Bo's bLAWg - Performance Provision

MJ Bogatin (“Bo”) of Bogatin, Corman & Gold, is an Arts and Entertainment Attorney in San Francisco.  He is also a long-time President of California Lawyers for the Arts. www.calawyersforthearts.org. Bo is available to answer some of your questions surrounding the business of Art Licensing. - THANKS BO!
 
Dear Bo,
I licensed some illustrations to a group that provides imagery to manufacturers.  Only one license was ever entered into to my knowledge.  It was provided on an exclusive basis!  My agents indicate that to their knowledge my illustration was never used on products as anticipated.  I want to leave this licensing group and recover rights to my illustration.  What are my rights?  Hillary

Dear Hillary,
There are a number of issues included in your question.  I cannot answer any of them definitively without looking at the existing contracts, but they are good for this bLAWg!
Here is how I would approach the matter.

First, I would look for the Performance Provisions of each contract, the one with your Agent group and with the manufacturer.  I would hope that you did not sign up long-term with this Agent without there being some minimum level of success with respect to licensing of your illustrations in particular.  Back in October of 2015 I discussed the use of “Minimum Thresholds” to insure that a manufacturer was making adequate use of your illustrations for the ongoing benefit of each party.  (see http://annietroe.blogspot.com/2015/10/bos-blawg-get-back-your-rights-royalty.html)

The same kind of Minimum Threshold approach can be used with an Agent.  They may need rights without minimum earnings for a year to ‘ramp up’ on their promotion of your artwork, but by the end of the second year I would hope and expect that they would have secured a sufficient number of advance$ to meet their own minimum expectations as well as yours.  As I mentioned in Oct. 2015, the Licensee’s or Agent’s own projections on these expectations can serve as the contract Minimum Threshold.  If the Agent will not agree to financial minimums, they may consider a minimum number of licenses to be obtained within the first two years of the Agreement.  If that expected minimum is not met, the provision would allow either Party to the Agreement the right to terminate it early.

With respect to the manufacturer, the common “Performance Provision” requires them to make use of your licensed imagery within a certain number of months since execution of the Agreement, or lose the licensed right to use your imagery.  The basic Performance Provision is intended to insure that your illustrations are not being ‘banked’ but must be used within a reasonable period of time.  If the manufacturer fails to move forward with the expected product use, you (or your Agent) would have the right to terminate and recover your rights to the imagery.  See if there is not a Performance Provision in the License signed, and if you do not already have the right to terminate that license.

I should mention here that sometimes the manufacturer is just about to go to market with a product featuring your illustration(s).  If they are ‘in breach’ by not meeting the “performance”  deadline of the original License, you can jam them up by given them notice of a breach of contract and demanding that they “cease and desist” from use of your imagery.  A compromise at that juncture might include a significant new additional advance on royalties.

However, do not overlook the possibility of a contract “Cure Provision.”  Does the manufacturer License give the manufacturer additional time to cure the claimed breach and avoid the termination right?  Many do.  In which case, not only must Notice of the Breach be given in the  manner specified in the License, but the manufacturer may be able to avoid the breach altogether by getting the product with your illustrations into distribution within the (usual) 30-day cure period.  Don’t be disappointed if that is exactly what occurs.  Isn’t that what you actually wanted in the first place – the products with your artwork in the marketplace?  Sometimes, the manufacturer just needs to be hurried along.  The Performance Provision can be useful for that purpose.

Disclaimer: The information contained in this website is not intended as legal advice. Because the law is not static, and one situation may differ from the next, we cannot assume responsibility for any actions taken based on information contained herein. Also, be aware that the law may vary from state. Therefore, this website cannot replace the advice of an experienced attorney. Receipt of this information does not create an attorney-client relationship. MJ Bogatin, Bogatin, Corman & Gold, www.bcgattorneys.com
© 2017 mjbogatin

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Bo's bLAWg - Return of License Rights after 35 Years

MJ Bogatin (“Bo”) of Bogatin, Corman & Gold, is an Arts and Entertainment Attorney in San Francisco.  He is also Co-President of California Lawyers for the Arts.  www.calawyersforthearts.org  Bo is available to answer some of your questions surrounding the business of Art Licensing. - THANKS BO!

 

Last month I wrote about the way I look to protect an Artist client’s rights in her image preemptively by making the license subject to mutually agreeable minimum annual earnings.  That is a way to get back rights to images being used unproductively in the relatively short-term.  (Last month's bLAWg)

However, the Copyright Act, Sections 203 and 304(c)(3), also addresses the return of copyright interests to Artist in the long-term. In short, for works originally published before January 1,1978, an Artist or their heirs can reclaim her copyright interest after 56 years.  For works published since January 1, 1978, the right to claim a reversion of copyright is available after 35 years.

(See http://copyright.gov/title17/92chap2.pdf and http://copyright.gov/title17/92chap3.pdf

While most of my transactional work over the last 30 years involves works created and licensed after 1977, I have had occasion to advise certain composers and rock and roll poster artists on the way to recover the rights to their works that were exclusively in the hands of record labels and publishers for as long as 56 years beginning in the 1950s and 1960s.
  
For works published from 1978 on, the 35 year reversion right became operative as of 2013.  This year, works licensed in 1980 became subject to reversion.  Next year will open the door for recovery of works licensed in 1981, and on and on.  Each calendar year, thousands of copyrights will be available to be reclaimed by their Artist authors or their heirs should they choose to avail themselves of this right.

It should be clear, however, this right only applies to copyrighted works that were licensed (exclusively or non-exclusively) or “assigned” (sold) in the first instance, not those that were created by an employee for her employer or as bona fide works-made-for-hire.  (For more particulars on what is a work-made-for-hire, see my bLAWg from March 20, 2015 click here ).  Nor does the statutory reversion right apply to copyright interests that were transferred by will.

However, it also applied to derivative works that were made from the original.  So, if an illustration was issued for all kinds of paper products but mostly greeting cards, but was subsequently sub-licensed for a jigsaw puzzle that became a best-selling puzzle, termination of the original license terminates any sub-license as well.

So, why would you want to terminate the license of the sub-licensee who is still selling lots of puzzles?  Because if the Artist is only getting a nominal royalty out of a successful illustration, she can look to renegotiate that royalty rate as an alternative to the termination, or look to obtain a much more lucrative license with another puzzle publisher upon termination!

There is a formal Notice process that applies to both statutory reversion rights.  Rights under Section 203 may be effected at any time during a period of five years beginning at the end of 35 years from the date of original license.  For instance, if an Artist granted an assignment of copyrights in a one or more of her illustrations on January 1, 1978, the earliest date upon which termination of such grant could be effected would be January 1, 2013; the latest date would be January 1, 2018.  So, for those licenses commencing as of 1978, we are right in the window of time to recover those rights. If Notice has not been given in timely manner for this work, the reversion right will be lost for the duration of the copyright term, the life of the Author Artist plus 70 years.

Additionally, the written Notice must be served upon the grantee or the grantee's successor-in-interest not less than two years or more than 10 years before the effective termination date. And, of significant importance, the effective date of termination must be a date that falls within the applicable five-year termination window. So, in our example above, if the rights holders wait until January 2, 2016 to give the minimal two year notice, their window will have closed!  For those who recognize that they are presently in the 10-year window, they can look to exercise their right now, to be effective as soon as the 5-year eligibility period commences.  Make sense?

With copyright interests reverted, the Author Artist and her heirs will have the right to look for other publishing and/or licensing opportunities, presumably on much more attractive rates then were originally offered.  And these recovered copyright interests will last for the remaining part of the copyright  term, 70 years after the death of the Author Artist.

Disclaimer: The information contained in this website is not intended as legal advice. Because the law is not static, and one situation may differ from the next, we cannot assume responsibility for any actions taken based on information contained herein. Also, be aware that the law may vary from state. Therefore, this website cannot replace the advice of an experienced attorney. Receipt of this information does not create an attorney-client relationship. MJ Bogatin, Bogatin, Corman & Gold, www.bcgattorneys.com

Bo's bLAWg - Get Back Your Rights: Royalty Minimums

 

MJ Bogatin (“Bo”) of Bogatin, Corman & Gold, is an Arts and Entertainment Attorney in San Francisco.  He is also Co-President of California Lawyers for the Arts.  www.calawyersforthearts.org  Bo is available to answer some of your questions surrounding the business of Art Licensing. - THANKS BO!

 

An artist asked how they can get back her rights to a group of illustrations that are licensed exclusively but are not making her any money.

The main way that an Artist can look to insure she can get back her rights to an illustration under an exclusive license that is not earning sufficient royalties is to include a provision in the License Agreement that requires minimum royalty benchmarks to be satisfied on a year-to-year basis. At least that is what I look to do for my clients.  Establishing such benchmarks need not be put in terms of royalties, but can be based upon the Licensee’s earnings of sales, whether the Licensor Artist’s royalties are based on gross or net receipts.

This is part of the conversation that the Artist or I would have with the prospective Licensee in the course of negotiations. What is the projected sales income? If the Licensee’s projections compute into royalties that satisfy the Artist’s minimal royalty expectations, then look to include those sales thresholds as ‘minimums’ for the Licensee to maintain exclusive rights. At the very least, even if the Licensee insists their rights continue for the full term, it is possible that the License can be converted to a non-exclusive one – either automatically or upon written notice.

One additional term that might be included is that if the Licensee pays the Artist additional royalties to make up the difference between those actually earned and the minimum expectation, the Licensee may maintain exclusive rights. In that way the Artist can be assured that her minimums are always achieved, or some or all rights revert to her for further use of the licensed image(s).

I can provide specific language on all these terms as needed. Just ask. I can be contacted through my website linked below.

 
Disclaimer: The information contained in this website is not intended as legal advice. Because the law is not static, and one situation may differ from the next, we cannot assume responsibility for any actions taken based on information contained herein. Also, be aware that the law may vary from state. Therefore, this website cannot replace the advice of an experienced attorney. Receipt of this information does not create an attorney-client relationship. MJ Bogatin, Bogatin, Corman & Gold, www.bcgattorneys.com

Bo's bLAWg: Trademark Basics

 

MJ Bogatin (“Bo”) of Bogatin, Corman & Gold, is an Arts and Entertainment Attorney in San Francisco.  He is also Co-President of California Lawyers for the Arts.  www.calawyersforthearts.org  Bo is available to answer some of your questions surrounding the business of Art Licensing. - THANKS BO! 

 

'I saw that you need to decide on your trademark application whether you are selling goods (a product) or services. I'm hoping to sell goods but then I saw that if you plan on selling on your website that's considered services?? Can I choose both goods & services? Thank you! Kathy'

The short answer to this question is that trademarks can apply to goods and services, in which case you want to look to register your trademark in both classes – which you can do at the same time, but which requires additional application fees.

What this question also invites is an opportunity for me to address the fundamentals of trademark law. Like copyright, trademarks are a matter of Federal law – the Lanham Act, 15 USC Chapter 22, https://www.law.cornell.edu/uscode/text/15/chapter-22.  However, this Act applies only to goods and services in interstate commerce.  Goods and services that are made available ‘locally’ in intrastate commerce, would not necessarily qualify for Federal Registration, but would be eligible for State Registration.  Most states provide for registration of such marks through their respective Secretary of State Office.

In my prior bLAWgs I have focused upon Copyright issues.  There is a keen distinction between Copyrights and Trademarks that is a “natural” aspect of the intellectual property interests of their owners and creators.  First, let’s distinguish between them by definition.

Remember, a Copyright is the original expression of an idea by way of writing, composition or recording.  A trademark is a word, phrase, symbol, and/or design that identifies and distinguishes the source of the goods of one party from those of others, while a service mark is a word, phrase, symbol, and/or design that identifies and distinguishes the source of a service rather than goods.  The popular term these days for such commercial identification is “branding.” The word “trademark” is often used to refer to both trademarks and service marks. 

Copyright law allows for multiple Authors to claim an IP right in a substantially similar original expression of an idea. Hence, there are legitimate claims of right to very similar illustrations, photographs and paintings.  Any and all of such Authors can claim ownership of their own original expression as long as they have not copied from the other.  An example:  Every tourist who takes a photograph of the Golden Gate Bridge at the same moment of dusk from the same pinnacle at Lands End can have their own copyright claim in that unique photograph, and all the exclusive rights that attach to their photograph.  However, it is not an infringement of their Copyright for another photographer to publish and exploit a nearly identical photograph!

On the other hand, because trademarks are for the purpose of identification of the source of specific goods and services, it is important that the owner of a given trademark have the exclusive right of use to that mark as against any and all others who might like to use the same or a similar mark in the same class of goods or services.  The purpose of this exclusive interest is to insure the public consumers that they are purchasing the brand they are intending to purchase, not a ‘pretender.’ You may not have realized it, but underlying the purpose of trademark law is consumer protection! 

The Trademark Office has identified 34 classes of different goods and 11 of services from which the prospective Trademark registration applicant must select the most appropriate for their product or service.  Hence, it is possible that there are similar Trademarks in other classes, but obviously not related to one another, and will neither compete with one another or lead to public confusion.  Hence you could have both Apple Computers and Apple Records operating at the same time without a problem.  However, once Apple Computers got into the music business (with iTunes etc), litigation commenced.

Unlike Copyright, where ownership in a similar representation (of an object) can be claimed again and again, the maxim for Trademark is, “First in time is first in right.”  The first person (or company) to use a given word or logo as their trademark has a “senior” user right (superior right of use) against any latecomer (“junior” user) who might want to use the same or a confusingly similar mark.  The basic legal test for Trademark infringement is whether or not use of a given mark may cause public confusion as to the source of such goods or service.  There need not be actual public confusion for a mark to be refused registration.  It is enough that a junior mark may confuse the public as to the source of the seller’s good or services.

Must all marks be registered? No, but Federal registration has several advantages, including a notice to the public of the registrant's claim of ownership of the mark, a legal presumption of ownership nationwide, and the exclusive right to use the mark on or in connection with the goods or services set forth in the registration.

If you claim rights to use an unregistered mark, you may use the "TM" (trademark) or "SM" (service mark) designation to alert the public to your claim of ownership of the mark, regardless of whether you have filed an application with the United States Patent and Trademark Office (USPTO). However, you may only use the federal registration symbol "®" after the USPTO actually registers a mark, and not while an application is pending.

The Trademark Office fees for an online registration range from $225 to $325 per mark per class.  The Lanham Act allows for registration of a mark the applicant has an Intent To Use (“ITU”) to reserve rights in the mark pending manufacture and distribution.  (15 U.S.C. § 1051b) 

So, Kathy, if you intend to use the same Trademark for both goods and services, be sure to first do a thorough search of marks being used in the classes of each.  One senior rights-holder with  the same or a confusingly similar mark in one class or the other will likely spoil your plan to use the same mark for both.

Disclaimer: The information contained in this website is not intended as legal advice or a solicitation of business. Because the law is not static, and one situation may differ from the next, we cannot assume responsibility for any actions taken based on information contained herein. Also, be aware that the law may vary from state. Therefore, this website cannot replace the advice of an experienced attorney. Receipt of this information does not create an attorney-client relationship. MJ Bogatin, Bogatin, Corman & Gold, www.bcgattorneys.com

You can use the search box at the top of the page to read more Bo's bLAWgs.
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Bo's bLAWg: What does “work made for hire” mean? Is it a problem for me as an artist?

 

MJ Bogatin (“Bo”) of Bogatin, Corman & Gold, is an Arts and Entertainment Attorney in San Francisco.  He is also Co-President of California Lawyers for the Arts.  www.calawyersforthearts.org  Bo is available to answer some of your questions surrounding the business of Art Licensing. - THANKS BO! 

 

“Work Made for Hire” is a term of art – in law.  It is hugely important to artists providing any kind of artistic services for a client.  In some instances it is fully appropriate.  In most that I have seen submitted to artists as “vendors” providing services, it is not.

The nature of "work for hire" is that pursuant to the Copyright Act, 17 USC 201b, the   independent contractor Artist who is providing services is not the copyright holder in her deliverable artwork. With use of those magic words in the contract, the commissioning party is deemed to own the copyright in whatever the artistic deliverable might be.  The Artist’s work product, even though she is engaged as “an independent contractor,” is essentially being treated as if her work product has been created by one of the company’s own employees.  It is reasonably expected that the copyright to anything an employee creates on the job for her employer is going to belong to that employer.  17 USC 201b supports that expectation as a matter of law.  Work for hire applies the same proprietary interest of the employers to the work of non-employees. The Copyright Act is linked here for convenience:  http://copyright.gov/title17/circ92.pdf

Employees and independent contractors are very different jobs.  As an independent contractor, whether or not the Artist is working for her own business, the Artist is not receiving a salary.  She must negotiate for a fee and is competing with every other independent contractor for the assignment.  However, she is not entitled to the benefits that an employee receives as a matter of law in exchange for her labor.  Must a non-employee Artist’s work product belong entirely to the client, including the underlying copyright and all the use rights and derivative use rights that are contained in that copyright interest?  No, it need not.

As artists well know, there are 1001 uses for any one of their images.  A single image can be used as print, limited edition or otherwise; as a giclee; as a card or on any paper product.  It can be used in any kind of decorated merchandise, from plastic ware to bumper stickers.  If the client has a single uses in mind, or a dozen, it does not necessarily mean that the Artist need give up her copyright.  To the contrary, more often than not, once the issue is discussed, it may well turn out that the kind of artistic deliverable requested may not qualify as a work made for hire, and/or that an exclusive license for the client’s uses is all that they really require.

In fact, the Copyright Act provides that there are only limited kinds of works that are eligible for work for hire treatment.  (See 17 USC 101 Work Made for Hire.)  These include only a work specially ordered or commissioned for use in the following ways:
1 as a contribution to a collective work,
2 as a part of a motion picture or other audiovisual work,
3 as a translation,
4 as a supplementary work,
5 as a compilation,
6 as an instructional text,
7 as a test,
8 as answer material for a test, or
9 as an atlas.
The law defines a “supplementary work” as a work prepared for a publication as a secondary adjunct to a work by another author for the purpose of introducing, concluding, illustrating, explaining, revising, commenting upon, or assisting in the use of the other work, such as may appear in forewords or afterwords, or as pictorial illustrations, maps, charts, tables, editorial notes, musical arrangements, answer material for tests, bibliographies, appendixes, and indexes.

So, in essence, the Copyright Act looks to protect artists from being duped into giving away her copyright interest.  However, if it is agreed that the artistic work involved is legitimately work made for hire, the Copyright Act further requires that the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.  In the absence of such a written, signed Agreement using the magic phrase, there is a presumption that the deliverable is not work for hire and the Artist retains her copyright interest!

Assuming for the moment that the Artist’s deliverable is for one of these legitimate work for hire purposes, the Artist still need not offer it on that basis. The services need not be provided on a work for hire basis if a license of part of the Artist’s retained copyright interests will as fully meet the client’s actual needs.  One way to convince a client to prefer the license is to offer a significant cost savings for the license as opposed to conveying the underlying copyright by way of a work for hire provision.  I recommend a 10 to 1 ratio!  The copyright “coat of many colors” can be had for a price, but is worth as much as 10 times the fee the Artist might otherwise charge for the licensed use right.  That often results in a quick agreement to license the artwork in lieu of a work made for hire transaction.

If the client still insists on work for hire, here in California individual artists have another argument that typically will clinch the deal as a licensed work product instead of work for hire.  The legislature in California has reasoned that if a company is going to treat a deliverable as work for hire as they would were it made by one of its own employees, the company should rightly provide to the independent contractor some of the same benefits to which its employees are entitled as a matter of law, namely Workers Compensation and Unemployment Insurance!  That’s right!  In California statutes provide that if work for hire is involved as part of the deliverable by a non-employee independent contractor, the company is responsible to pay into Work Comp and Unemployment Insurance policies for the service provider!  (See CA Labor Code Section 3351.5c and Unemployment Insurance Section 686 linked here:  http://www.leginfo.ca.gov/cgi-bin/displaycode?section=lab&group=03001-04000&file=3350-3371 and http://www.leginfo.ca.gov/cgi-bin/displaycode?section=uic&group=00001-01000&file=675-687.2 )

All this said, there are caveats.  (Lawyers always have “caveats”.)  It may well be that a client wants an Artist to design a new logo or provide artwork the right to which they need to totally control.  A logo for instance is a form of Trademark, which the client logically does not want used in any other way that might be confused with their brand with which the logo is associated.  In a circumstance like this, the Artist should recognize the legitimate need, but the client should be prepared to pay accordingly for the larger rights required.  If the logo does not fit naturally into one of the work made for hire categories, the copyright can still be “assigned” (sold) by the Artist in writing.

This brings me to my final comments on the subject.  Companies have become so sophisticated that many will often include a provision in their Service Agreement that anticipates that if the work to be performed is not necessarily eligible for work for hire treatment under 17 USC 101, but they still want “all rights,” they will add an alternative assignment provision to the work for hire provision.  It will read something like this:

All work products developed in whole or in part by Contractor for Client (the “Work Product”) including but not limited to any text and/or artwork or graphics, and any copyrights contained therein, shall belong exclusively to Client and shall, to the extent possible, be considered a work made for hire for Client within the meaning of Title 17 of the United States Code. However, to the extent that any of the materials created by Contractor in support of the project may not, by operation of law, be a work made for hire in accordance with this agreement, Contractor hereby assigns to Client all right, title and interest in and to any copyright.

In which case, the Artist is right back to looking for the much higher fee since in the application of either of these legal precepts, copyright is conveyed, and the Artist will have no further use rights whatsoever, without the Client’s permission!

If you have further questions about this that you want to direct to me personally, I can be contacted through my website linked below.

Disclaimer: The information contained in this website is not intended as legal advice. Because the law is not static, and one situation may differ from the next, we cannot assume responsibility for any actions taken based on information contained herein. Also, be aware that the law may vary from state. Therefore, this website cannot replace the advice of an experienced attorney. Receipt of this information does not create an attorney-client relationship. MJ Bogatin, Bogatin, Corman & Gold, www.bcgattorneys.com

You Might also like:  "Bo's bLAWg - What should be in an art licensing contract with a manufacturer"

Bo's bLAWg - What should be in an art licensing contract with a manufacturer

MJ Bogatin (“Bo”) of Bogatin, Corman & Gold, is an Arts and Entertainment Attorney in San Francisco.  He is also Co-President of California Lawyers for the Arts.  www.calawyersforthearts.org  Bo is available to answer some of your questions surrounding the business of Art Licensing. - THANKS BO!

 

I have a list of some 30 issues that should be covered one way or the other in a visual art License Agreement with a manufacturer.  Some of them are what you would consider “legal boilerplate,” but there are good reasons for such provisions to be included.  Others are more particular to most any agreement that pertains to a copyrighted image.  Then there are some that are unique to a visual artist’s agreement with the manufacturer of goods.  I will identify the most important to me from the last two groups.

Exclusive and Non-Exclusive Rights

The first and most important issue to me is whether or not the license is to be Exclusive or Non-Exclusive, and whether the referenced exclusivity pertains to the goods for which the designs are intended, or the designs which are being licensed, or both.  On occasion the nature of the exclusivity is uncertain.  Consider the following provision:

“Artist grants to Manufacturer the exclusive right to Artist’s illustrations on Schedule A attached hereto to reproduce, manufacture, have manufactured, use, sell, advertise, promote, and distribute in domestic and/or foreign markets in the Licensed Products in accordance with this Agreement.” 

What exactly is the exclusive right that is granted?  A literal reading could be interpreted to mean that the Artist has licensed exclusively only her Scheduled illustrations to this manufacturer, but retains the right to license other of her images, whether or not similar to those licensed in this agreement, to a competing manufacturer of the same kinds of Licensed Products!

If the Grant of Rights is Non-Exclusive, then the Artist maintains her right to license to other manufacturers of the same or similar goods.  If Exclusive as to goods, then the artist will not be able to license to competing manufacturers for the duration of the agreed-upon Term of the license. 

A well-drafted Grant of Rights provision, in concert with a set of Recitals (“WHEREAS” provisions that I recommend at the start of an Agreement that identify the parties and the underlying intentions of the Agreement), should clearly state the nature of the Exclusive Rights that the manufacturer expects to acquire and the limits on their use.

If the Exclusive Grant of Rights bars the artist from licensing the same or other illustrations, make sure that the bar extends only to competing goods rather than any other kind of manufactured goods.  The goods that are encompassed under the license should be listed.  These are often called “the Licensed Products.” 

Furthermore, depending on the length of the Term, make sure that the Exclusive Agreement requires a minimal level of sales for each year of the Term.  You do not want to tie up your best illustrations (much less all of them!) in a deal that does not net you a reasonable minimum income.  Where the manufacturer is unwilling to guarantee minimums, it is possible that they will accept the prospect of the License becoming Non-Exclusive as to your illustrations and their goods if the royalties do not come to an amount that the manufacturer itself believes is the minimum you should be earning for Exclusive Rights on its anticipated sales.  The minimum for each year can change, depending on the kind of goods, expected promotional efforts and the market.  It is not unusual for me to come up with an acceptable ‘bell-shaped curve’ of a minimum in royalties, low the first couple years, spiking at years three and four, then receding again as the product is supplanted. 

A significant Advance on sale royalties is another way to insure a decent income on the license, particularly if the Advance can be recouped only on the first year or two of sales.

 

Sub-licensing 

The next most critical consideration is whether or not the manufacturer will be sublicensing manufacturing rights to another entity.  As you can imagine, such sublicenses can result in significantly diluted royalties to the Artist.  You might expect to negotiate for the right to pre-approve proposed sublicensing terms.  To be more attractive to you, a sublicensing arrangement could involve a big up-front fee in which you would share.  Otherwise, look to establish a minimum royalty per unit sale regardless of manufacturer sub-licensing rights.

 

Discounts

A related issue is the manufacturer’s right to discount its wholesale goods.  Sales to big chains and Amazon can include huge discounts due to the volume of sales involved.  Again, as long as the Artist is entitled to a minimum $um on each unit sold, discounts need not grossly decrease the Artists 4 or 5% royalty rate.

 

Audit Right

It is one thing for a manufacturer to supply an Artist (and her accountant!) with statement of sales and computations of royalties due; another for the Artist to have the right to audit the manufacturer’s records to assure the accurate reports on sales.  While I have nothing to support the opinion, I think that the threat of an Audit, particularly with a financial penalty attached in the event of the discovery of any erroneous accounting, helps to insure that the accountings are in fact accurate; while absence of the provision pretty much assures the licensor Artist that they will never know if the accountings were accurate or not.

 

Copyright Notice / Trademark

Wherever possible the Artist should look to include a legible copyright notice associated with the illustration being used in the product.  Don’t forget to include the notice in product packaging that might well include the artwork.  I urge clients to include their own trade name as long as they are certain that it does not infringe another entity’s trademark.  The Artist can expect to warrant that she has rights to any trade-name and trademark used.  Including a URL as part of the name credit in the copyright notice (or otherwise) can be a significant promotional benefit to the Artist.

 

Quality Control

The quality of the item and the Artist’s illustrations as used is not the issue it was back in the Analogue Age.  Correct use of Digital files pretty much assures that the reproduction of the illustration will be decent.  However, the product itself may not be.  The Artist will want to satisfy herself up front that the manufacturer makes quality goods and that her reputation will not be sullied by association with crappy goods.  The right to pre-approve the product and quality of the reproduction and copyright notice and name credit, along with free samples after approval and manufacture are still legitimate terms to include.

 

Dispute Resolution

If there is a dispute that crops up, whether on name credit or accountings or termination rights, it is likely to be an unreasonably expensive proposition unless there is a prevailing party cost and fees provision included in the Agreement.  Otherwise, to bring a claim, the Artist will be out-of-pocket for attorney’s fees and costs to bring an action in court on a dispute that cannot be resolved between the parties.  A prevailing party costs and fees provision makes it much more likely that a party will not have to pursue a meritorious matter in court, or sue on one that lacks  merit.  

A much better alternative than the threat of court process, however, is the prospect of mediation and/or arbitration as the contracted way to resolve disputes.  Such Alternative Dispute Resolution process has become much more acceptable to manufacturers over the last few years.  95% of the matters that I have had occasion to refer to mediation – a three-way discussion facilitated by a trained mediator -- are resolved in the course of that process. Arbitration, if necessary, is a quick, private and relatively inexpensive alternative to court.  Prevailing party fees and costs can still be awarded in arbitration if provided in the Agreement.  I strongly recommend that provision still be included as a means to leverage settlement of a legitimate claim and avoid specious ones.

As mentioned at the top of this bLAWg, there are many more issues that need to be included in the typical Manufacturer’s Licensing Agreement, but they are for the most part all reasonably included by both parties if requested (or required).  If you have raised these listed issues in negotiations, I suspect you will be respected for your level of sophistication about licensing terms, and may well be able to get better terms than other Artists of whom the manufacturer’s business rep might otherwise take advantage.

If you have further questions about this that you want to direct to me personally, I can be contacted through my website linked below.

Disclaimer: The information contained in this website is not intended as legal advice. Because the law is not static, and one situation may differ from the next, we cannot assume responsibility for any actions taken based on information contained herein. Also, be aware that the law may vary from state. Therefore, this website cannot replace the advice of an experienced attorney. Receipt of this information does not create an attorney-client relationship. MJ Bogatin, Bogatin, Corman & Gold, www.bcgattorneys.com.