Adidas may be cutting ties with Kanye West, the company could still owe him millions in royalties

By: April Carson



By breaking off their relationship with musician Ye, Adidas has caused a problem concerning who owns the intellectual rights to the products they created together. According to their contract, it is unclear how these rights are divided and whether or not they can still work together without ending up in court.


Ye's company, Mascotte Holdings Inc., has a portfolio of more than 160 trademark applications and registrations for his Yeezy brand; however, Adidas owns the rights to most Yeezy shoe designs, including the well-known Yeezy Boost 350.


Adidas has not yet released a statement on the matter, and it is unclear what will happen next for the two companies. However, it seems likely that Adidas will owe Ye millions in royalties, as he is still contracted with them until 2020.


It's not clear how the division of intellectual property rights will affect the breakup, and the answer will depend on the details of Ye's contract with Adidas.


According to trademark attorney Josh Gerben, founder of the Gerben Law Firm PLLC, a contract may include termination clauses that allow one party to take IP from another. Alternatively, it could have a “morals” clause permitting early deal termination.


“We don’t know what the contract between Adidas and Kanye says, so we don’t know how smoothly or poorly the separation will go,” he said.


According to David Martinez, partner at Robins Kaplan LLP, arbitration or litigation may be possible if the partnership collapses; however, "branding agreements typically include a detailed dispute resolution mechanism."


In a September interview with Bloomberg News, Ye indicated that he wanted to sell Yeezy apparel on his own. If the contract allows both parties to maintain ownership of their respective IP, he would most likely be able to do this.


Attorney Zak Kurtz, who founded the law firm Sneaker & Streetwear Legal Services, said that those products would need entirely new designs.


He said that if he really wanted to, he could sell other clothing or footwear. But when he says "other," it would have to be completely new silhouettes with his trademarks on them.


Adidas ended its partnership with rapper Kanye West on Tuesday, after he made a series of antisemitic remarks on social media and caused controversy by wearing a “White Lives Matter” shirt at a Paris fashion show. Gap Inc announced that it would pull Yeezy-Gap apparel from its stores. West has been one of the most prominent faces of Adidas since 2013, when he signed a deal with the company worth more than $1 billion.


Adidas stated it would end production of Yeezy-branded products and all associated payments to Kanye West immediately. The partnership's termination will be costly: Adidas said it’s expecting a $247 million hit to net income this year, and outside estimates peg the collaboration as responsible for 8% of the company’s revenue.


"Adidas will at the very least owe Ye royalties for all sales since their last royalty payment to him," said Heidi Howard Tandy, a partner with Berger Singerman in Miami who specializes in intellectual property law. "Because revenue collection has a long tail, that process could go into 2023."


IP Split


Adidas has declared that it owns the design rights to all shoes currently on the market as well as any color combinations, both in the past and future. A series of design patents have been filed with US Patent and Trademark Office by Adidas in 2017 and 2018 for Yeezy Boost 350 shoes.


Nic Galway, Adidas’ vice president of global design, is the mastermind behind the new shoes, as shown in filings.


According to Kurtz, the partnership between Ye and Adidas is a regular licensing deal that was mislabeled as a collaboration. In other words, West is paid royalties based on sales and isn’t an equity partner in the company.


Adidas could owe West millions of dollars in royalties if the partnership ends. Even if Adidas stops selling Yeezy shoes, the collection has a long tail and the process could go into 2023.


"In other words, Adidas has the rights to use Kanye's Yeezy and YZY brands on their shoes and clothing," he said. "Adidas seems to be the company in charge of making and designing the products, which is why they're listed as holders of all design patents."


Since partnering with Adidas, the Yeezy company has earned more than $500 million through 2020 in total royalty payments and marketing fees. According to Forbes, Ye's agreement with Adidas originally entitles him to a 15% royalty on wholesale Yeezy products; however, he told Bloomberg News in September that he is seeking to renegotiate for a 20% lifetime agreement.


Based on filings with the PTO, it appears that his company, Mascotte, has either registered or applied to register 164 trademarks related to the Yeezy brand - this includes “Yeezy,” “Donda,” and “Yeezus.” The scope of these potential trademarked products spans a variety of industries from shoes and sportswear to food and beverages, cosmetics ,and even products in the metaverse. For reference, The Gerben Law Firm based out of Washington D.C., put together these findings.


The other Yeezy footwear didn't have a design patent like the one Ye obtained in 2020 for the Yeezy Slide. In an Instagram post from June (that has since been deleted), Ye accused Adidas of making knockoff versions of his slides.


"Adidas is straining my relationship with them. They're not respecting the design," West said in the post. "Every time I talk to them, it's like, 'Wait till we get this.' What do you mean? Y'all been making shoes for 15 years! When are y'all going to respect my trendsetting abilities?"


He continued, "I literally brought 500 jobs to Chicago and you want to kill me. You're making knockoffs of my shoes right now, and trying to set me up."


It seems that West has a point—Adidas does appear to be selling a version of the Yeezy Slide that looks very similar to Ye's design.













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About the Blogger:


April Carson is the daughter of Billy Carson. She received her bachelor's degree in Social Sciences from Jacksonville University, where she was also on the Women's Basketball team. She now has a successful clothing company that specializes in organic baby clothes and other items. Take a look at their most popular fall fashions on bossbabymav.com


To read more of April's blogs, check out her website! She publishes new blogs on a daily basis, including the most helpful mommy advice and baby care tips! Follow on IG @bossbabymav


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