This article is written by Arijit Mishra, from KIIT School of Law, Odisha. This article talks about the essential clause of Endorsement Agreement with its contents and purpose.
Endorsement Agreement is a contract that allows an organization to use a celebrity’s name and reputation to promote a product or such services by his consent. Such a celebrity must be a well-known personality within a given field. To promote the company’s product or services, the endorser (celebrity) gets a compensation or fee. A celebrity Endorsement Agreement explains the terms and conditions of the endorsement, including how to advertise or use of the product or service. It also mentions other duties of the endorser, like wearing clothes while promoting the product or acting in an advertisement, etc or promoting the products or services in a perfect way.
Who takes the Endorsement Agreement ?
Parties involved in an Endorsement Agreement include the company that owns the product and the celebrity who promotes the product. The warranty period and guarantee period of companies and the endorser are mentioned in the agreement so that any trouble shouldn’t arise in the future. During the duration of this contract, the company agrees to provide the product to the endorser as per the request by him which will be free and also be a part of compensation.
Purpose of the Endorsement Agreement
The most important purpose of the Endorsement Agreement is to promote the product or service using the famous figures in the industry or in any field.
Endorsement Agreement comes with a moral clause to control the harmful activity of the endorser, which will reflect the bad effects on the brand or product. Such moral provision will strictly prohibit some of the negative behaviours in the personal life of the endorser, such as sexual acts, drug use and scandals. This moral clause is used when the endorser is an actor, actress or celebrity figure. So, basically the endorsement deals with the sports Endorsement Agreements or celebrity Endorsement Agreements.
Contents of the Endorsement Agreement
When we look into an Endorsement Agreement sample, it is either a Sports Endorsement Agreement or Celebrity Endorsement Agreement. When we come to sports endorsement, the agreement includes the various clauses such as public appearance clause, exclusivity clause and compensation clause.
When the company is related to Sports products, they will use one of the famous sportspersons to promote such products. For this, the company provides compensation to that person like base compensation, bonus compensation etc. Sometimes the company will also select a sports team, who has a chance of winning and provide them the sponsorships, for which the organization signs the sports sponsorship agreement.
The next point is the celebrity endorsement. One of the successful ways to promote the goods and services is celebrity endorsement because companies choose a celebrity figure who has a massive fan or fan club etc., While contracting with the celebrities to endorse a company’s brand, celebrities should consult a lawyer to get some assistance about the restrictions reflected in the agreement.
What points should be considered before signing the Endorsement Agreement?
In the case of Sports Endorsement Agreement-
- When an endorser agrees to sign the agreement then he or she should understand the terms and conditions of the contract,
- Endorsers should know the compensation plan of the company. (i.e, royalties, fees, additional incentives, etc.)
- Endorsers should go through the moral clause to know about the restrictions,
- If any dispute arose from the contract then they resolve the disputes by themselves or they can take assistance of an attorney.
In the case of Celebrity Endorsement-
- When it comes to celebrity endorsement, the celebrity should understand the obligations of the contract. (i.e, what to wear, how to promote or use the products and services),
- Celebrities can terminate the agreement if they think their image is damaging due to the promotion of products and services.
Benefits and Drawbacks of the Endorsement Agreement
- In a product endorsement, using famous figures helps the brand to show that they are better from the others,
- Product Endorsement helps in building brand credibility.
- Endorsers are very expensive to promote a product of a company,
- Products which are bad would never get support for the endorsement.
Important Clauses of an Endorsement Agreement
The most important clauses of an Endorsement Agreement, without these clauses it is not possible to complete a contract. The Endorsement Agreement contains certain clauses :
- Dispute Resolution
- Duties of celebrity
- Fore Majeure
- Moral clause
- Obligation of the company
- Intellectual Property
- Definitions and Interpretations
This is the first clause where the agreement starts. Because, without the parties there can’t be any contract. In the beginning of an Endorsement Agreement, the contract identifies the parties to the agreement along with their individual status or any other identification proof.
This clause describes the duration of the agreement, i.e the length of time that both the parties agreed to be in this contract. The duration is usually for the specified number of months or a year. It can be possible that the agreement can be renewed through one or more mechanisms, which are, by giving notification from one of the parties or both parties mutually agreed etc. If in the case of an extension, the extended period will be considered as the term of the agreement.
The party will generally recover the other party for any loss occured due to their negligence or due to any false representation. The scope and procedure of indemnification must be carefully presented.
This clause states that, if any dispute arises out from the agreement then the parties will mutually resolve that dispute. Some common dispute resolutions through which the disputes can be resolved are arbitration (to resolve the dispute through an appointed third party), mediation (a person who settles the dispute by intervening both the parties) and conciliation (which helps the party to compromise between themselves).
Illustration: If there are two parties ‘A’ and ‘B’, where ‘A’ is a company and ‘B’ is a famous personality. They both had an Endorsement Agreement and after some days certain disputes arose between both parties. Then they will resolve it by themselves or bring a third party to resolve the dispute which has arose between the both parties.
There are certain circumstances under which an agreement can be terminated, i.e: it can be terminated when it will be considered as fully performed or it can be terminated when agreement comes to the end of its term.
However, if the party violates the Endorsement Agreement, then the other party can terminate the contract. This usually happens when companies do not make payment timely or the celebrity does not deliver properly or as to the satisfaction of the company.
Duty of the celebrity
It is the duty of the celebrity to agree not to take or engage in any action or conduct in the territory which would lose their character, reputation and work culture. The celebrity should confirm that the product and the services shall be original and should not infringe Intellectual Property of any third party. The celebrity has to agree not to participate in any other activities which would hamper the goodwill and reputation of the company during the term of the agreement and 12 months after the date of the termination. It is the duty of the celebrity to agree that the company shall be entitled to use. They should also permit the company to use his name, biography, photograph etc. for the purpose of advertising or promoting the product during the term of the agreement.
This clause must indicate the methods and schedule of payments (i.e licensing fees, royalties, profits, cash, instalment payments, etc). The quantum of payment must be mutually agreed by the two parties. It should clearly indicate what interest will be charged for late payment. Companies make certain conditions for the reduction of payment, if the celebrity fails to perform at a certain level or fails to generate positive publicity.
Example- Serena Williams endorsement consideration for Nike is based on her ranking and performance at Grand Slam.
This clause gives importance to the company that an agreement contains an exclusivity clause, which restricts the celebrity to offer the same service to the competitor. This agreement also prevents the celebrity from using competitors’ products for a specified period. Exclusivity in an Endorsement Agreement should be considered through negotiations.
This clause states that if there is any external pressure by which the parties are free from their rights and liabilities. Such external pressure includes the Act of God, war, terrorist attacks etc. If the Force Majeure extends for a certain period, then both the parties have the right to terminate their agreement.
This clause protects the risk taken by the celebrity, where his value might be damaged by any misconduct. This clause also permits the company to end the Endorsement Agreement if the celebrity loses his or her image or the image of the company or its product or service.
If due to the celebrities death or any permanent injury which causes damage to the company’s marketing program, then consider a suitable “key person” life insurance policy to cover this risk with the celebrities consent. UK and US have been following this to protect their investments, their brands when the celebrity endorsers suffer public embarrassment.
Obligation of the company
The company agrees that the celebrity is the principal authority to endorse, present and advertise the product throughout the territory during the term.
Companies should not disclose any statement concerning celebrities personal life and personal views to the media (newspaper, radio, television etc,) without the prior written consent of the celebrity.
Company agrees to provide the celebrity with notice of the meetings where the celebrity is going to attend under this agreement.
This clause grants company a limited rights to use the endorsers name, image, signature, etc. and also states that both the parties should respect each other’s Intellectual Property. The agreement should be properly drafted and avoid confusion. There must be the consent of the celebrity before using his or her name, identity, signature etc..
Illustration- There are two parties ‘A’ and ‘B’. ‘A’ is the company and ‘B’ is the celebrity. ‘A’ uses the name and identity or signature of ‘B’ without the prior consent of ‘B’ then ‘A’ has infringed the Intellectual Property of ‘B’ or ‘B’ uses the trademark of the company ‘A’ without the consent of ‘A’ then ‘B’ has infringed the Intellectual Property of ‘A’.
Neither of the party shall disclose any confidential information during the term of the agreement or after its termination.
Definitions and Interpretations
The agreement should clearly mention a list of definitions to clarify the meaning of the important terms of the contract.
This describes the eographical area in which the parties perform their obligations as well as their rights under the agreement. This can be a particular country, state, city or the entire world.
What happens in the case of Violation?
In case of violation of Endorsement Agreement, both parties have the right to terminate the contract. When a company fails to meet the terms given in the contract, the endorser can terminate the agreement or file a case against the company. Similarly, if the endorser does not meet the terms of the contract, then the company can terminate the contract.
When any party is dealing with the Endorsement Agreement, then they should hire an attorney to avoid any disputes which arose from the contract. The endorser should understand the terms and conditions before signing the agreement. A party must take the assistance of an attorney to decide whether to enter into the contract or not.
Endorsement Agreement is usually done between the celebrities and the companies or with the sports idols. Endorsement Agreement helps to promote the product and services of the company. The celebrity or the sports idol must be a well-known personality. The parties are legally bound by this agreement. If any of the parties suffer loss then it can be compensated.
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