Sexual Misconduct, IP Rights, Image Rights and Morals Clauses: Are They Interrelated?

By Diana Muller

A recent front page article in a prestigious newspaper commenting on the sale of the Weinstein Company at a low price was quite revealing of the problems that major figures in the entertainment world could face as a result of their despicable actions. In the case of the Weinstein Company, the allegations against Harvey Weinstein for sexual assault and harassment have resulted in a serious economic loss for his company’s shareholders. The economic impact is felt not only by the Company’s business but also by the portfolio of valuable trademarks that the Company and the Weinstein brothers have obtained, or are in the process of obtaining, such as THE WEINSTEIN COMPANY (Reg. No. 4048551), WEINSTEIN TV (Application No. 86667566), WEINSTEIN TELEVISION (Application No. 86667580), and PROJECT RUNWAY (Reg. No. 3173086).

How much the good will and worldwide fame of the above trademarks have been tarnished will be seen in the future. More than likely, the association with the Weinstein name will not be appealing to many companies and individuals.

In general terms and as defined by Wikipedia: “Sexual misconduct encompasses a range of behavior used to obtain sexual gratification against another’s will or at the expense of another. Sexual misconduct includes sexual harassment, sexual assault, sexual abuse, and any conduct of a sexual nature that is without consent, or has the effect of threatening or intimidating the person against whom such conduct is directed.”

In recent years and months, we have all heard and read about the unacceptable behavior of many powerful individuals who engaged in sexual misconduct in an irresponsible manner. The behavior was detected frequently in the sport arena but also increased at the political level and in the entertainment industry. In the sport arena, NFL players such as Ray Rice of the Baltimore Ravens was shown knocking his now-wife unconscious in a video; Kobe Bryant was charged with sexual assault in 2003 and lost many endorsements deals with companies such as McDonald’s, Nutella, and Spalding; and due to an adultery scandal, Tiger Woods lost more than $20 million in endorsement agreements. Larry Nassar, a former doctor for USA Gymnastics was just recently sentenced to up to 175 years in prison after pleading guilty to seven counts of criminal sexual conduct. A total of 156 women, who claimed they were abused by this doctor, spoke at the sentencing hearing. Sports figures and entertainment talents have been exposed and seriously penalized for their conduct.

In view of the various misconduct of people involved in the entertainment field, sports and other industries, it is more evident than ever that any contractual relationship should include morals clauses as well as a general prohibition of sexual misconduct in the workplace. Morals clauses, which became less popular in the last few decades, were initially introduced as a result of the improper behavior of Fatty Arbuckle. In 1920, the comedian known as Roscoe “Fatty” Arbuckle signed a multimillion dollar contract with Paramount Pictures. The next year a female performer, Virginia Rappe, fell ill and died after attending a party hosted by Arbuckle. Arbuckle was arrested on various charges including rape and was charged with manslaughter in the death of Ms. Rappe. He was acquitted, but his reputation, image rights and career were totally affected by this incident and his career never recovered. The results of this incident inspired Universal to start including morals clauses in all their contracts with talents. Thereafter, in the 1940s and 1950s the studios also used morals clauses to challenge political activities. Morals clauses began to be included in the contract with sports figures after the Yankees requested an amendment to their agreement with Babe Ruth. The purpose was for the club to prevent Babe Ruth from drinking and staying out late during the training and playing season.

In the entertainment industry, morals clauses have been contested and challenged by the talent/artist (especially well-known ones), and companies and studios many times decide against the inclusion of these clauses in their contracts to avoid friction or a negative reaction from the talent/artist. The enforceability of these clauses is quite complex, especially in regard to the interpretation of what constitutes conduct that might be objectionable. However, the lack of express morals clauses could also backfire! Kevin Spacey was recently terminated by Netflix from his show House of Cards because he was accused of sexual misconduct involving a minor, as well as cast members that have claimed that Spacey had sexually harassed or assaulted them. Spacey claimed that Netflix could not legally fire him because his contract did not provide for termination based on a morals clause. However, he may not have good grounds to defend himself because “[u]nder New York and California law the obligation of good conduct is considered an implied morals clause and is recognized as grounds to terminate an employment agreement.”[1]

The Southern District of New York, in the case Nader v. ABC TV, Inc., made an interesting analysis of the issue of morals clauses. Michael Nader’s agreement included a morals clause allowing ABC to terminate the contract if Nader engaged in conduct that “might bring him into public disrepute, contempt, scandal or ridicule, or which might tend to reflect unfavorably on ABC.” Nader was arrested for selling cocaine and was subsequently suspended by ABC. Nader challenged ABC’s decision and filed a lawsuit. The court decided in favor of ABC due, in great part, to the media coverage of Nader’s arrest.

It has also been reported that Harvey Weinstein’s employment contract had a very “loose” morals clause. If he were to pay certain fines and the cost for litigating the issues created by his conduct, perhaps, he could continue with the company’s business. However, his reputation, image rights and rights of publicity have already been tarnished by his conduct.

An example of a morals clause in an endorsement contract involving the use of the name, voice, likeness, signature and other attributes of a baseball player reads as follows:

Conduct. If Athlete engages in any conduct (whether such conduct takes place, or is discovered during the term of this Agreement) which, in the sole discretion of the Company, tends to materially tarnish the image of Athlete, and thus the image of the Company and its products, the Company reserves the right to terminate this Agreement immediately on written notice to Licensor. In the event of such termination by the Company, and without prejudice to its other rights and remedies, the Company shall have no further payment obligations to Licensor under this Agreement, except for payment obligations that have accrued prior to the effective date of termination. By way of illustration and not limitation, any of the following shall be conclusive proof that Athlete is engaging in conduct which tarnishes the image of the Company: (i) being indicted or convicted in connection with any drug or alcohol related offense, any violent crime or any sex crime or any felony, (ii) illegal gambling or violating Major League Baseball’s gambling policies, (iii) taking steroids or performance enhancing drugs, (iv) suspension by Major League Baseball for 50 % or more of the actual scheduled games in any given Major League Baseball season.”

Normally, morals clauses confer a contracting party the right to terminate a contract if the other party (usually an individual whose image, talent and endorsement is sought), has engaged in reprehensible behavior that may negatively impact the image, name and brand of the contracting party. This is why morals clauses appear in contracts for the professional services of celebrities, athletes and famous individuals. Companies request these clauses because they want to avoid any association with parties that could affect the company’s brand through their bad behavior. However, given the scenarios that have been presented in the last few years, there is a consensus that morals clauses should also be included in contracts to protect the athletes, talents and any individual/employee as well. The concept of “mutuality” has already been incorporated in certain contracts. It was first discussed and agreed upon between Pat Boone in 1968 and Bill Cosby’s record label. Mr. Boone retained the right to terminate the relationship if the record label did something that could hurt his religious image and reputation.

The reality is that morals clauses have rarely been mutual or reciprocal. They usually protect employers and sponsors. However, the Internet and social media have made morals clauses more significant and important since information is disseminated faster and individuals are scrutinized more than before. It is also interesting to note that public opinion has a lot to say on the various comments and actions of the parties. Therefore, it may not be easy for a company to decide on the standards of morality that they could adopt in a contractual relationship. Various concepts of morality and freedom of expression play a very important role in deciding whether an act of an individual is proper or not especially according to the “court of public opinion”. Companies are already including a number of contractual provisions designed to promote confidentiality and avoid disparaging statements especially on social media that falls within morals clauses. However, what companies should be doing is ensuring all contracts include mutual rights of the talents, sports persons, performers, etc. to pursue actions against the employer or contracting party for sexual harassment or misconduct and be the basis for breach, termination and damages.

The charges against Harvey Weinstein provide the perfect example for why contracts should include mutual moral rights clauses. Following the Harvey Weinstein allegations, and propelled by Hollywood actresses like Ashley Judd and Alyssa Milano sharing their personal stories of sexual harassment and assault, the #metoo movement, started in 2006 by activist Tarana Burke, has ignited into a viral worldwide social media campaign. The phrase, first tweeted by Alyssa Milano on October 15, 2017 as a rallying cry, has been used more than 500,000 times in the span of 24 hours and by more than 4.7 million people in 12 million posts on Facebook, according to Wikipedia. The transformational popularity of the hashtag has sparked numerous recently filed trademark applications for #METOO and Me Too in the U.S. and the European Union for products and services such as legal consultation services, computer/mobile applications, rubber wristbands, and cosmetics. Drawing from the momentum of the hashtag, its architects are working towards its top priority to change policies and laws regarding sexual violence, supporting initiatives such as re-examining local school policies, processing untested rape kits, and updating sexual harassment politics. Named after the campaign, congressional lawmakers introduced the ME Too Congress Act which reconstructs the system of filing complaints and handling sexual harassment claims from congressional employees.

While such proposed legislation motivated by the Me Too movement is an obvious step in the right direction, athletes, performers and talent currently want to protect their image and reputation and stand against any sexual misconduct. The inclusion of mutual rights of the talents to terminate agreements for the immoral behavior of their employers and sponsors should seriously be considered by everyone when engaging in contractual negotiations. Thus, sexual misconduct and sexual harassment should be considered a breach of contract and grounds for immediate termination.

Whether in the entertainment, sports, politics, technology or other industries, individuals with talent should not be intimidated by sexual misconduct that could have a negative effect in developing their ambitions and careers, and should not have to maintain association with employers charged with sexual harassment or assault for fear of breach of contract and damages. Individuals that commit these reprehensible acts should see their image rights, brands, reputation and wealth diminished and at times, destroyed, without talent associated with them also paying the price. As such, the promotion of mutual moral rights clauses would provide the option for talents to do so.

[1] Caroline Epstein, Article: Morals Clauses: Past, Present And Future, 5 N.Y.U. Intell. Prop. & Ent. Law Ledger 1, 7 (2015).