It was 1921, and Fatty Arbuckle was riding high on his success as a regular in the Keystone Cops series. He was so popular that Paramount signed a three-year, $3 million contract with him. A few months later, his career was in ruins. At a party he hosted, a young woman was found dead in the bathroom, and Arbuckle was charged with rape and murder. After two mistrials, Arbuckle eventually was found not guilty — although he was fined $500 for serving alcohol during his Prohibition-era party.
It wasn't just Arbuckle who was affected by the scandal; public opinion turned against the movie business in general.
Watching Paramount flounder, Universal Studios decided on a radical solution to potential scandals. It introduced a "morality clause" into its contracts. The clause read, in part, "The actor (actress) agrees to conduct himself (herself) with due regard to public conventions and morals. ... In the event that the actor (actress) violates any term or provision of this paragraph, then the Universal Film Manufacturing Company has the right to cancel and annul this contract."
Variations of that clause have been with us ever since. When you hear of companies terminating contracts with Kate Moss for getting caught using cocaine, or Mel Gibson for his anti-Semitic rant, it all goes back to Roscoe "Fatty" Arbuckle [source: Pinguelo].