Over the past few weeks, the artist Ye, best known as Kanye West, has faced backlash for his hateful rhetoric, including wearing a shirt that said “White Lives Matter” and making a number of antisemitic remarks, including a tweet that he would go “death con 3 On JEWISH PEOPLE.” The public outcry was swift. As a result, Adidas, Gap, and other companies severed their business partnerships with the artist.

Anthony Iliakostas, Adjunct Professor of Law at New York Law School and Rights & Clearances Manager at ABC News, spoke with Producer Jake Kaplan about the legal mechanisms that permitted the businesses to end their deals with Kanye, and the implications for intellectual property ownership moving forward. What follows is the transcript of the interview, lightly edited for length and clarity.

How did Kanye’s business partners react to his statements initially?

Anthony Iliakostas: If I had to kind of classify it, on a scale of immediate to non-immediate, I think it’s a sliding scale depending on who you’re talking about. I think, given that brands, generally speaking, want to associate themselves with certain celebrities that align with their reputation, their mantra, their mission statement, I think making certain remarks — antisemitic or otherwise — is going to give them a sense from a business perspective as to whether or not they want to do business with the celebrity. Obviously, making antisemitic remarks is hate speech in every sense of the word. So, it was right on brands like Balenciaga, Vogue — Anna Wintour — CAA even, to respond fairly immediately. The one that alarmed me a lot was Adidas. And I can only speculate that the reason why they were slow to respond was because they were probably looking through the contract that they had with Kanye to determine if maybe there was a morals clause or if it was absent a morals clause how else could you terminate that agreement? I know that there have been people that speculated that Adidas has links to Nazi Germany from way back in the thirties. I don’t know if that’s necessarily relevant here, but I will say that nonetheless, from a business point of view, Adidas’s response was alarmingly slow. And I hope that from this point on, they can kind of learn a lesson from it because I’m sure that the backlash is making people think twice about buying an Adidas product in the future.

As you mentioned, on October 25th is when Adidas ended its brand partnership with Kanye after about 10 years. And then, other large companies followed suit, including Gap, Foot Locker, and others. You mentioned this briefly before, but let’s dive into it. What clauses do you think might have been in the contract that allow Adidas to terminate the contract so early in the agreement?

Anthony Iliakostas: I think it all boils down to whether or not a morals clause existed in the contract between Kanye and Adidas. For people that don’t know, morals clauses are a specific contractual language that is found in agreements between celebrities and brands. It’s more common that you’re going to find those types of clauses with celebrities as opposed to the layperson. But the essence of a morals clause is that a person will not engage in any scandalous behavior, engage in any criminal, illegal behavior, otherwise, that could give the brand reason, essentially cause, to completely terminate the agreement and forego any obligations under the agreement that they owe to that celebrity — whether they’re a spokesperson, brand ambassador, or what have you. So, in this case, the hope is that Adidas had that type of clause and they exercised it within their right.

The other aspect of that also is if they’re gonna terminate the agreement with Kanye, what intellectual property do they keep and what IP do they give back to Kanye? So, that means are they able to surrender the Yeezy trademark? Is that vested with him? Is that vested with Adidas? What about the sneaker designs, which are registered design patents? And were even registered as copyrights in the US Copyright Office. There are a variety of questions that come up. The bottom line is Yeezy sneakers created an entire empire in the sneaker community. So, understanding the long-term ramifications of how they could proceed with those types of products, in selling it or keeping those designs, there was a lot, I’m sure, for Adidas to weigh, in addition to the morals clause that, hopefully, they had with Kanye.

Moving to intellectual property rights… As you’ve mentioned we probably need to see the contract to understand exactly who owns what. But Adidas, in public statements, has indicated that it is the “sole owner of all design rights” under the partnership. For his part, Kanye has indicated that he is the owner of trademarks, such as the “Yeezy” name. However, now Adidas has signaled that it’s looking to move forward with the current designs without using the Yeezy name on those shoes. So, how would that work? Is that allowed? And do you foresee Kanye bringing a lawsuit against Adidas if they do move forward with that plan?

Anthony Iliakostas: First and foremost, it’s very much allowed. The line is drawn in the sand very clearly. All you have to do is just go into the US Patent and Trademark Office and see that the design plans for several Yeezy sneakers have been registered under Adidas’s name. It is true that Kanye has “Yeezy” registered as a trademark under him, so he can take that trademark and he can shop it around, and license out those rights. It’s very common for celebrities to own a trademark, and then they work with the brand and they engage in, essentially, trademark licensing. Where that celebrity gives permission to a brand to use that trademark for consumer goods, services, what have you. We know that Kanye has kind of expanded the Yeezy brand, not only related to apparel, but has even recently filed for trademarks related to NFTs, even theme parks, which is a bit obscure.

Nonetheless, he is building a very wide and ample trademark portfolio as any celebrity should. In the same way, though, Adidas is very much within their right to take the design of the sneaker, meaning the way the sneaker is created with kind of like the sock-esque type of design to the body of the sneaker, even design elements that are contained within it, and make a new sneaker out of it. They just don’t have to call it Yeezy. They could call it the Adidas Sleek 1, 101, 102, whatever. So, they can run with that design and it’s totally permissible. What may be unique, though, is if the sneaker was also registered as trade dress, which is very common among a lot of sneaker brands. Nike has been very much on the forefront doing this with registering trade dress of the Air Jordans, for example, in such a way to tell people that if you looked at a sneaker that was absent the swoosh logo or any indication that it belonged to Nike, just looking at the design of the sneaker, you would know that that belongs to Nike.

That’s the essence of trade dress. Trade dress uses product design, packaging, decor, uniforms, things of that sort, that further the source identification of goods or services. So, can Kanye equally make a compelling argument that when you see the design of the Yeezy sneaker, it points directly to the source, which in this case is Yeezy. I still think that it’s really not going to be worth the fight for Kanye in this case. To reiterate from the top, the line is drawn in the sand here. The trademark rights vest with Kanye. The design patent, and other design elements, vest with Adidas. They should just move it along and Kanye should shop around. But, then again, it’s going to be a big risk for a sneaker company to want to do business with him. I mean, just look at Sketchers. They turned him away, and I think that’s gonna be the narrative for a lot of other sneaker brands.

Adidas is estimated to be losing hundreds of millions of dollars for ending this partnership early. Does Adidas have a strong legal claim against Kanye to recoup those damages?

Anthony Iliakostas: It’s hard to say because we just don’t know what the contract terms are between Kanye and Adidas. If we had more information about what was contained or wasn’t contained a la a morals clause, some type of damages clause, anything related to the business between Kanye and Adidas, I think that would help us get a better sense if they would want to pursue a breach of a contract claim. In terms of tarnishing the brand itself, Adidas, you really can’t make an argument for a trademark dilution because trademark dilution exists when you’re taking somebody else’s brand and you’re diluting it by harming the reputation. That’s not really relevant here. There is some type of tarnishment, if you will, but it’s not something that would amount to a trademark dilution claim. So, that’s sort of out the window. 

It’s hard to tell. I just think it’s all going to depend on whether or not it’s even worth Adidas’s while to fight the claim with Kanye. He seems to be a bit off the deep end, so I can only imagine that his legal representation status at this point is very much in limbo. I mean, Camille Vasquez was hired, and then, like, less than 24 hours later, she went bye-bye. So, I think the only way that Adidas could recover from the loss of so many sales and taking that financial hit, is to kind of do their own brand recovery where they make a commitment to have a zero-tolerance policy for any type of hate speech. Maybe they make a sneaker line that would be dedicated towards raising awareness about this. That could probably, from a business point of view, recoup losses that way. But a legal fight — it’s very hard to say without looking at the contract. And knowing Adidas, I think the sooner they got rid of Kanye, the less they want to deal with him in the future.

Speaking broadly, for the industry as a whole, what lessons do you think companies might take from this experience as they consider future partnerships with other celebrities?

Anthony Iliakostas: Rule number one: always have a morals clause. That is the easiest way for a brand to get out of any type of situation in the future where a celebrity does something that would be deemed a scandal, otherwise criminal, legal, or something that would not align with what the brand stands for from a reputational point of view. And we’ve seen several examples throughout the last 20 years, at the very least, where a celebrity and their deal with a brand was terminated over the exercise of a morals clause. We saw this with Lance Armstrong, who very controversially was implicated in using performance-enhancing drugs, repeatedly denied it, then, all of a sudden, he comes out. What happens? Nike cuts ties with him and he kind of went off on his own way.

We saw this with Aaron Hernandez, the star tight end for the New England Patriots. He was highly successful and was hired on to be the spokesperson for Muscle Milk. He had brand endorsements left and right. What happens in June of 2013? He is arrested and charged with obstruction of justice, and then ultimately charged with murder for killing his best friend, Odin Lloyd. He was eventually convicted. That was a very clear red flag for Muscle Milk, so they terminated his sponsorship deal with him. There have been ample cases over time where brands have been able to use the morals clause in their favor. The hope is that if a brand were to work with a celebrity in the future, they take very serious consideration in having that exercise of the clause.

And then, of course, it’s then very important to understand if a brand is going to work with a celebrity, especially when it goes beyond just licensing their personality rights so that they use their name, image, and likeness and association with advertising. But in a situation like with Kanye, where they’re making products, who is going to own the intellectual property related to those products? Is it going to be the brand? Is it going to be the celebrity? Is it going to be a co-ownership? A lot of those questions are going to come into play. 

Then, of course, just making sure that a brand is working in a very collaborative fashion with a celebrity — something that I think kind of was absent with, let’s say, Gap and Kanye. Because I know that there were accusations from Kanye’s end that Gap was taking his designs and running with them without his approval. Kanye kind of ran off doing his own thing, and I feel like if there were some checks and balances in place, maybe there would’ve been some type of mitigation of his comments. Who knows? 

Either way, the bottom line is morals clauses are the tried and true way of allowing a brand to have a way out when a celebrity does something wrong. And I sincerely hope that brands that are working with celebrities have already employed those types of clauses in their agreements.

Professor Anthony Iliakostas, thank you for joining me today.

Anthony Iliakostas: Thank you.