Hello, this is Jenny from TEIL Firms. Today I will be discussing Yeezy Contract Frenzy, I will discuss the morality clause. I will walk you through the definition, background, and legal challenges of a morality clause.

Definition

A morality clause is a contractual provision that gives a party (often a unilateral right for the party of stronger bargaining power) to terminate the agreement and seek remedies in terms of damages or punitive awards against the other party (which we often refer to as the “talent,” which is usually an individual whose endorsement or image is sought) when the talent engages in reprehensible behavior or conduct that may negatively impact the public image of the contracting company.

History and Background

The logic behind a morality clause is the power of association that is deeply rooted in consumer psychology. The idea is that an individual with ties to the organization—whether an official endorser or an employee wearing the company uniform— represents the organization in the public’s eyes. Thus, their acts and reputation are attributable to the company and its Products. The celebrity endorser carries cultural meaning (for example, lifestyles, statuses, and values) through the consumer products, and the cultural notions will in turn transfer onto the minds of the consumers. It is through these “natural associations” that may impact the consumers decisions on whether to purchase the products. It was also the fear of “negative association and its impact” that morality clauses began to appear in the early 1920s.

Roscoe “Fatty” Arbuckle was an actor who had a contract with Paramount Pictures, He was accused of rape and manslaughter of a female actress named Virginia Rappe. Although Arbuckle was eventually acquitted of the charges, his reputation never recovered. Ever since then, companies have been inserting “morality clauses” into their talent agreements.

Bad Behavioural Clause and Reputational Impact Clause

The morality clause can be divided into two categories based on its content. One is the bad behavioral clause. Some morality clauses contain outright prohibitions on certain unwanted behavior, irrespective of the act’s impact or association to the public. For example, a morality clause with a very broad language may read “any conduct that is considered ‘indecent’, ‘immoral’, or ‘unacceptable under social norms,’” or it may specify certain repugnant behaviors or “negative events” such as “driving under the influence of alcohol or drugs,” “being arrested for a crime”, and “being convicted of a crime.”

The other one is the reputational impact clause. This type of clause often contains languages prohibiting acts that offend the community, or acts that reflect unfavorably on either side of the contracting parties, or acts that bring the offending party “into public disrepute, contempt, scandal, or ridicule, or tend to shock, insult or offend the majority of the consuming public or any protected class or group thereof.”

It is highly likely that the Brand licensing agreement between Ye West and Adidas contains morality clauses—reputational impact clause, in particular, and that Adidas terminated its collaborative deal with Ye due to Ye’s controversial public posts and social media presence that led to public distaste and possibly adverse effect to the parties’ reputation.

Issues of Morality Clauses: Mutual Assent and Definiteness

For a contract to be valid, the contract must meet the requirements of mutual assent and consideration. Morality clauses can be aggressively broad and lacking in consideration. They may sometimes restrain the subject’s rights under inherently-coercive settings.

The Restatement Second of Contracts § 33(1) requires that the terms of the contract to be “reasonably certain.” When a contractual language is ambiguous, it will normally be interpreted in-favor of the non-drafting party. Nevertheless, despite the obvious ambiguity and breadth of the contractual language in many morality clauses, courts have upheld those clauses. In Knox-Pipes v. Genesee Intermediate Sch. Dist., the plaintiff argues that because the term “moral turpitude” was not defined, no legal obligation was created. The court rejected the argument, reasoning that  "[d]ictionary definitions may be used to ascertain the plain and ordinary meaning of terms undefined in an agreement." “Black's Law Dictionary defines "moral turpitude" as "[c]onduct that is contrary to justice, honesty, or morality. Black's Law Dictionary (8th Ed). "Morality" means "conformity to the rules of right conduct; moral or virtuous conduct."” Knox-Pipes v. Genesee Intermediate Sch. Dist., No. 322295, 9 (Mich. Ct. App. Sep. 24, 2015)

In Nader v. ABC TV, Inc., the United States Court of Appeals for the Second Circuit opines that morality clauses have long been held valid and enforceable. There is no indication that New York departs from the generally applicable law on this point. "Nader’s assertion that his conduct did not fall within the terms of the morals clause is meritless. The undisputed facts that Nader was arrested and that the arrest generated media attention brings his conduct well within any reasonable interpretation of the clause." Nader v. ABC Television, Inc., 150 F. App’x. 54 (2d Cir. 2005).

Bargaining Power and Reverse Morality Clause

From what we’ve mentioned above, do celebrities have the power to refuse the inclusion of morality clauses (or push back on the languages) when signing a commercial endorsing agreement or venturing into a brand licensing deal with a large company? Fortunately, for well-known celebrities/artists such as Ye West, the bargaining power is growing stronger. Ye can utilize his ability to influence the media and societal fashion trends, as well as his capability of bringing in tremendous amounts of profits for Adidas to leverage his negotiations with Adidas. He is very likely to have a well-seasoned team of legal counsels to make things work “legally more favorable” to his side.

The following are some acts that Ye had done (or could have done) to protect himself from the possibly unbalanced bargaining power between him and Adidas:

1. Ye’s counsels could have narrowed the scope and negotiated languages that were more specific, in terms of “bad behavior” and “unfavorable impact on either side of the parties.”

2. Ye should demand the right to terminate the contract only be accompanied by factual support, and should push to exclude the termination right in instances of unsupported claims, false arrests and wrongful accusations.

3. Reverse Morality Clause. Ye should demand that Adidas include a “reverse morality clause” into their brand licensing agreement. Thus, if Adidas happens to end up in a scandalous matter that receives negative public opinion, Ye shall be able to initiate termination of the agreement from his side.

4. Ye should opt for arbitration as a method for dispute resolution. He should prevent Adidas from granting itself exclusive rights to determine whether Ye’s conduct/speech violates the morality clause and therefore triggers Adidas’ termination rights. It is always great to have a third party that is neutral to review the facts that are in dispute.

Are you an artist or business owner like Kayne West who encountered issues with licensing agreements and morality clauses? TEIL Firms can help! We are a team of experienced legal professionals who are experts in all kinds of business/commercial contracts.

Until next time, this is Jenny Wung from TEIL Firms, I will see you in the next episode!

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