In my previous installments of The Chippendales Chats (here, here, and here), I described the license agreement Steve and Nick memorialized on a cocktail napkin, and how the subsequent events in Welcome to the Chippendales illustrate that even Nick (who apparently made out like a bandit on the deal) would have benefited from a more robust contract and good legal advice.
A more robust contract would have helped Steve, too, addressing the following issues head-on.
- Term: Steve made a critical error by agreeing to grant Nick the right to use the Chippendales name on Nick's touring company "in perpetuity." That only became clear to Steve after he signed the contract, limiting his options later. A smart lawyer could have made this clear to Steve before he signed. That lawyer also could have advised Steve that, rather than "in perpetuity," he could grant the right to use the Chippendales name for a fixed term, such as one year. At the end of the year, if Nick wanted to continue to use the name, he would need to reach a new agreement with Steve, whose price may have gone up.
- Territory: Steve also could have proposed to limit the geographical scope of the license. Why not start by granting Nick rights to use the name in Europe, and see how that goes for a year?
- Exclusivity: Whether or not Steve was granting Nick an exclusive license to use the Chippendales name on a touring company (the subject of my last post) should have been addressed expressly by their contract. From Steve's perspective, exclusive rights costs more.
- Termination: Under what circumstances could Nick ever lose the right to use the Chippendales name? What if he failed to make timely royalty payments? What if he was convicted of a felony, hurting the brand? What if he abandoned the tour for other projects, killing profits? Again, a smart lawyer could have helped Steve consider possible scenarios and how the contract could address them head-on to protect his interests.
- Royalties: We understand from the show that the napkin contract provided that Nick had to pay Steve fees (or "royalties") for his right to use the Chippendales name, measured as 50% of the tour's nets profits. There are myriad possibilities here, too, and a smart lawyer could have helped Steve consider them before arriving at his preferred arrangement. Even if Steve liked Nick's proposal that he pay 50% of the tour's net profits, a more robust contract would have benefited Steve by spelling out how often the royalties were to be paid (monthly? quarterly? annually?), exactly how net profits were to be calculated, and what documentation Nick had to provide to demonstrate the calculation was done correctly. Steve would also have the right to audit Nick's books for further assurance of accurate calculations.
In the show, Steve grew angry that the checks he received from Nick did not seem large enough. Even with their spare agreement on the cocktail napkin, if Nick really were paying Steve less than the full amount he was owed, Steve could have sued for breach of contract. He would then have to prove that he was not getting the agreed-upon percentage of the net profits, and there would be arguments about how those amounts should be calculated. Nick would have to produce the touring company's financial information in discovery. This kind of case is right up my alley.
Holes and ambiguities in agreements give business disputes lawyers like me more work to do. This is why I often advise clients that incurring legal expenses for good advice on the front end can save legal expense in the long run. Fictionalized Steve and Nick show us why.
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