It’s Not Going to Be (Y)easy: What Happens when Business Collaborations Dissolve?

It’s Not Going to Be (Y)easy: What Happens when Business Collaborations Dissolve?

Katie Graham is an IPilogue Writer and a 2L JD Candidate at Osgoode Hall Law School.

On October 25, 2022, following a string of antisemitic remarks and hate speech from Ye (formerly known as Kanye West) on social media, Adidas announced their decision to terminate their co-branding partnership with Ye and end production of all Yeezy branded products. The termination of this seven-year partnership, most famously known for its development of the Yeezy sneakers, raises important questions about IP ownership when business collaborations collapse.

While Ye’s company, Mascotte Holdings Inc. (“Mascotte”), owns a portfolio of 160 trademark applications in the US connected to the “Yeezy” brand, Adidas solely owns all design rights to existing products, as well as previous and new colorways under the partnership. This includes at least eight US design patents filed by Adidas in 2016 that claim the ornamental design of the Yeezy sneakers. A licensing agreement between Mascotte and Adidas exists for the “Yeezy” trademarks. The dissolution of this contract will rely on the termination clauses that stipulate the division of IP between the parties or whether any “moral” clauses allow early termination of the contract.

Adidas reportedly intends to take advantage of its design rights by selling the Yeezy sneakers using its own branding. Adidas has the right to continue to manufacture identical sneakers to Yeezys, so long as they do not use the trademarks owned by Ye. However, the inherent link between Ye and this distinguishable sneaker design may prove problematic to Adidas regardless of the name etched onto the shoes.

How can businesses protect their public perception in co-branding partnerships?

The success of Ye and Adidas’ co-branding partnership demonstrates how cross-licensing IP, including industrial designs and trademarks, can be a strategic marketing scheme to tap into different markets or classes of consumers. Ye and Adidas join the rank co-branding fails including the controversial advertisement for Pepsi with Kendall Jenner that was pulled back 48 hours after release; the partnership between Lego and Shell, which dissolved due to Shell’s negative environmental reputation; and, more recently in Canada, the breakup of Lululemon and Peloton due to alleged unfair competition from Peloton. These examples stress the need for companies to protect their public perception through strategic negotiation and drafting of co-branding licensing agreements, particularly through “moral” clauses.

Moral clauses hold contracting parties to a behavioural standard so as not to bring scandal to the other party. These clauses should address the potential for “tarnishment, loss of goodwill or reduction in brand value that may stem from reputational damage experienced by either party” (World Trademark Review, 2019). Remedies for breach of such clauses include corrective advertising, damages, and contract termination.

Before entering into co-branding agreements, especially those involving celebrities, contracting parties should also ensure their shared goals and values are aligned to mitigate the risk of negative backlash or future fallout. For Adidas, a risk assessment of entering this partnership with Ye in 2016 may have involved balancing the precarious public perception of Ye against the potential commercial market for Yeezy-branded shoes.