Brands take secrecy and the disclosure of confidential information seriously. One way they do that is to include a liquidated damages clause in their contracts and non-disclosure agreements (NDA). A liquidated damages clause lists a specific monetary amount owed for disclosure. Some companies list an extraordinary large number here in an effort to deter the signee from breaching the agreement, however, courts have consistently stated that a liquidated damages clause cannot be punitive in nature. Meaning, it cannot be very high for no actual reason. Liquidated damages clauses, specifically the monetary amount contained therein, ARE enforceable if the amounts stated are based on actual anticipated damages. Actual anticipated damages incurred due to disclosing protected information are very hard to prove.
Generally speaking, most courts do not enforce arbitrary predetermined fees for breach of contract (including NDA’s). Courts like to analyze the actual amount of damages incurred from the specific breach of contract for themselves and award an amount based on their own analysis.
In Court documents filed last week in Los Angeles County Superior Court, Yeezy Summer intern Ryan Inwards, was charged with breach of contract and conversion for violating a NDA he signed to participate in an internship with the brand. The NDA contained a liquidated damages clause in the amount of $500,000.The NDA prohibits disclosing or disseminating confidential information on social media. Yeezy brand alleges in the complaint that Inwards shared nonpublic images on Instagram, and did not remove them even after Yeezy sent him multiple cease and desist letters. His Instagram account has all of his photos deleted as of today.
Yeezy is seeking $500,000 in liquidated damages plus punitive damages because the company believes he’s acting maliciously. It’s also seeking an injunction ordering that he turn over all pictures so he cannot do this again in the future.
The $500,000 liquidated damages amount seems high to me. However, Yeezy is a billion dollar brand and actual damages from the early disclosure of a new sneaker (such as a Yeezy v4 or maybe even a new colorway of a Yeezy 350 v2), could potentially cause damages in that range. It all depends on the picture that was shared and what information was disclosed. Here, the simple fact that the disclosure relates to a Yeezy brand product, means that the actual damages suffered could possibly be $500,000. This number might be too large for a liquidated damages clause for other brands, but could possibly work here for Yeezy brand. I have not seen any damage from the confidential information that was leaked by Inwards Instagram posts yet so it might be hard to prove an amount that high with no impact or news in the sneaker industry.
Regardless of the outcome here, Yeezy is showing interns and everyone that they don’t mess around with confidentiality and likely have something big in the works.
