side agreements not included in the express terms of the licensing contract.

Example: Zooey Deschanel sued shoemaker Steve Madden for $1.2 million for violating an alleged oral agreement to develop a line of “Zooey” shoes and accessories.

Solution: Put all of your licensing contracts with celebrities in writing. Add a clause specifying that the written terms represent your entire agreement and that there are no oral or side agreements between the parties.

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