Bo's bLAWg - Continuation Fees to Licensing Agents

 

 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!

My Agreement with my licensing agent is expiring.  It is my understanding that she gets to receive her commission on licenses that she negotiated.  Can you tell me how long this goes on?  How it works?  After we terminate, aren’t I entitled to receive my royalties directly from the licensees and account to her?   Trudy

All Licensing Agents will include a “Continuation Fees” provision in their Agreement with you as the Licensor Illustrator.  The essence of this provision is to give the agent the right to receive their commission on your royalties -- for as long as you receive such royalties -- on a license they placed and/or negotiated on your behalf.  The Term of the Agency Agreement may expire (if it is not renewed), but the agent expects to “continue” to share in the benefits of her services for as long as you do.  Hence the name “Continuation Fees provision.”

The provision typically appears in association with the termination provision, but not always.  It reads something like this:

“It is further agreed, regardless of termination and/or cause, Agent will continue to receive its full 50% share of all Gross Revenue associated with all License Agreements procured by Agent during the Term (and any renewals, extensions and/or modifications thereof).”

I have left in the highlighted, “and/or cause” part of this provision, because this is the kind of term that might be slipped into the otherwise expected provision.  You might miss it if you were not aware of the implication.  What the “and/or cause” means is that even if the Agency Agreement were to be terminated for breach on the part of the agent, like non-payment of royalties due their illustrator client, they would be able to rely on the contract to continue to collect commissions on agreements they made for you!   I say, “No way!”  Commission continuation right should depend on the full, good faith performance on the part of the Agent.  If they screw up and breach their Agreement, all their commission interests should be put at risk.  

In an analogous situation, the California Labor Commission takes the position that if someone is operating as a musician Booking Agent without a license from the Commission, the musicians they represent can make a claim that all commissions earned be surrendered to them.  This includes both past and future “Continuation Fees” that Booking Agents as well include in their Agency Agreements.  Why should illustrators be treated any differently.”  While literary and illustration agents are not licensed, their clients should not have lesser rights than musicians.

As for the issue of continued accounting rights, as long as the Agreement has not been breached, and the Licensor Illustrator had all agency rights revert, it is reasonably expected that post-term, the agent will continue to collect royalties due under the licenses they negotiated.  They will continue to take their commission due, and then account to their former client on the balance due for as long as the underlying Licensing Agreement continues.  Some of the more comprehensive Agent Agreements expressly include this expectation:

“Upon expiration or termination of this Agreement, Agent shall continue to collect payments under any and all License Agreements negotiated during the Term (and any renewals, extensions and/or modifications of the same) unless otherwise agreed by the parties.” 

And, just in case there is any question of whether the Illustrator should contact the Licensee and request direct payment since they are no longer represented by the Agent, some Agreements also make clear they cannot as follows:

“Artist further agrees that Artist, after expiration or termination of this Agreement, may not make any changes in the payment instructions contained in any License Agreement or other arrangement covered by this Agreement to direct any licensees to make payments directly to Artist.”

I would like to offer one alternative to the standard agent Continuation Fees provision.  It is commonly called a “Step-down rate.”  In short, if the commission due is 50% when the Agreement is entered into, two years after termination it might step-down to 25%; two years later, 15%, two years later, it might thereafter remain at 5% or expire altogether.

This compromise term is especially appropriate in those instances when an agent may be taking on an illustrator who already has a significant body of business, but the pre-existing licenses are not necessarily excluded from the Agency Agreement.  Perhaps the illustrator is looking to have the agent review license terms when they come up for renewal and/or renegotiate them when possible.  I have also negotiated inclusion of a step-down rate where the illustrator’s reputation is already ‘made’ as it were, and prospective licensees are calling her for rights.  The agent need not shop her works so much as make the best deals possible.  Then again, you might ask for it with any prospective agent.  If they want to represent you badly enough in the short term, you might save yourself some significant commission fees over time by insisting on a Step-down commission rate post–term!

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

Have a legal question? email it to info@AnnGraphics.com. I will forward it to Bo. It might be a blog post! You can search "Bo's bLAWg" to read more posts. I am looking forward to your comments and thanks for sharing this great information on social media.

 

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Bo's bLAWg - The Copyright Term

 

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 www.calawyersforthearts.org Bo is available to answer some of your questions surrounding the business of Art Licensing. - THANKS BO!

 

Bo, several of your bLAWgs have mentioned that once a copyright term has expired, the works are then in the Public Domain.  Are my mother’s illustrations from the 1940s still subject to copyright so I can license them as copyrighted works, or are they in the Public Domain? 
Thank you!  Janet

Good question, Janet!  It gives me the opportunity to provide more particulars regarding the extension of copyright terms under the 1909 Act – applicable as to artworks published before 1978, as allowed by the 1976 Act.

The Copyright Act has been amended several times since the first was passed by Congress.  I think the original term under the first US Copyright Act from 1790, copied from Great Britain’s,  was for only 14 years, plus a renewable 14-year term!  Then again. people did not live as long in those days, did they?  As of 1900, the Term was extended to 28 years plus an additional 28-year renewal right.

That Term remained in effect until the “new” Copyright Act of 1976 came into effect Jan. 1, 1978.  The Term was extended under the 1976 Act to conform with those of many other countries:  The lifespan of the Author plus 50 years.  The 1976 Act also addressed with particularity how the Terms for works copyrighted under the 1909 Act would be treated under the new Act. 

The question of whether your mother’s 1970 artworks are still copyrighted depends upon whether or not they were ever published.  If they were published with a copyright notice as required under the 1909 Act, the Term became 95 years from date of publication.  (If the copyright had been renewed, 67-year renewal term is deemed added to the initial 28-year term.) 
If the original copyrights were not renewed by your mother or her heirs, her published works from the 1940s would be in the public domain.

So, if my calculations are right, if all of your mother’s works were published for the first time in 1940 with a copyright notice, her copyright on those illustrations will not expire until 2035.

If your mother’s illustrations were never published, those works are entitled to a Term of copyright protection through the 70th calendar year after her death, whenever that may occur.

In 1998, just as the Term of Walt Disney’s copyrights on its Mickey Mouse character were about to expire, Congress passed the Copyright Term Extension Act (CTEA) sponsored by Congressman Sonny Bono, better known as “Cher’s first husband.”  This Act amended the Copyright term to the life of the Author plus 70 years instead of 50.  For Disney and other works created by corporate entities or under “work made for hire” agreements the Term was extended to 120 years after creation or 95 years after publication, whichever endpoint is earlier.  For the time being, Mickey was saved from ignominious treatment in the Public Domain! 

The effect of CTEA was to "freeze" the advancement date of the Public Domain in the US for works covered by the older fixed term copyright rules. Under CTEA, works made in 1923 or afterwards that were still protected by copyright in 1998 will not enter the public domain until 2019 or afterward (depending on the date of the publication).  For works created by authors who died in 1932 or earlier, that day was January 1, 2003. 

However, as mentioned last month, any artwork published before 1923 was deemed to be in the Public Domain.  Anyone can use such works here in the US for any purpose, without any license or permission.

Since I want my bLAWgs to be super helpful, here is a chart that spells out the different operative Copyright terms: 

If you have a special case that needs to be analyzed, let me know.  We’ll see if we can figure out whether or not that work is still subject to copyright protection or in the Public Domain.

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

Have a legal question? email it to info@AnnGraphics.com. I will forward it to Bo. It might be a blog post! You can search "Bo's bLAWg" to read more posts. I am looking forward to your comments and thanks for sharing this great information on social media.

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Bo's bLAWg - Copyright and Derivative Use Rights

 

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 www.calawyersforthearts.org Bo is available to answer some of your questions surrounding the business of Art Licensing. - THANKS BO!

 

Bo, can I license well known art works that I have morphed kaleidoscopically?

There is a short and long answer to this question.  The short answer is that if the artworks that you are using are in the public domain (“PD”), you can.  If they are not in the PD, you cannot without a license.

The long answer is that the issue raised is one that pertains to the fundamentals of copyright law, but at the same time has become a cutting edge issue. The fundamental right is that the Author of an original work of visual art is presumed to be the copyright holder with exclusive, theoretically inviolate, rights.  The cutting edge issue is the extent to which a second artist can so fundamentally change the original copyrighted work that it is literally and legally “transformed,” and therefore not deemed to infringe!

Exclusive Interest:

The copyright holder has the exclusive interest in the following basic rights:

1.  To reproduce the work in copies or phonorecords;
2.  To prepare derivative works based upon the work;
3.  To distribute copies or phonorecords of the work to the public by sale or other transfer of ownership, or by rental, lease, or lending;
4.  To perform the work publicly, in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works;
5.  To display the copyrighted work publicly, in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work; and
6.  In the case of sound recordings, to perform the work publicly by means of a digital audio transmission.
(See 17 USC 106:   http://www.copyright.gov/title17/92chap1.html#102 )

The two of these that apply particularly to visual Art are numbers 2 and 5.  In addition, Artist/Authors of works of visual fine art have the rights of attribution and integrity as described in section 106A of the Copyright Act.

A “derivative work” is defined in Section 101 as: “A work based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgment, condensation, or any other form in which a work may be recast, transformed, or adapted. A work consisting of editorial revisions, annotations, elaborations, or other modifications, which, as a whole, represent an original work of authorship, is a ‘derivative work’.”  (emphasis added)
(See http://www.copyright.gov/title17/92chap1.html#102 )

Clearly, your “kaleidoscopic” treatment of a copyrighted artwork would be derivative as a “transformation” of the original, a right that typically must be obtained from the copyright holder if you intend to license to third parties.

However, there are exceptions to this exclusive right.  The first, referenced above, is that the artwork you are altering is in the PD.  While you can presently adapt or transform any artwork published before 1923 and legally license it for use here in the US, use of the same adapted artwork in other countries will be subject to the copyright laws of that country – which could protect works created and/or published before 1923.

The second exception depends upon whether or not your derivative use “is so transformative” as to constitute a Fair Use.  I discussed Fair Use at length in my bLAWg this past March. 
See:  http://annietroe.blogspot.com/2016/03/bos-blawg-use-of-quotes-and-song-lyrics.html

The essence of Fair Use boils down to whether or not the derivative use is a free speech right under the First Amendment to the US Constitution. If the copyrighted work is being “copied” in conjunction with news and reporting about it or its author, or as part of a critical review, these uses are fundamentally “speech-based” and the copyright work may be used for these purposes as long as the amount of use does not significantly damage the market for the original work.

This is the essence of the first of the four Fair Use factor:  “The purpose and character of the use.”  The US Supreme Court in recent years has begun to expand upon the traditional ‘news and critical comment’ purpose to apply Fair Use due to the extent that the second work is “transformative” of the copyrighted original.  The seminal case was Campbell v. Acuff-Rose Music, Inc. (1994), in which the Court deemed 2 Live Crew’s rap using a few lyrics and some music from the Roy Orbison song, “Pretty Woman” to be parody.  Even under a traditional Free Speech analysis, this makes sense.  Parody is a form of speech.  Since you need to use the original work to make fun of it, the use has been deemed Fair. Obviously, the 2 Live Crew recording did not damage the market for the Orbison original.

Since 2 Live Crew, there have been other cases expanding upon the scope of transformative use so that it can be applied to visual art as well as music.  The purpose of the transformation no longer is limited to “parody.”  The Court now examine whether or not the derivative work  “merely supersedes the objects of the original creation…or instead adds something new, with a further purpose or different character.”  (Campbell)   A work can be deemed transformative “if it adds value to the original; basically uses the original as a raw material which is then transformed “in the creation of new information, new aesthetics, new insights and understandings.”  (Castle Rock)   When considering whether a work is transformative, the courts are now evaluating factors such as changes in aesthetics and meaning.  (Cariou v. Prince).

Clearly, there is a legal argument to be made that your kaleidoscopic treatment of these copyrighted works is sufficiently transformative as to be deemed Fair Use.  However, this in no way prevents you from being sued for copyright infringement.  Fair Use is only a legal defense, not a bar to an infringement action.  And, because each Fair Use case has to be considered upon its own merits, there is a good chance that you will not learn whether or not you are entitled to use the copyrighted work in this fashion or if it will be deemed an illegal infringement  until the case is tried in court.  And then the decision of the trial court is subject to appeal!  Is this a risk you can afford?

I should also mention that a ‘creative’ litigation attorney could also make a Right of Publicity claim against you if you use the name of the artist of the underlying work in the promotion of your own transformative artworks.  As discussed at length in my bLAWg from this past February, the essence of the Right of Publicity is that under these state statutes, a person who knowingly uses the name or image of a person for commercial purposes without their permission is liable to that party. (See http://annietroe.blogspot.com/2016/02/bos-blawg-right-of-publicity.html )

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

Have a legal question? email it to info@AnnGraphics.com. I will forward it to Bo. It might be a blog post! You can search "Bo's bLAWg" to read more posts. I am looking forward to your comments and thanks for sharing this great information on social media.

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Bo's bLAWg - Licensing Agents

 

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!

 

Recently I was asked to sign a non-compete for an image broker who wanted to help me license my work. Is it standard to ask for this sort of exclusive? In what scenario would a non-compete be necessary? Thank you, in advance, for your guidance!

The short answer is that people in business as ‘image brokers” or professionally as Licensing Agents may reasonably expect to represent the Artist exclusively.  Whether or not the exclusive representation will apply to specific illustrations or specific goods is subject to negotiation.  However, once the scope of exclusivity is mutually agreed upon, it would reasonably be expected that the Artist would not compete with the Agent of licensing opportunities within that scope.

I should mention, there is a legal difference between licensing exclusively through an Agent, and giving an Agent an exclusive right to license your works.  With the former the Agent would expect that the Artist would use the Agent for all licensing deals.  The Artist would be expected to accept a non-compete provision in the Representation Agreement.  The Agent does not want her pursuing licensing opportunities that might interfere with the Agent’s own efforts.

Sometimes, it is possible for an Artist to obtain express permission from her exclusive Agent to pursue a lead or contact a person with a given company whose name has been given to her for possible interest in her work.  However, I would recommend that it is simply good professional manners to get the express permission of the Agent before she does make such a call.  To pursue such a lead without the knowledge of the exclusive Agent could have various negative ramifications.  It may be that the Agent has a planned pitch meeting with the same company, or knows who really has the power to license at that entity.  To pursue such a lead without the intent to pay the Agent her expected commission would be directly adverse to the Agent’s interest in representing the Artist in the first place.

Taking your own initiative to pursue licensing can also ‘muddy the water’ as to whether the Artist is or is not represented by a given Agent, this damaging the reputations of one or both.

However, the main reason I suspect that an Agent would not want her represented Artist to pursue such leads with or without her permission, even if the Artist were prepared to pay her Agent’s commission anyway, is that such initiatives undermine the Artist’s interests as well.  It is the Agent’s job to know what the particular company is looking for by way of new imagery.  S/he should know what trends are hot and which of her clients’ illustrations might best fill the needs of  one or another company given the strengths (and weaknesses) of their existing product lines.  S/he has likely spent years building up a professional relationship with that company that she expects to lead to greater confidence in her recommendations to those clients.  

Were the Artist to pursue her own licensing with such a company, she may very well undercut or destroy the Agent’s business plan to sell that Artist’s line with a more profitable competing company and at better royalty rates than the Artist might be willing to settle for! 

Even where an Agent is the Artist’s exclusive representative only for a particular line of illustrations or for a specific limited line of Licensed Products (i.e. greeting cards and paper products as distinguished from magnets, plastics and fabrics), the Artist can cause an Agent havoc by pursuing the same corporate Licensees for their interest in a different group of her illustrations or for use of her illustrations in ‘other’ product lines also handled by the company. 

Just last week I had a client call who had been ‘balled out’ by her Agent who took exception to her independent efforts to license her imagery for product lines not handled by the Agent.  It was clear to me that per her Agency contract, she had a legal right to pursue personally such licensing opportunities, but I could well understand the Agent’s resentment.  How was he supposed to pitch her illustrations as fresh, new and particularly appropriate to this regular company client of his, if his own Artist has already pitched them for other products.  It was very clear that the Agent would sooner pitch another Artist’s imagery than risk that scenario.

Accordingly, it is simply good business politics to be clear on the front end of an Agency relationship what if any independent marketing the Artist can look to do on her own behalf  -- if any.  One solution is for the parties to give each other a list of prospective licensees they would like to pitch, and for what illustrations and product lines, and determine if it is in the best interest of the Artist to make any such marketing forays on her own account.  If it is, she should not do anything to undercut her Agent’s expectations as to Licensee royalty rates payable, and may offer to pay the Agent a discounted commission on Licenses she obtains – at least from company clients of the Agent if not from others.

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

Have a legal question? email it to info@AnnGraphics.com. I will forward it to Bo. It might be a blog post! You can search "Bo's bLAWg" to read more posts. I am looking forward to your comments and thanks for sharing this great information on social media.

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Bo's bLAWg - “Flat Fee” and “Royalty” Licensing Fees

 

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! 

 

A Reader asks:  What is “flat fee licensing” (for graphic design work or commissions)?

 
I want to use your question to compare and contrast the two common kinds of licensing fees:  Royalties and Flat Fees.  So, hypothetically, let’s assume you have been offered a License that lets you choose between a Royalty and a Flat Fee.  Which are you going to accept?  You need to have a good understanding of both, and the surrounding circumstances, to make the best choice for yourself.
 

“Royalties” are the compensation paid for the Artist illustration use rights based upon the Licensee’s sales of the product on which the licensed illustration is used.  The percentage rate is usually 5-10% of the merchandizer’s gross (or an appropriately-limited “adjusted gross”**).  When considering a Royalty-based License offer, there are a number of factors to weigh.
 

First, what kind of sales might you expect of products with your design under the License? This initial question raises a bunch of others:  Are there many different products on which your illustration will appear, or just one?  Do purchasers of the Licensee’s product have a wide choice of imagery to choose from, or just yours?  Does this manufacturer have lots of competitors with a wide range of competing imagery, or is the product reasonably unique?  Does the Licensee have a dynamic website and generate a large number of retail sales directly, or is it by and large (or entirely) a wholesaler that uses distributors?  If this manufacturer relies on its distributor to generate sales, do its goods (I mean Your goods) get distributed to the largest national chains, Walmart, Costco, Target and/or Sears?  (Greater volume sales at a lower Royalty are better than minimal sales at a higher Royalty rate.  Do the math!)
 

How much of the Licensee’s sales are generated through Amazon and subject to a larger discount on wholesale prices than might otherwise be the case?  What is the quality of this manufacturer’s goods?  Are they well-regarded in the marketplace?  When looking at this merchandizer’s quality and price-lines, how do they compare with those of other manufacturers?  (Are consumers more likely to pay something more for your Licensee’s goods because of the goodwill associated in the brand, or if not, is the price point remarkably less than a better-known brand, but likely to generate a much larger volume of sales due to the lower price?)

I can think of a bunch more such questions, but these are the main ones; the ones you want to do your best to assess to determine whether a Royalty is the best way for you to go on this license, or whether a Flat Rate might be a better prospect.

** “Adjusted Gross” is Gross minus sales tax and delivery costs as applicable instead of the Licensee’s Net proceeds.  Why Gross or Adjusted Gross instead of a high Net percentage?  Because you never know what the Licensee is going to actually spend on production, marketing and distribution.  Terrible business decisions could be made by the Licensee that make the entire undertaking unprofitable.  This need not deprive the Artist of her right to Royalties. 

Of course, if possible, you also want to obtain an Advance on the Royalties you are to earn.  An “Advance” is a pre-payment (made at the time the License is signed) on the Royalties you will be entitled to once the Licensee begins receiving income on sales of products with your imagery.  The amount of the Advance is “recoupable” by the Licensee from the first Royalties you would otherwise be paid.  Even a small Advance is better than none.  Being out-of-pocket on the front end for rights serves as incentive for the Licensee to move forward on the product manufacture so that they can recoup what they have paid out in Advances.  It gives you something for your rights even if for any reason the Licensee decides not to move forward with the product use.

Before I get to Flat Fees, two negotiation strategies to offer on Advances:  1) If a Licensee is unable or unwilling to offer a reasonable Advance on Royalties, use that unwillingness to leverage a higher starting Royalty rate; and/or 2) Obtain Stepped-Up Royalty rates.  Find out as possible what the Licensee thinks would be a successful level of sales, and look to obtain an increased Royalty rate for all sales in excess of that reasonable expectation.  If product sales ‘take off,’ both parties will benefit.  If they do not, the increased Royalty rate will never have triggered and the Licensee will not have paid anything for the additional consideration to you.

(See also my October 2015 bLAWg on Minimum Thre$holds for a Licensee to maintain rights over a term of years.  http://annietroe.blogspot.com/2015/10/bos-blawg-get-back-your-rights-royalty.html )
 

The alternative approach for Artist compensation is a Flat Fee.  A “Flat Fee” is just what it sounds like:  A single fee paid for the Licensed rights regardless of sales.  I remember a call from a prospective client who asked if they could get out of a License that provided for a single Flat Fee for a calendar cover image.  It turns out that image was the best-selling calendar ever sold by that large publisher.  The $1,500 Flat Fee looked good at the time that the time the deal was made.  However, compared with 5% of the $5 adjusted gross received by that publisher on 500,000 calendar sales, ($125,000 in Royalties), it was a lousy deal for the Artist!  Of course, if only 5000 calendars had been sold, the $1,500 was better than the 5% royalty. 

If the License is for a term of years and a Flat Fee offered does not meet your minimum expectations, raise the prospect that a larger overall amount be paid in installments:  An Annual Flat Fee for rights.  On occasions when I have obtained Annual Flat Fees through the License Term, the manufacturer Rep has made the reasonable argument that the Annual Fee should reduce after the first few years as product sales decrease.  This refers to what is known in business as the Product Life Cycle. Historically, new product sales numbers will rise for the first couple years, then will usually fall off as the product become ‘old’ and there are new versions and increased competition.   (A good graphic image and further explanation of this can be found at this link:  http://www.tutor2u.net/business/reference/product-life-cycle )

So, going back to our hypothetical choice of Royalty or Flat Fee, how do you know which deal to take?  By finding out what the projected sales are going to be and what the Licensee’s gross receipts are expected to be.  Just ask!  These are reasonable considerations that the prospective Licensee should answer if they want your Rights!  But also do your own market research as best you can.  There is a more sales data available online than there has ever been before.  Consider asking other Licensor Illustrators what kind of sales there have been on their similar product licenses.  Make an “informed decision” on what kind of deal is in your best interest.  Do not feel compelled to take the first offer without doing this ‘due diligence!’  If despite your best efforts, you are uncertain, I suggest that you look to keep the Term shorter than you might otherwise do.  That way, if you are unhappy with the choice, as the end of the Term approaches, you may be in a position to extend the Term on alternative Royalty rates more beneficial to you.

As for the situation where you have been asked to create new graphics or “commissions” for prospective licensing purposes, I recommend that there be a minimum ”service fee” for the preparation of such new imagery.  The fee can be on a ‘per image’ basis or hourly.  All or part of this fee can be attributed as an Advance, and recoupable by the Licensee from your future Royalties.  That’s an appropriate issue for negotiation.  If you are going to incur significant costs in conjunction with the graphics or commission, by all means, look for a right to recoup such costs from the Licensee.  This is the very least they should pay unless you are guaranteed some minimum for the work involved in preparing imagery for prospective licensing that may not be selected for product use or generate meaningful sales.

Finally, do not fail to make sure that you have Reversion Rights.  Whether there is a set Term that will expire sooner or later and revert rights, or if you have minimum thresholds that must be met for the Licensee to continue to maintain exclusive or non-exclusive rights, you want every License to have an ‘expiration date.’  Get your rights back, and perhaps you can find a better deal with a more successful – and ultimately profitable – Licensee. 

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
© 2016 mjbogatin

Have a legal question? email it to info@AnnGraphics.com. I will forward it to Bo. It might be a blog post! You can search "Bo's bLAWg" to read more posts. I am looking forward to your comments and thanks for sharing this great information on social media.

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Bo's bLAWg - The California Resale Royalty Act

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!

 

Since it is in the news and an issue dear to my heart, I wanted to comment this month on the U.S. Supreme Court’s decision this week to decline to hear the appeal of last year’s Ninth Circuit decision striking down part of the California Resale Royalty Act (RRA). (See CA Civil Code Section 986:  http://www.leginfo.ca.gov/cgi-bin/displaycode?section=civ&group=00001-01000&file=980-989 )

This unique California statute provides for artists to be paid a modest royalty (5%) on the re-sale of their artwork at an increased price over the re-seller’s purchase price. The statute was one of several that benefit artists that my organization, California Lawyers for the Arts (CLA), helped get passed in the late 1970’s.
   
California is unique in having passed this statute, although it is common in Europe. At its core, it is intended to compensate visual artists for the appreciation in value of their previously-sold works, which appreciation is the result of the artist’s wider acclaim, usually earned through hard work over the years. If the value of the artwork has not increased in value, no royalty is due; if it has, only 5% is to be paid over to the Artist by the Re-Seller. Until recently, the statute applied only on re-sales of fine art in California or by a California Seller.

The RRA came under legal attack in 2012 in response to a lawsuit filed against the major auction houses (Christie’s, Sotheby’s, and eBay) by Chuck Close, the Estates of Sam Francis and Robert Graham, other established artists based on the fact that they were not being paid their resale royalty on out-of-state sales of artworks owned by California Sellers. There was a concerted effort by the auction houses to have the RRA deemed unconstitutional as violating the Commerce Clause of the U.S. Constitution. This clause reserves to Congress the power to regulate interstate commerce. A Federal Judge agreed with the auction houses and an appeal was taken.

On appeal to the Ninth Circuit Court of Appeals, in a split ruling, it was decided on esoteric grounds that part of the RRA that applies to out-of-state sales violates ‘the negative grant of power to Congress under the Commerce Clause’ (The “Dormant Commerce Clause), to restrain the authority of individual states to impose regulation of commerce in other states. In short, even if one party is a Californian, imposing the royalty obligation on the auction house in a New York sale would violate the Dormant Commerce Clause. The ruling left intact the right of California to impose the resale royalty on California sales, but the damage was done. It was this Appeals Court ruling that the artists and CLA sought be reviewed by the US Supreme Court, that the Supremes declined to reconsider.

While disappointing, this is not the end of the matter. There have been attempt to pass a Federal Resale royalty Act that would apply to all the states and provide such royalties to all artists.  Although the statute has been proposed three times to Congress, it has yet to get a hearing. Perhaps with the publicity around this decision will cause artists to become more vocal about their right to such royalties. After all, if composers can continue to earn royalties on the public performance of their works, why shouldn’t visual artists?!?

Or, artists can do what I recommend: Put a resale royalty provision in your art sales contracts. It need not be limited to 5%, either! My sales contracts require re-sellers to pay 15% on the profit of their re-sale, and to pass on this obligation to the purchaser of the work of art so the same obligation applies on future re-sales. You want to see the provision?  I’d be glad to share it with you. Just let me know!

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