YouTube megastar Mr Beast last week filed a claim in the US District Court against dark-kitchen and delivery business, Virtual Concept Concepts for breach of contract.Through his company, Beast Investments LLC, Mr Beast accuses the food delivery business of damaging his brand and reputation by offering low-quality products to customers at some of the 2,000 dark kitchens worldwide it operates under his name.
While the full details of the dispute between two parties have not been disclosed, and Virtual Dining Concepts has strongly denied breaching its contract, the case provides a timely reminder of the potential pitfalls for brands, influencers and celebrities who license their name out to third parties.
How can a name be licensed?
As the influencer market becomes more saturated, there is an increasing drive to find new ways to diversify and monetise influencers’ brand offering. We have seen the rise and fall of the popularity of influencer book deals and meet-and-greets, but few opportunities offer the growth potential which can be experienced through the creation of new products or services using the influencer’s brand. Whilst many settle for creating branded merchandise, we have seen a wave of content creators such as Mr Beast choosing to team up with well-established operators to produce products and services which the influencer would otherwise not be able to service.
A third-party licence arrangement such as this is distinguishable from a traditional franchise arrangement as influencers often have little or no experience in the target market and are looking to monetise their name, as opposed to providing an operating system which is ready to be rolled out by franchisees. In simple terms, the influencer provides the name for the brand and the associated goodwill which comes with the name, and the third party will often invest heavily in developing a concept and in the physical cost of opening and operating the business using their relevant business expertise.
How should the arrangement be structured?
The easiest route would be to structure the deal as an IP licence, with certainty over who owns the IP, controls around key areas such as quality and brand reputation, core commercials such as royalties and the provision of services and, crucially, clarity over the relationship can be unwound or terminated.
However, given that there is usually an imbalance in the amount of capital a party is investing to get the project off the ground (usually this is the operator, not the influencer), this type of deal can be structured as a joint venture. However, joint ventures should be approached with caution, and should be a two layered relationship between the brand owner and the third party. The first layer is the ‘equity’ relationship under which the influencer takes an equity stake in the operating company under a shareholder agreement. However, a second layer, which is arguably more important, exists and the parties should enter into a further agreement (i.e. a form of the IP licence mentioned above) to document the contractual relationship under which the influencer grants the operating company the rights to use the brand owner’s IP (such as their name and image) and to operate the business.
In the context of Mr Beast, we would expect that Virtual Dining Concepts invested substantially on the opening and operating of the dark kitchens, and may even have shared ownership of the IP in the concept. Without a clear distinction between economic rights and IP rights, termination of this type of arrangement can be fraught with complexities.
What are the key takeaways (pardon the pun!)?
Whilst we wait to see how matters between Mr Beast and Virtual Dining Concepts will play out, there are some key takeaways for influencer and brand owners:
- Influencers should ensure that they carry out proper due diligence with potential partners to ensure they can operate the business and have rights to continue to audit the performance of the partner throughout the relationship and take swift action to terminate the relationship and minimise the risk of damage to the brand if these standards are not maintained.
- In joint ventures, the brand owner must distinguish between its role as the brand owner and its role as a shareholder in the operating company by ensuring that the two layers of the relationship is maintained through the shareholder agreement and the IP licence agreement. All operational provisions should be in the IP licence agreement, to avoid duplication and repetition which could create confusion or inconsistencies.
- Both agreements should contain an appropriate cross default clause – termination of the IP licence agreement should result in dissolution of the operating vehicle.
- It is important to ensure the parameters of the brand licence are clearly set out. Within his claim, Mr Beast has accused Virtual Dining Concepts of posting his image on social media without permission, and used registered trademarks that weren’t part of the venture.
- Influencers shouldn’t over-estimate the value of their brand. Whilst they may have a loyal following, if the product or service is not up to scratch, their customers will certainly let them know about it and this can have a hugely negative impact on the brand. Without importing over and adapting some principals from a typical franchise relationship surrounding use of the brand and protective measures, it may well be a recipe for disaster. Proper planning and execution, including taking advice from an IP specialist, is advisable.
A version of this article was first published by MCA on 4th August 2023. To discuss third party licensing or any other points in this article please contact Gordon.Drakes@fieldfisher.com or Kate.Williams@fieldfisher.com
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