The Secret Decoder Ring for Licensing Contracts
From eHow.com to WikiHow to Lifehacker and YouTube, there is no shortage of D-I-Y tutorials. But there’s one area where you want to avoid playing D-I-Y leapfrog — legal. There are dozens of tips columns on protecting your intellectual property by renowned licensing and entertainment attorneys. Read them all. Every article will have value and strengthen your legal muscle, but…the devil is in the details.
Why listen to me? Well, I’ve spent 25 years of my career in software for rights, royalties, and licensing. I’ve seen my fair share of licensing deals, some greatly successful and some not so much. But hold for just a moment, please. My attorney has muted my microphone and is whispering in my left ear, demanding that I begin this post with my disclaimer, so here it is:
"What I’m expressing here are my opinions and not the opinions of Vistex, my employer. I am definitely not a lawyer. The notes below this disclaimer are observations for general informational purposes only, and may not reflect current law in your jurisdiction. No information contained in this post should be construed as legal advice from me, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act —or refrain from acting — on the basis of any information included in, or accessible through this LinkedIn Pulse post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in your state, county, or other appropriate licensing jurisdiction."
So the bon mots I’m sharing here are not "advice" per se. They’re simply my observations from working in the licensing business for a very long time and from my exposure to hundreds of licensing operations all over the world.
A Forthright Conversation
Okay, now that we’ve gotten housekeeping out of the way, let’s have an earnest chat. As I was saying, I’ve spent two-and-a-half decades in the licensing industry designing and implementing software for rights, royalties, and accounting. Our software touches merchandise licensing, television, film, video gaming, corporate branding, patents, technology, publishing, and more. Basically, we ensure all parties (licensors, licensees, and agents) remain “on the same page” via proper tracking of rights granted, and that royalties are paid in or paid out on time.
As you might imagine, you don’t have to be in this industry for too long before you start to hear some classic insider stories. I’ve seen many costly, avoidable contract mistakes firsthand: from contracts that have allowed over-saturation and brand degradation to rules that end up with licensors discovering seven-digit unpaid royalty amounts. Surprisingly, a quick glance through many of these contracts readily reveals missing directives or clauses that could have saved a great deal of creative, legal, and financial heartache.
Given that, I decided to share my thoughts on how to get in the club and learn the secret handshake. Or, to borrow a concept from A Christmas Story, I’m handing out my version of the secret decoder ring (minus the "Drink More Ovaltine" advisory).
The Big Five
I’ve observed that there are five main areas in a licensing agreement that, when well-constructed, are extremely beneficial in protecting the integrity and profitability of a brand. My successful licensor colleagues have used these areas effectively to maintain the relevancy and image of their brands. These five main areas are as follows:
- Specific rights for specific retailers, regions and targeted combinations.
- Guarantees and royalty rates structured to drive distinct product sales into specific markets or regions, garnering optimal rights exploitation.
- Performance-based renewal provisions.
- Clearly defined net sales values, including customary trade discounts, merchandise returns reporting, and optional discount approaches.
- Discrete conditions for the sell-off term, such as pricing restrictions or limited distribution channels, and what happens to your additional inventory after the sell-off period.