Who Owns Yeezy? Ye-Adidas Could Face a Messy Divorce

October 29, 2022

Adidas’ decision to cut ties with musician Ye has sparked a quagmire over how the intellectual property developed by the two parties’ multibillion-dollar partnership is split and whether there is a way forward to avoid a court battle.

Ye’s company, Mascotte Holdings, appears to be running more than 160 trademark applications and registrations for his Yeezy brand, but Adidas owns the design rights to most Yeezy shoes, including the famous Yeezy Boost 350.

Adidas’s Yeezy Boost 350 had “sneakerheads” camping out for days ahead of their release.

Exactly how the intellectual property disagreement will affect the breakup is unclear, and the answer will depend on the details of a 2016 contract Ye – formerly known as Kanye West – signed with Adidas, which is not public, lawyers said.

According to trademark attorney Josh Gerben, founder of Gerben Law Firm, contracts may include termination clauses that allow one party to acquire intellectual property from the other or “ethical” clauses that allow early termination of the transaction.

“Because we don’t know what the contract between Adidas and Kanye is, we don’t know how smooth or how ugly the separation will end up being,” he said.

Lawyer David Martinez, a partner at Robins Kaplan, said there could be litigation or arbitration over a bankrupt partnership, but “brand agreements usually include detailed dispute resolution mechanisms”.

If the contract allows both parties to maintain ownership of their respective intellectual property, then Ye may well be able to sell Yeezy clothing himself — something he said he wanted to do in a September interview with Bloomberg News.

These products require a completely new design, said Zak Kurtz, an attorney who founded the law firm Sneaker & Streetwear Legal Services.

“If he really wanted, he might sell other clothes or shoes,” he said. “But when I say ‘other’ it has to be a whole new silhouette and a whole new everything with his logo on it.”

Adidas announced on Tuesday the end of a years-long partnership after Gap and Kering-owned Balenciaga parted ways with the rapper, who made a string of anti-Semitic comments on social media and was accused of wearing a ‘” White Lives Matter” shirt caused a controversial fashion show. Gap announced Tuesday that it will be pulling Yeezy-Gap apparel from its stores.

Adidas said it was expecting a $US247 million hit to net income this year due to the breakup

The German sportswear giant said it would stop making Yeezy-branded products and immediately stop all payments to Ye. Ending the partnership is costly: Adidas said it expects to cut net income by $247 million ($380 million) this year due to the spin-off, which is estimated to account for 8 percent of the company’s revenue.

“At the very least, Adidas will pay Ye the royalties on everything sold since the last royalty payment to him,” said Heidi Howard Tandy, a partner at Berger Singerman in Miami, who specializes in knowledge property law. “This process is likely to continue until 2023 due to the long tail of shipping and sales and taxes.”

Adidas says it has “design rights to existing products” as well as the shoe’s past and future color combinations. Documents filed with the U.S. Patent and Trademark Office show that Adidas received a series of design patents for the Yeezy Boost 350 shoe in 2017 and 2018.

According to the documents, the shoes were designed by Nic Galway, Adidas’ vice president of global design.

“The more controversial the number, the bigger the impact — and perhaps the bigger the reward — but there’s also this exact type of risk.”

According to Kurtz, the collaboration between Yeh and Adidas appears to be a “standard licensing agreement,” labelled a collaboration.

“This means that Kanye licenses his trademarks and intellectual property Yeezy and YZY to Adidas for shoes and apparel,” he said. “Adidas seems to be the one who does the manufacturing and the design, that’s why they’re the one who patent all the designs.”

In 2020, the first four years of the Adidas deal, royalties and marketing expenses for Yeezy’s business totaled more than $500 million. According to Forbes in 2019, Ye’s deal with Adidas gave him a 15 percent royalty on wholesale Yeezy products, but Ye said in September that he wanted to renegotiate a 20 percent lifetime deal.

Documents filed with the Patent Office show that his company Mascotte has registered or applied for registration of 164 trademarks related to the Yeezy brand, including “Yeezy,” “Donda,” and “Yeezus.”

The trademarks cover products in a variety of industries, from shoes, sportswear, food and beverages to cosmetics and products in the virtual world. The Washington, D.C.-based Gerben LLP compiled the documents.

Unlike other Yeezy shoes, the Ye did patent the design of the Yeezy Slide in 2020. In an Instagram post that has been deleted since June, Ye accused Adidas of creating knockoff Yeezy Slides.

The fallout could also serve as a warning for companies to do their due diligence when engaging in co-branding deals that have grown in popularity over the past few years, said Kazuyo Morita, a partner at Holland & Hart and a trademark attorney.

Celebrity co-branding can often increase sales, consumer hype and spread economic risk, she said. “Really, the more controversial the number, the greater the impact — and perhaps the greater the reward — but there are also risks of this exact type.”

In theory, Adidas could continue to sell shoes that look identical to Yeezy as long as it doesn’t use the trademark Ye owns. But Gerben said the controversy surrounding the partnership had eroded the value of Adidas’ designs.

“If Adidas is going to continue with any use of a product similar to what they did with Kanye, I don’t think that’s going to go well,” he said.

“It’s basically just a complete loss for them.”

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