Licensing YOUR Designs
New audiences and new modes of production and distribution necessitate different business arrangements.
by Tad Crawford
icensing is the granting of rights to use images or designs created by the artist on posters, calendars, greeting cards and stationery, apparel, wallpaper, mugs and other household items, or any of innumerable other applications. Needless to say, this can be lucrative for the artist. Because so many of the products used in everyday life depend on visual qualities to make them attractive to purchasers. These qualities may reside in the design of the product itself or in the use of images on the product.
For the artist to enter the world of manufactured, mass-produced goods is certainly a departure from the sale of handmade works or limited editions. The world of the consumer is not the world of the collector, nor are manufacturers the same as sellers of crafts. New audiences and new modes of production and distribution necessitate different business arrangements.
The artist who is offered an opportunity to exploit copyrighted or patented work can limit the rights licensed with regard to use, duration and geographical scope. The artist will want to be certain that the entrepreneur/manufacturer seeking the license is financially stable, respected for honesty and capable of creating and distributing quality products.
The entrepreneur would normally bear the cost of reproducing the work, possibly under a binding schedule for production. The artist would want the right to approve the quality of the product at the various stages of manufacture. Promotional budgets and approaches might be specified in advance along with channels of distribution. Appropriate copyright, trademark and patent notice; the right to artistic credit; the artist’s ownership of the original work; the artist’s right to free copies; and any warranties given by the artist should all be included in the contract.
The artist might be paid either a flat fee or a royalty. If a royalty is to be paid, the issue of gross and net receipts becomes significant. The artist will want a stated percentage of the gross receipts, not the net receipts (or gross receipts less certain expenses). Nonetheless, the typical deal is to give the artist 5 to 12 percent of the net wholesale price received by the manufacturer from its distributors. The artist would want the right to both periodic accountings and inspection of the entrepreneur’s books.
The entrepreneur might request that the artist either refrain from creating competing works or offer an option on the artist’s next commercial creation to the entrepreneur. However, the artist should not agree to these provisions.
The contract should provide for termination in the event the entrepreneur fails to exploit the work or becomes bankrupt or insolvent. The rights would then revert to the artist who might be entitled to purchase stock on hand at the cost of the stock to the entrepreneur.
For the artist considering licensing, the points in the Negotiation Checklist (below) should help in evaluating whether or not a proposed deal is fair and how best to negotiate the overall license.
| Negotiation Checklist |
- Carefully describe the image or design to be licensed.
- State whether the rights given to the licensee are exclusive or nonexclusive.
- Indicate which kinds of merchandise the image or design is being licensed for.
- State the area in which the licensee may sell the licensed products.
- Give a term for the licensing contract.
- Reserve all copyrights and trademarks in the image or design to the artist.
- Require that credit and copyright notice in the artist’s name appear on all licensed products.
- Require that credit and copyright notice in the artist’s name appear on packaging, advertising, displays and all publicity.
- Have the right to approve packaging, advertising, displays and publicity.
- Give the licensee the right to use the artist’s name and, in an appropriate case, picture, provided that any use must be to
promote the product using the image or design and must be dignified. The artist may want the right to provide biographical materials and pictures and approve the manner of their use.
- Determine whether the royalty should be based on retail price or, as is more commonly the case, on net price (which is what the manufacturer actually receives).
- If any expenses are to reduce the amount upon which royalties are calculated, these expenses must be specified.
- Specify the royalty percentage.
- Require the licensee to pay an advance against royalties to be earned.
- Indicate that any advance is nonrefundable.
- Require minimum royalty payments for the term of the contract, regardless of sales.
- Require monthly or quarterly statements of account, accompanied by any payments, which are due.
- Specify the information to be contained in the statement of account, such as units sold, total revenues received, special discounts and the like.
- Give the artist a right to inspect the books and records of the licensee.
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- If an inspection of the books and records uncovers an error to the disadvantage of the artist, and that error is more than 5 percent of the amount owed to the artist, then require the licensee to pay for the cost of the inspection and any related costs.
- Provide for a certain number of samples to be given to the artist by the manufacturer.
- Give the artist a right to purchase additional samples at manufacturing cost or, at least, at no more than the price paid by wholesalers.
- Consider whether the artist will want the right to sell the products at retail price, rather than being restricted to using the samples and other units purchased for personal use.
- Give the artist a right of approval over the quality of the reproductions in order to protect the artist’s reputation.
- Require the licensee’s best efforts to promote the licensed products.
- Specify the amount of money that the licensee must spend on promotion and the type of promotion that the licensee will
provide.
- If the licensee’s usage may create trademark or other rights in the product, it is important that the artist own these rights after termination of the license.
- Reserve all rights to the artist, which are not expressly transferred to the licensee.
- Require the licensee to indemnify the artist for any costs arising out of the use of the image on the licensed products.
- Have the licensee provide liability insurance, with the artist as a named beneficiary, to protect against defects in the licensed products.
- Forbid assignment by the licensee, but allow the artist to assign royalties.
- Specify the grounds for terminating the contract, such as the bankruptcy or insolvency of the licensee, failure of the licensee to obey the terms of the contract, cessation of manufacture of the product, or insufficient sales of the licensed products.
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Tad Crawford is an attorney, publisher, and author of “Legal Guide for the Visual Artist” and “Business and Legal Forms for Crafts,” from which this article is adapted. More information about his books and other books to help artists can be found at the Allworth Press Web site at www.allworth.com/Pages/SC_AC.htm.