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CELEBRITY

What Not to Do: Kardashians Score a Win in Fight Against Licensee

By Karina Masolova

The Kardashian sisters got a pretrial court order barring Haven Beauty from using their names and trademarks—effectively opening the door for new licensees to step in, since the Kardashians want to ultimately terminate their licensing agreement. The Aug. 23 ruling, from the U.S. District Court for the Central District of California (2Die4Kourt v. Hillair Capital Mgmt., LLC), serves as a good warning for licensees to be aware of their own contract terms as well as the law.

The Kardashians are suing Haven Beauty and its parent company Hillair for violating a licensing agreement allowing it to use the Kardashian Beauty and other trademarks for certain cosmetic products. A trial date has not yet been set; keep in mind that nothing is confirmed at this point. But both parties have expressed an unwillingness to settle—licensee hopefuls will have to wait.

Haven Beauty got hold of the exclusive worldwide rights in 2014 when the Kardashians’ original licensee, Boldface Licensing & Branding, ran into financial problems. But Haven Beauty allegedly violated the licensing agreement by not paying royalties and not securing the approval of the Kardashians before marketing and selling certain products. After serving notice to Haven Beauty, the Kardashians unilaterally terminated the licensing agreement in July. Soon after, Haven Beauty launched the Fierce product line, which included Kardashian-branded products that the sisters expressly disapproved in sample for and was promoted by the Kardashian’s images and trademarks. After the court’s ruling, Haven took down its dedicated www.kbeauty.com website.

The Legal How

So why did the court approve the Kardashian’s request to bar Haven Beauty from using the sisters’ trademarks? Simply put, it believes the Kardashians have a good case for trial.

The court found that Haven Beauty was using the Kardashian trademarks without authorization. According to California state law, once a license agreement is terminated, the licensee cannot continue using the mark. Even when a licensor improperly terminates an agreement, the licensee has only two options:

  1. Consider the contract terminated and stop performance, forfeiting the right to continue to use the trademark.
  2. Continue making royalty payments under the license agreement, continue using the trademark, and then sue for damages.

In short: A licensee cannot do what Haven Beauty did and continue using the trademark without paying royalties. Its continued use of Kardashian trademarks constitutes trademark infringement.

The court also found that this use would result in consumer confusion (the company made public statements that the Kardashians were involved with disapproved products) and violate the sisters’ right of publicity. See TLL‘s state-by-state breakdown on the right of publicity and using celebrities without permission here.

Further, the court found that the Kardashians would suffer “irreparable harm,” because Haven Beauty continued using the marks despite the sisters’ express disapproval of product prototypes. Essentially, the legal term means that the Kardashians no longer have any control over their business reputation and goodwill in connection to Haven Beauty-manufactured Kardashian-branded products.

And even though Haven Beauty’s business will necessarily suffer (the Kardashian marks are its only license), because it likely intentionally violated the trademarks in question, the company was found to have brought its troubles on itself. In the words of the court, it will “not … save Haven Beauty when its business model is based on intentional trademark infringement.”

Closer Look at the Contract

The court looked at four provisions from the licensing agreement to make its decision:

Consideration: In consideration for the licensing agreement, the licensee agrees to pay the Kardashians: (1) a non-refundable advance; (2) earned royalties calculated as a percentage of overall wholesale sales; and (3) guaranteed minimum royalties payable at the end of each contract quarter.

The agreement also provided for the following steps in paying out royalties. Allegedly, no one did what they were supposed to—so this section has little bearing on the decision, but it’s a good example of how companies might structure payments. The court implied that even if the Kardashians didn’t generate invoices properly, Haven Beauty would still have been on the hook for making payments if it wanted to continue using the marks.

  1. At the end of each contract quarter, the licensee shall provide the Kardashians with a quarterly accounting statement that includes all information necessary to calculate the earned royalties on wholesale sales;
  2. After receiving quarterly accounting statements, the Kardashians shall generate an invoice identifying royalties due under the license agreement; and
  3. After receiving the invoice, the licensee shall pay the Kardashians the amount due.

Prior approval: Licensee’s use the of the Kardashians’ trademarks, etc. in connection with the promotion of cosmetic products is expressly conditioned on the prior written approval of the Kardashians.

Promotion: As an ancillary service, the Kardashians must promote the licensee’s Kardashian-sponsored cosmetic products through photo shoots, personal appearances, and social media. This obligation to promote is expressly conditioned on the licensee’s material compliance with the license agreement, including the licensee’s timely payment of all royalties due under the license agreement.

Termination: The Kardashians may terminate the license agreement immediately if (1) the licensee fails to make timely payments and fails to cure or (2) the licensee commits a material breach, and fails to cure. After the agreement is terminated, the licensee cannot use the Kardashians’ trademarks, etc. “in any manner whatsoever.”

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