Briefing: May 12, 2023
Almost 7 months after announcing the termination of its deal with Kanye West (now Ye), adidas’ management has revealed what the sportswear titan will do with the reported $1.3B worth of unsold Yeezy wares that has been dragging at its bottom line. CEO Bjoern Gulden said on Thurs. that adidas will sell “some” of the stock & donate some of the proceeds. The confirmation follows from an interview in March, in which Gulden said that in the event of an effort to sell off the Yeezy merch, adidas would be unlikely to make any profit but would look to cover its costs, including royalty payments to Ye.
In a nod to the difficulty in reaching an ultimate decision (and there still is a lot of uncertainty about how/when/how much of the merch will be sold), Gulden cited the number of “interested parties” involved in the discussions; these likely range from adidas’ board and the company’s investors to consumers. The seeming lack of a solution-sans-drawbacks also did not help.
The company appears to be sidestepping the destruction angle thanks to the recently-revealed plan, which would have undoubtedly proven unpopular among consumers and thus, risky from a PR POV. Gulden noted this week that “burning the goods would not be a solution.” But even the existing plan is not without risk given that adidas is expected to pay royalties to Ye in connection with the sneaker sales; the parties’ deal assigns 15% of Yeezy sales to Ye in exchange for the Yeezy license. Gulden said in March that adidas would be obliged to pay royalties if it opted to sell the remaining Yeezys, which could, of course, rub consumers the wrong way in light of Ye’s behavior/comments.
In short: There was not necessarily a water-proof option for adidas, which has provided fellow companies with a case study on how a once-wildly-successful celebrity partnership could go wrong, and how outsized reliance on famed ambassadors could produce very real downsides. (Dior’s enduring relationship with Johnny Depp is also interesting in this regard.)
Ultimately, save for a couple of legal clashes at play, including a pending damages case against Ye in Germany, adidas appears to have its (legal) ducks in a row. From a rights perspective, for example, the parties neatly allocated the IP rights at play at the outset: adidas owns the product design rights. It is worth noting that it does not appear as of now that adidas will be making use of those rights to offer up rebranded Yeezy footwear (and extend its certainly-sizable upfront investments in creating those designs), an option that was proposed last year. Meanwhile, Ye maintains rights in the Yeezy marks.
And potentially highlighting what is to come from Ye on the Yeezy front, he has added to an already long list of trademark applications for registration early this month with a 1B filing for YZY SOCK SHOES for use on “Socks; socks with leather soles.”
THE BOTTOM LINE: In light of the high stakes – financially, in terms of PR, etc. – that can follow from the demise of a headline-making partnership/ambassadorship, and the rising number of stakeholders that need to be considered (including ESG-focused consumers), companies are encouraged to negotiate terms like morals clauses, IP ownership (namely, for new IP created), sell-off provisions, etc. in advance. As for the success of – and the consumer sentiment in response to – the impending sale of Yeezy merch, that will be worth paying close attention to.
Some Litigation/Legislation Updates
– Does v. GitHub: The court has cut out a fair amount of the plaintiffs’ claims, dismissing – with leave to amend – the DMCA, tortious interference, fraud, false designation of origin, unjust enrichment, unfair competition, breach of contract, CCPA & negligence claims. The N.D. Cal. court dismissed the civil conspiracy & declaratory relief claims w/ prejudice, and held that the Ps may proceed pseudonymously at this time. (More to come on this, but here is the order in the meantime.)
– WaveyBaby v. MSCHF: MSCHF filed a notice of motion to dismiss this week in response the TM suit it is facing, citing its recent Rogers-centric pre-motion conference request.
– Redbull v. Union City Beverage: Not fashion but grey market … Redbull is suing a retailer for selling “products intended for sale in Turkey & South Africa” in the U.S., claiming TM infringement & dilution, unfair competition & counterfeiting.
– Patagonia v. Sam’s Club: Patagonia is suing Sam’s Club & Greensource Brand Apparel for TM infringement & dilution, unfair competition and © infringement over the creation/sale of t-shirts that bear “nearly identical copies of Patagonia’s P-6 logo & artwork.” Sam’s Club “purchased & resold these copycat products in several retail stores,” per Patagonia.
>>> The AI Act was adopted by the EU Parliament’s Civil Liberties and Internal Market committees this week. Up next: The bills needs to be finalized with the European Commission & individual member states.
A few new earnings reports are in …
– Richemont – For the FY ending on Mar. 31, Richemont generated sales of €19.95B – up 14% YoY. In an earnings call, chairman Johann Rupert shot down reports of a Cartier acquisition by LVMH, noting that while he’s in “constant dialogue” w/ LVMH’s Bernard Arnault, the deal chatter is the result of an “erroneous story.”
– Prada – Prada Group reported a 22% YoY increase in Q1 sales, reaching €1.06B, largely driven by handbags & footwear, amid an enduring push to move its Prada & Miu Miu brands more upmarket.
– Tapestry – Demand for Coach handbags helped Tapestry generate $1.51B in Q3 sales (up 5% YoY). The group revealed that it has acquired “over 1.2M new customers in N. America alone, roughly half of which were Gen Z & Millennial.”
In some deal-making news in the fashion/retail, tech & web3 segments …
– CLO Virtual Fashion & Epic Games announced that they have purchased shares in one another in furtherance of an effort to invest in “the future of digital entertainment & metaverse platforms.”
– Luxury apparel rental platform Volte has raised $4M in a series A round from eBay Ventures & Perth-based Better Labs.
– ThredUP has dual listed its Class A common stock on the Long-Term Stock Exchange, making it the first consumer company to list on the exchange.
– Austria-based AI-powered supply chain risk platform Prewave has raised €18M in a Series A+ round, as ESG/climate platforms continue to nab funds.
– Werewool has raised $3.7M in a seed round to “further the company’s mission to produce biodegradable fibers with protein-based color and performance properties.”
– Marks & Spencer has injected new cash into Nobody’s Child, the London-based eco-conscious fashion brand in which it previously invested.