Agreements

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Over the past few months, we’ve witnessed a steady stream of sexual harassment scandals in Hollywood. Many companies are taking proactive approaches and cutting ties with the men who have been accused of wrongdoing. Our colleagues at Labor Days recently discussed that issue from an employment law perspective. But it’s also worth considering how this type of issue can play out it in the context of a celebrity or influencer agreement.

Morals clauses generally give companies the right to terminate an endorsement agreement, if an endorser commits an act that falls within the scope of the clause. Given what’s at stake, the scope of that clause is often one of the most-negotiated provisions in these agreements. Endorsers naturally want the clauses to be as narrow and specific as possible. (For example, a clause might only kick in if an endorser is convicted of, or pleads guilty to, a felony.) This type of clause, though, won’t necessarily help if a celebrity is only accused of sexual misconduct. Thus, companies want more flexibility. (For example, they may push for a clause that allows termination if the endorser’s actions would subject the company to ridicule, contempt, controversy, embarrassment, or scandal.)

Keep in mind that the effectiveness of your clause depends not only on its scope, but also on how it works in conjunction with other provisions in your agreement. Consider, for example, how things work if your payments are stacked towards the front of the term. You may be able to terminate for a breach later in the term, but you may not be able to recoup the money you’ve already invested. (That said, our friends at Drye Wit wrote about a type of insurance that could help.)

There isn’t a one-size-fits-all approach here. A lot depends on the person with whom you are negotiating, the amount of money involved, and the nature and length of the campaign. However, the wave of recent scandals demonstrates that companies should give serious thought to these issues whenever they negotiate with a celebrity or influencer.

Please join Kelley Drye in 2017 for the Advertising and Privacy Law Webinar Series. Like our annual in-person event, this series will provide engaging speakers with extensive experience and knowledge in the fields of advertising, privacy, and consumer protection. These webinars will give key updates and provide practical tips to address issues faced by counsel.

This webinar series will commence January 25 and continue the last Wednesday of each month, as outlined below.

January 25, 2017 | February 22, 2017 | March 29, 2017 | April 26, 2017 | June 28, 2017
July 26, 2017 | September 27, 2017 | October 25, 2017 | November 29, 2017

Kicking off the series will be a one-hour webinar on “Marketing in a Multi-Device World: Update on Cross Device Tracking” on January 25, 2017 at 12 PM ET. For more information and to register, please click here. CLE credit will be offered for this program.

Are hyperlinked and hovering disclosures enough to adequately inform consumers about the terms of your offer? Is requiring consumers to click on a button to accept all terms and conditions enough to obtain their informed consent to each of your terms and conditions? A recent federal court decision demonstrates that the answers to those questions are not always clear. The decision at issue is a September 23 order denying DIRECTV’s motion for partial summary judgment in a case brought by the Federal Trade Commission.

For context, in early 2015 the FTC filed a lawsuit against DIRECTV for deceptively advertising programming packages. Among other alleged violations, the FTC claimed that DIRECTV violated the Restore Online Shopper’s Confidence Act (ROSCA) by (i) charging consumers for access to premium channels through a negative option on its website while failing to clearly and conspicuously disclose all materials; and (ii) failing to obtain consumers’ express informed consent before charging them for premium channels through its website.

DIRECTV filed a motion for summary judgment on the two ROSCA claims, arguing that it disclosed all material terms through hyperlinks and info-hovers throughout the subscription web flow. DIRECTV likewise contended that it disclosed its negative option throughout the subscription web flow and in its terms and conditions, to which consumers had to affirmatively agree before their financial information was submitted to DIRECTV. To support its arguments, DIRECTV pointed out that the FTC had presented no contrary evidence. For example, the FTC did not produce consumer surveys, research, studies, or tests supporting its ROSCA claims, or even disclose whether any such evidence exists. DIRECTV also argued that its negative option disclosures complied with a consent decree previously entered into with state attorneys general.

The FTC argued in response that although DIRECTV may have disclosed material terms through hyperlinks and info-hovers, consumers would only see those disclosures if they clicked on the links or moved their cursors above the info-hovers. The FTC further argued that info-hovers did not accompany every mention of premium-channel promotions, and that consumers could navigate through the website and checkout without ever seeing any of the disclosures. The FTC also argued that the hyperlinks leading to the disclosures used non-descriptive names like “Additional Offer Details” that did not adequately describe the referenced content. Even if consumers clicked on disclosures, the FTC noted, the material terms were buried in dense, confusing language. Finally, although consumers may have been required to click to accept the terms and conditions generally, there was no information presented on the checkout page or the referenced terms and conditions about the negative option.

Last week, the federal judge overseeing the case denied DIRECTV’s motion for summary judgment on the two ROSCA claims. In denying DIRECTV’s motion, the court noted that “while the contents of the website did not appear to be disputed, the inferences drawn from those contents are vigorously disputed, and that dispute is the heart of this case.” In drawing all reasonable inferences in the opposing party’s (FTC’s) favor, as required when deciding a motion for summary judgment, the court held that there was an issue of fact as to whether the non-descriptive names of hyperlinks used by DIRECTV to disclose its material terms rendered the disclosures less than clear and conspicuous. Likewise, the court determined that, viewing all facts favorably for the FTC, there was a reasonable inference “that consumers did not have sufficient information and thus could not have given informed consent when they clicked ‘I Accept. Submit My Order.’”

Although the court’s denial of DIRECTV’s motion for partial summary judgment didn’t determine that DIRECTV’s disclosures were inadequate or that DIRECTV had violated ROSCA, the court’s finding that a triable issue of fact existed on these issues should serve as a warning to advertisers. As the FTC has advised, advertisers should incorporate key disclosures in the underlying claim, where possible, instead of using hyperlinks or info-hovers. When hyperlinks are used, the links should be obvious and labeled appropriately to convey the importance, nature, and relevance of the referenced information. Currently pending before the court is the FTC’s motion for partial summary judgment on the same claims that were the subject of DIRECTV’s motion. The FTC apparently believes that there can be no genuine issue of material fact over the alleged inadequacy of DIRECTV’s disclosures. Regardless of whether the FTC succeeds on it motion, the other claims at issue are headed for trial. Unless the parties reach a settlement, the trial is currently set to begin on January 30, 2017.

This week, four companies announced that they were cutting ties with Ryan Lochte after the swimmerRyan Lochte admitted to lying about being robbed at gunpoint during the Olympics. Speedo, for example, said that although they enjoyed the relationship they’ve had with Lochte for over a decade, “we cannot condone behavior that is counter to the values this brand has long stood for.” If your company is working with a celebrity who does something that runs counter to your values, do you have the right to terminate your agreement?

Morals clauses generally give companies the right to terminate an endorsement agreement, if an endorser commits an act that falls within the scope of the clause. Given what’s at stake, the scope of that clause is often one of the most-negotiated provisions in these agreements. Endorsers naturally want the clauses to be as narrow and specific as possible. (For example, a clause might only kick in if an endorser is convicted of, or pleads guilty to, a felony.) Companies, on the other hand, want more flexibility. (For example, they may push for a clause that allows termination if the endorser’s actions would subject the company to ridicule, contempt, controversy, embarrassment, or scandal.)

Keep in mind that the effectiveness of your clause depends not only on its scope, but also on how it works in conjunction with other provisions in your agreement. Consider, for example, how things work if your payments are stacked towards the front of the term. You may be able to terminate for a breach later in the term, but you may not be able to recoup the money you’ve already invested. (That said, our friends at Drye Wit wrote about a type of insurance that could help.)

There isn’t a one-size-fits-all approach here, but the Lochte scandal demonstrates that companies should give serious thought to these issues whenever they negotiate with an endorser.

This week, long-time Subway spokesperson Jared Fogle reached a plea agreement on charges of child pornography and having sex with minors.​ ​Although the sandwich shop noted that it no longer has a relationship with Fogle, that relationship will remain etched in the minds of consumers for years to come. Many marketers are saying silent prayers for the victims, while hoping that their celebrity spokespeople stay on the right side of the law. And that brings to mind the topic of morals clauses.

Morals clauses generally give companies the right to terminate an endorsement agreement or obtain a reduction in fees, if the endorser commits an act that falls with the scope of the clause. Given what’s at stake, the scope of that clause is often one of the most-negotiated provisions in these agreements. Endorsers naturally want the clauses to be as narrow and specific as possible. (For example, a clause might only kick in if an endorser is convicted of, or pleads guilty to, a felony.) Companies, on the other hand, want more flexibility. (For example, they may push for a clause that allows termination if the endorser’s actions would subject the company to ridicule, contempt, controversy, embarrassment, or scandal.) There isn’t a one-size-fits-all approach, but recent events demonstrate that companies should give serious thought to this provision whenever they negotiate with an endorser.

Although termination rights in morals clauses can help curtail future losses, they won’t help the companies recoup the money they’ve already invested in the relationship. To help companies deal with those losses, at least one insurance company has offered a product  “designed to help customers respond to risks from a celebrity endorser’s public fall from grace, scandal, or unexpected death.” Our friends at Drye Wit wrote about this in January, but the post is worth revising now.

One of the most-negotiated provisions in endorsement agreements is the morals clause. While celebrities want those clauses to be as narrow and specific as possible, companies need to ensure they have enough flexibility to terminate an agreement if a celebrity is likely to damage their brand. But although termination can help curtail future losses, it won’t help the companies recoup the money they’ve already invested in the relationship.

To help companies deal with those losses, AIG recently announced Celebrity Product RecallResponse, a new insurance product “designed to help customers respond to risks from a celebrity endorser’s public fall from grace, scandal, or unexpected death.” Our friends a Drye Wit have more information here.