Brand Endorsements & Restraint of Trade

Two Thumbs Up

Endorsed!

In a recent piece for Premium Times, Michael Abimboye highlighted a new trend in the entertainment industry which, if true, presents an interesting legal situation. According to the piece, in the wake of the mass recruitment of musicians as brand ambassadors by telcos, many have been effectively precluded from working with ambassadors of rival brands on projects that have no connection with the brands. This, to my mind, brings up the issue of the restraint of trade.

Restraint of trade is a common law doctrine that raises the question of the enforceability of clauses in some contracts. Generally, there is a freedom to contract i.e. parties are free to agree to whatever they deem fit. However, apart from outright crimes, the law as a matter of public policy frowns at some things that are not necessarily illegal. One of these things is the restraint of trade.

A contract in restraint of trade is one that partly or wholly restricts a person from carrying out a business or a trade. At common law, such agreements are, as a general rule, not enforceable. This means that an aggrieved party cannot ask the court to uphold the agreement and prevent the other party from carrying on his trade in the manner written down in their agreement. To relate this to the current issue of brand endorsements, it would mean that “Yellow Telco” would ordinarily not be able to ask the court to prevent “Artiste W”, its ambassador, from appearing in the music video of “Artiste O”, who happens to be an ambassador for “Green Telco”.

In law however, exceptions usually outnumber the general rule and it is no different with contracts in restraint of trade. Furthermore, there are now at least three separate categories in which the issue may arise, with different applicable principles – (1) employment contracts, (2) general commercial agreements and (3) under competition law.  In categories (1) and (2), especially where the relationship between the Parties involves the exchange of trade secrets or such other confidential information, the courts have been known to enforce the restraint.

Under English law, restraints have to be reasonable to be enforceable. According to this paper, US courts have set the following 3-pronged test to determine the reasonability of clauses restraining trade:

  1. is the restraint necessary to protect the employer’s legitimate interest?
  2. would enforcement be unreasonably burdensome to the employee or harmful to the public interest?
  3. are time and geographical restraints reasonable?

If this test were to be applied to the current allegations of “rival” ambassadors being unable to shoot videos together, the questions would be – is this restraint necessary to protect the telcos’ interests? Does the telco brand suffer dilution because musicians who ordinarily collaborate in the course of their trade and have, in fact, recorded music together, now wish to shoot a video to promote the music? Is it unreasonably burdensome for this restriction to be in place? Does these restrictions harm the public interest? Your opinions are welcome.

However, it is not clear that the restrictions put in place by the brand endorsement contracts are as extensive as are being reported. The Premium Times articles quotes MTN’s General Manager, Corporate Affairs, on this issue as follows:

“Companies sign what is known as exclusivity clauses with their brand ambassadors. Typically this would impose a restriction on the brand ambassador not to work for a competing brand within a stipulated period. This period of exclusivity is typically the duration of the agreement or as may be agreed. The exclusivity provisions does not typically extend to stopping ambassadors from interacting with each other provided what they propose to do does not amount to a breach of their obligation under the brand contract…” (emphasis supplied).

It is reasonable and it should in fact be expected, that an artist cannot endorse a rival brand during the term of their endorsement contracts. So, for example, Artist B, ambassador of “Light Green Telco” cannot appear in an advert or at an event promoting “Red Telco”.  What would seem a little overboard is extending the scope of “working for a competing brand” to collaborating with a fellow artist on a project.

It is unlikely that any artist will test the judicial waters on this issue, if those endorsement contracts are as juicy as the papers report. However, I do not think a Telco that withheld payments because of a video collaboration between rival ambassadors would have a leg to stand on.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s