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Gibson Dunn - The Fashion Law and Business Report > Posts > Celebrity Endorsements – An Ounce of Prevention is Worth a Pound of Cure
1.28.14
Celebrity Endorsements – An Ounce of Prevention is Worth a Pound of Cure

The recent media frenzy surrounding a famous pop star’s arrest for driving while intoxicated (and for certain related actions) highlights the need for care in negotiating and drafting celebrity endorsement agreements.

Most states (either by statute or common law) recognize that an individual whose name or likeness has commercial value has the exclusive right to realize any profit from that value. Accordingly, if a company seeks to use a celebrity’s name or likeness to advertise or promote a product, it needs to obtain that celebrity’s consent. Typically, that consent is obtained as part of a formal endorsement agreement which grants specific rights to the company in return for payments to the celebrity.

Endorsement agreements benefit a company by associating the company’s products with the fame and image of the celebrity. If the celebrity engages in inappropriate or illegal conduct, however, that association can potentially damage the reputation of the company. Therefore, endorsement agreements typically contain a “morals clause,” which permits the company to terminate the endorsement agreement if the celebrity engages in certain injurious conduct or upon the happening of certain injurious events.

In light of the importance of image and reputation in endorsement deals, attention should be paid to the nuances of negotiating and drafting morals clauses. Although certain conduct is almost always grounds for termination (such as conviction of a felony), other types of conduct might also trigger termination rights - depending upon the particular celebrity, company and products being endorsed.  For example, in certain circumstances an arrest, whether or not there is a subsequent conviction, for specified conduct (such as driving while intoxicated, the use or possession of controlled substances, or a hate crime) may be sufficiently injurious as to warrant a termination right. Similarly, a company may seek a termination right if a celebrity enters into a rehabilitation facility for drug or alcohol abuse.

A company might also consider adding a catch-all of unspecified but injurious actions that rise to a specified level (i.e. any action which could/could reasonably be expected to/does have an adverse/materially adverse effect on the company and its reputation). Such a general provision may provide broader protection to the company, but to the extent it gives the company more discretion, it also creates more uncertainty for the celebrity as to the types of conduct which might trigger a termination.

On the other hand, a celebrity should consider what, if any, conduct of the company might trigger a termination right by the celebrity. For example, if the product being endorsed is the subject of a product recall for health or safety reasons, the celebrity’s association with the company may tarnish the celebrity’s image.

Most importantly, however, prior to entering into an endorsement deal, each of the company and the celebrity should conduct appropriate due diligence on the other party to confirm that the historical image and reputation of the other party is consistent with the goals of the endorsement deal. Even if a company or celebrity has a contractual right to terminate an endorsement agreement as a result of injurious conduct of the other party, if such conduct occurs, it may be difficult to repair the associated reputational damage.

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