When you enter into an endorsement agreement with a celebrity in order to advertise your products and services, the overall behavior of that celebrity impacts the value and reputation of your business positively, and sometimes negatively. Therefore, most endorsement agreements with a celebrity or a sports star have a so-called Morals Clause.
What is a Morals Clause?
The morals clause imposes a contractual obligation for the models not to cause any harm to the public image of the sponsor or the brand owner. It is the same in South Korea.
The specific wording differs in each case, but generally, it reads as “the model shall not engage in conduct which would damage, tarnish or otherwise negatively affect the reputation and goodwill associated with the company’s product or service”. The most common triggering events are criminal activities.
Korean Supreme Court Upheld the Enforceability of Morals Clause
The Korean Supreme Court had recognized the validity and enforceability of the morals clause back in 2009. The Korean highest court held a position that is favorable to the brand owner. The court ruled that although the situation which triggered the morals clause is not fully attributable to the celebrity by its nature, if the celebrity failed to minimize the negative effect of the event, the celebrity is liable for that.
In Korea, the likelihood of disputes and litigations involving a breach of morals clause is increasing. One of the reasons behind this is that the amount of payment and value of the deals is increasing. And the celebrities and sports stars become more exposed to, monitored by the media and social network services. Therefore, the sponsor and its lawyer should pay extra attention and exercise a thorough review on the morals clause when negotiating an endorsement deal in Korea.
What Actions Can the Sponsor Take in the Case of Breach?
If the celebrity violates the morals clause, the sponsor can take several actions as provided in the sponsorship agreement. The most common action is for the sponsor to terminate the contract. The sponsor, however, can choose to recoup the payments rather than go to the extreme measure of contract termination.
Precautions in Negotiating the Morals Clause
When drafting a morals clause, the parties shall first negotiate what kind of behavior and event will trigger the morals clause. The sponsor prefers a long list of behaviors and events. On the contrary, the celebrity wants the list to be short.
If the list includes something subjective, it is important to have a clause of who shall determine the occurrence of a trigger. That is because, although an expansive clause looks advantageous to the sponsor, an expansive clause may be more difficult to enforce. Therefore, it would be advisable for the sponsor to insert a clause whereby the sponsor and brand owner shall decide the occurrence of a trigger by its own sole discretion.
It is also important to clearly state what kind of penalties will be put on the breaching celebrity. As explained above, it could be an early termination and recoupment of payment. Sometimes, it may require a celebrity to do a specific action to mitigate the damages as requested by the sponsor.
Reverse-Morals Clause
There is a reverse-morals clause, whereby the sponsor and brand owner are obliged not to engage in any activities which could damage the celebrity’s reputation. This is rare and only seen in a case where the celebrity has far more negotiating power than the brand owner.
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Because of the generality of this update, the information provided herein may or may not reflect the most current legal development at the time of view, nor is it applicable in all situations nor should be acted upon without specific legal advice based on particular situations.
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