Morals Clause

What does a “morals clause do?

Morality

The basic idea is simple – if you are in the public eye and you do something stupid and doing that stupid thing makes the purpose of the contract frustrated, then the other party can say I’m canceling the deal. For example, lets say the Queen of England enters into a contract with a department store to endorse its new clothing line “Queen.” She might have a clause in her deal that says something like

    Queen agrees to conduct herself with due regard to public conventions and morals, and agrees that she will not do or commit any act or thing that will tend to degrade her in society or bring her into public hatred, contempt, scorn or ridicule, or that will tend to shock, insult or offend the community or ridicule public morals or decency.

She then gets arrested for soliciting men in a downtown Minneapolis hotel. The Department store has an interest in protecting its image and can cancel the deal by invoking the morals clause. A few real life examples include: Kate Moss – Chanel – photographed allegedly snorting cocaine – Michael Nade (“All My Children”) – ABC – cocaine arrest Sidney Ponson – Baltimore Orioles – third arrest for alcohol-related violations But wait, if you think this is a concern just for those big name types, think again, these clauses can pop up all kinds of places, from local TV weathermen, to mechanical contractors.

Reverse Morals

So is turn about fair play? Some folks think so and are putting “reverse morals clauses” into their deals so that if the company is tainted by scandal, they endorser can get out of the deal. Same concept applied to other types of arrangements such as naming rights, think Enron, but the same applies to smaller deals as well.

Non-compete is based on customers, not location.

While worker non-competes have are generally construed against the employer, the standard of enforceability in the sale of a business in more liberally interpreted in favor of the party seeking to enforce, as it is focused on whether the restriction is reasonable to protect the goodwill of the business that was sold.

When selling his optometry business, Jay Peterson agreed not to “participate, compete or be engaged in the business of optical goods . . . within a five-mile radius of . . .” the location of his former business. After a dispute arose concerning the terms of the sale, Peterson opened a new practice ten miles away, which would have been fine except for the fact that he then took out advertising in the newspaper located in his old town encouraging clients to come and see him at the new location. In February, the Minnesota Appellate court ruled that the Peterson could be prevented from placing those advertisements even though the business itself was outside of the designated geographic area. Interestingly, the court noted that while they felt a limited restriction was appropriate, it should not be seen as placing a general ban on advertising that may have incidental exposure to the geographic area. In relevant part the court noted –

. . .the Court will not restrain publications with large circulation areas that happen to enter the five mile area (e.g. Minneapolis Star and Tribune). We agree with the district court’s reasoning. Advertising in the Yellow Pages and the Internet, which have large circulation areas that only incidentally enter the restricted geographic areas, therefore, would not be prohibited by the non-compete agreement. Rather, the prohibition is limited to advertisements “specifically targeted” at persons in the restricted geographic areas.

Sealock v. Petersen, No. A06-2479 (Minn. App. 2/5/2008) (Minn. App., 2008).

This case provides a nice illustration of how you should look at the intent of the agreement to not solicit customers, rather than trying to circumvent the intent based on the literal geography of the agreement. However, in this age of mass circulation, this decision highlights a distinction that the court is willing to make between specifically targeted marketing efforts and marketing nets cast by much broader means.

Minimum Contacts in A Virtual World

This article was orignally printed in Minnesota Bench & Bar (February 1998)

Each month thousands of American businesses create new Internet sites in order to market and distribute products and services nationally or internationally. The ease of using the Internet for global marketing has struck down many of the previous financial and legal hurdles that companies were required to clear. Consequently, many businesses are rushing forward without considering the possibilities that they may be subjected to the jurisdiction of distant states or nations, and courts increasingly are finding that web pages create the minimum contacts necessary to exercise personal jurisdiction over distant defendants. Thus, the challenge for attorneys is to help businesses use this vibrant medium without being subjected to the jurisdiction of foreign states and countries.

The rest of this article can be found at kunklelaw.net

The Human Side of the Deal

It was recently speculated that the settlement of a $60 million dollar royalty lawsuit against EMI by the Apple Corp. was partially driven by a desire of Paul McCartney to begin having Beatles music available for downloads, which in turn was also a factor in the exit of Beatle’s executive Neil Aspinall who, according to reports, had largely opposed allowing the Beatles catalog to go online. [See]

This just goes to show that business may be business, but it also has a very human aspect. Business decisions are made by people, who make decisions for business purposes — but in the end, decisions are often driven by factors outside the business. In this case the divorce and lack of antenuptual agreements by Paul McCartney may, as is speculated, been a factor the ouster of a top executive, driving the settlement of a multimillion dollar lawsuit, and a future milestone in digital distribution.

Fart Dolls and Opinions

While you would think the first posting of a new blog would take the high road and post on something impressive in order to flex a little muscle, I can’t resist making this the first post.

In what is one of the more amusing topics for a case that I’ve seen lately, the U.S. 7th Circuit Court of Appeals recently issued an opinion in a copyright case involving “fart Dolls.” The dolls name you ask? – “Pull my Finger Fred.” An interesting opinion, however I suspect the judge enjoyed the opportunity to be a little juvenile – I mean how often is he going to have the opportunity to use some version of the word “fart” over 40 times in a single opinion, or my favorite “silent but deadly.” Let’s face it, this is a rare opportunity for you as a judge and I’m frankly a little disappointed he didn’t take it further. As an attorneythe thing I find fascinating is that not only are hundreds of thousands of these dolls being sold, the attorneys were at one point awarded over 500k in fees!!!

http://caselaw.lp.findlaw.com/data2/circs/7th/052498p.pdf