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WHITE PAPERS

Licensing your image on to manufactured goods

Licensing Defined
License your intellectual property (art, design, electronic interactive design or games) for reproduction on or in a product that is mass-produced, and be paid a percentage or royalty of the wholesale price.

All Software designers, Digital game designers, Authors, Musicians, Actors work with an advance on a royalty agreement. They license their intellectual property to a manufacturer, publisher, and film studio etc. who advances them a “royalty advance” which is deducted from the royalties that will be paid once the product starts selling.

Manufacturer
The Manufacturer fronts the money required to manufacture the inventory, packaging, advertising, promotional aids, and insurance. They are responsible for the quality of the product, to fill orders on time, and create relationships with Retailers or Distributors called Vendor Agreements. A Vendor Agreement defines liability should a product not come to market, and establishes a manufacturer as solvent and reliable.

A Manufacturer can receive Purchase orders up to one year in advance of shipping, but do not invoice the Retailer until the product is shipped, and the artist normally gets paid 30 days after the product is invoiced or shipped – whichever occurs first.

Distributor (wholesaler)
Can be a firm that warehouses the products, or simply a broker who makes an introduction and makes a markup on the wholesale price.

Retailer
May have distribution and promotion capability (catalogues/websites), and if so will ask for discounts to the wholesale price. A retailer can also have their own distribution system with warehouse locations, that will also translate into discounts off of the wholesale price. A retailer may have certain products that they contract a manufacturer to make for them (i.e. Barnes and Nobles Calendars)

Artist or Licensor
Can make a licensing arrangement with any of the above, depending on the particular firm, and get probably 2 to 15% of wholesale price. If you create art or art pieces for sale to the consumer, you are the manufacturer, distributor, and retailer.1.


  1. Major terms of a royalty agreement


    • Parties: Make sure the party named is the party you are doing business with, not a company that is subcontracted by your client.

    • Images: Describe in detail the image/images to be licensed.

    • Merchandise: Be specific as to what products onto which your image/design will be licensed so there is no misunderstanding as to what is licensed for reproduction.

    • Territory: The biggest danger is to license a territory exclusively and the opportunity not be exploited.

    • Term: Is defined in years, adding some time to sell into the market if a new product, or a condition can be added that requires a certain performance in sales, defined by a dollar amount, and should the set goal not be achieved, the license is rescinded.

    • Exclusivity: Retain non-exclusivity, if possible, but beware, do not license an image on to similar products in the same territory, because you are introducing competition for your manufacturing partner.

    • Copyright: Reserve copyrights to the artist/designer, and in the case of characters, transfer copyright of all derivative works back to the artist.

    • Credit: includes copyright notice and website. Asserts copyright, but also informs other manufacturers of your contact info.

    • Royalty Rate: (See visual attached)

    • Royalty rate: It is usually a percentage of the net wholesale price, which is approximately one half of the retail price. Your manufacturer will have an idea of the wholesale price, but it will fluctuate from one retailer to the next, depending on the deal that they strike with them. If any distribution/ promotion expenses are to reduce the amount on which royalties are calculated, these expenses must be specified and you must assess the impact on your wholesale price.

    • Advances: At signing, a designer may be advanced a negotiable sum that should cover the costs of creating the program.
      Minimum guarantees: A guarantee made by your manufacturer that you would enjoy a defined dollar royalty advance every quarter, regardless of whether they make those sales targets.

    • Note: Make royalties, royalty rate and minimum guarantees non refundable against returns.

    • Accounts and accountability: Artist should have the right to inspect the records of the licensee and get regular statements of sales.

    • Indemnification: Licensee to indemnify artist against costs arising out of improper use of the image, and to provide liability insurance against faulty products etc.

    • Promotion: Licensee should be expected to expend their best efforts to promote the merchandise. Some agreements define the dollar amount to be invested in promotion by the licensee. Some agreements allow the designer/artist to approve all materials and products that are created with the artwork, or promote the artwork.

    • Termination: Define grounds required for termination such as bankruptcy, insolvency, copyright infringement etc. The manufacturer may have grounds for termination as well, such as late artwork, art that does not resemble samples, etc.

    • Conditions: Right of first refusal or options to renew.


  2. Recommendations

    • Register your copyright.

    • Use Non-disclosure agreements to present your work.

    • Know your market, and manufacturer. Get to know with whom your prospective manufacturer has vendor agreements and the demographic to which they appeal.

    • Know and understand a royalty agreement, and set a target for your negotiations. Consider the income that will be displaced through the effort of creating a licensing program, and consider it “income at risk” when you look at the distribution schedule that they present.

    • Contracts cannot prevent all contingencies, you need a basic trust of the party involved, or you should not be signing the contract. A contract can only give you options for recourse, it does not prevent.




  3. Resources

    • An excellent reference:
      Licensing Art & Design by Caryn R. Leland
      (Allworth Press, 1-800-491-2808, www.allworth.com)


    • www.licensing.org
      There is a link at the top left of the home page entitled “Licensing 101” which is a very good introduction.


    • Register your copyright in Canada:
      Canadian Intellectual Property Office
      www.strategis.ic.gc.ca


    • Register your copyright in the USA:
      The Library of Congress Copyright Office
      www.copyright.gov


    • Where to find Manufacturers:
      165,000 Canadian and American manufacturers, searchable by name, product category or brand are online at www.thomasregister.com.
      This free service allows you to link to online catalogues or you can purchase direct mail/email lists . Worldwide manufacturers can be found at www.tgrnet.com.