Building New Streams of
Income – An Introduction to
the Basics of Licensing
BEA Seminar Presentation
Materials
Moderator
Val Formica – Gateway Licensing val@gatewaylicensing.com 732-671-6055
First Time Licensee –
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Licensing defined
Some license examples
Licensing language
Licensee/Licensor relationship
What types of licenses are right for your
company
How to prepare your company for entry
Tips on how to secure your first license
What is licensing?
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Licensing is “renting” the use of a
trademark or copyright, that is commonly
called “the Property” which can be a name,
likeness, logo, graphic artwork, saying,
signature or any combination of these
elements in conjunction with your
publishing product.
These rights cover a specific time and
geography for agreed to cash payments
and marketing efforts
License types
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Art
Brand Name/
Trademarks
Celebrity
Character/
Entertainment
Collegiate
Estates
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Fashion/Designers
Music
Non Profit
Publishing
Sports
Toys/games
More
Licensor/Licensee
Licensor/Licensee defined
Licensor is the property owner of the trademark or copyright you want to license from,
for your product.
Licensees are usually manufacturers, retailers or service providers that secure the
rights from the licensor
Licensing Agreement
This is a contractual agreement between you, the licensee, and the licensor, the
licensed property owner (or his agent) . This agreement defines the specific business
terms and mutual responsibilities of the licensor and licensee in managing and
marketing the licensed trademark or copyright.
These terms and responsibilities are defined on the following pages.
Licensee Responsibilities
Guarantee:
This is the minimum royalty dollar amount you agree to generate for the licensor. The
purpose of this is to insure that your company is committed to the full development of
the property and insure that the licensor generates a minimum level of revenue for
their investment in the property. Royalties earned are applied against the guarantee, if
by the end of the term of the agreement you earn and pay royalties equal or over the
guarantee you have met or exceeded the guarantee. If you do not exceed the
guarantee, you are liable to pay the difference; this is commonly called a shortfall.
Advance:
This is your down payment against the guarantee. Any future royalties your company
earns are deducted from the advance. When you exceed the advance you pay additional
dollars at the royalty percentage rate towards the guarantee. Advances are paid on
signing of the agreement, some licensors require additional advances during the term
of the agreement.
Royalty Rate:
The percentage (some times piece) rate the licensee must pay the licensor based on
the licensee’s sales volume This may be paid monthly or quarterly and is accompanied
by royalty report.
Publishing Royalty Rates
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Royalty rates are based on many variables and are generally
negotiable if you can justify a different rate
Built into the price that the publisher charges their customers
Publishers (as property owners) charge, on average, 8.7%
Publishers as licensees pay, on average , 9.8%
Rates can range from 2 to 15% and vary by type
- Books: 6 to 12%
- Newspapers/Magazines 3 to 12%
- Comic Books/Strips 5 to 15%
Royalty rate source: The Licensing Letter
Licensee Responsibilities
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Exclusive vs. Non-Exclusive
When a licensee is granted an exclusive license for their product, they will be the only
resource permitted to market their product or service using the licensors
trademark/copyright. A Non exclusive license means licensor may grant the same
rights to other companies.
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Territories
The geographic region you will be permitted to market your product using the licensed
trademark. Example: USA, all states within the US, but not areas outside the US.
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Distribution
Distribution refers to the type of outlets you usually sell your products through. If
you sell to Mass Market, Food and Drug retailers this is the area you will be granted
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Product/Service
This is the product or service that you will be permitted to apply the licensed tm or
copyright and market within the territory
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Ship & marketing dates
Specific milestones the licensor requires you to begin marketing and shipping the
licensed product.
Licensee Responsibilities
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Product development
A key responsibility of the licensee is the physical design of the
product line or service incorporating the licensed property in an
appropriate way that is in keeping with the trademark or copyright
and acceptable to the licensor. Most licensors have specific
guidelines that licensees must follow.
Licensing agreements clearly list in the articles section what
products or services the licensee can make and market. Failure to
make and actively market the listed articles can result in
withdrawal of those articles not produced or in extreme cases
cancellation of the licensee’s agreement.
Licensee Responsibilities
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Approvals
After designing the product licensee must obtain licensors approval to sell the licensed article.
Failure to obtain proper approvals could result in the lose of your licensing rights.
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Marketing plans/Selling
Many licensors require licensees to develop and execute a specific plan to market the licensed
articles incorporating their trademark. It’s the licensee’s responsibility to sell the licensed product
through their normal distribution system.
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Product Liability
Licensee is required to insure its products meet all safety standards and carry
substantial liability insurance, current requirements range from one million to ten
Million dollars
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Termination/Sell-off
Agreements can be terminated naturally at the end of a term or licensors can
terminate for licensee’s failure to meet its contractual obligations either financial or
performance as outlined in prior slides. If an agreement expires licensee maybe
permitted to sell off any excess inventory for a specific period of time.
Licensor Responsibilities
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Style Guide
Licensors are required to provide licensees with design direction. This can many forms including
verbal, written and visual. The most commonly used form is a prepared style guide that provides
licensees with specific written and visual materials.
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Approvals
After licensee develops its licensed product line and submits to licensor, the licensor must approve or
disapprove the submitted designs in a reasonable period of time. If approved licensee may begin
selling the articles, if disapproved the licensee must re design and re submit for approval.
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Trademark Protection
This is a key requirement and language must cover this in every agreement. It’s the
licensors responsibility to make sure no one infringes on your licensed tm and legally
fight any one that attempts to market a similar or the same tm you are licensed.
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Advertising & Promotion
The licensor is responsible for actively promoting there property to the consuming
public. This is the major reason why most companies employ the use of licensing.
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Retail Development
In recent years many licensors have supported licensors on the retail front by
establishing broad based in-store programs. These programs are helpful for licensees
however its still the licensees responsibility to market and sell-in his licensed product.
What type of licensing is right for
your company?
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What are your corporate objectives
Are you trying to raise your overall corporate consumer/trade awareness, temporally
give your brand name product a sales boost, build the sales of a particular segment of
your business, etc.
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Examine your product line/service
Determine what types of licensed trademarks or copyrights are appropriate for your
product or service. Just because the trademark is well known or the character license
is exciting kids it still needs to be appropriate for your product line.
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What is your distribution
Some trademarks can transcend all levels of distribution, Department stores, Mass,
Mail order, internet, TV others cannot.
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Who is your customer
Knowing who your customer is for your product line is always important however when
adding a license you need to make sure that your customer will view the license as
appropriate
Securing licenses - Preparation
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Staffing
Licensing requires individuals that have a mix of skills. The best individuals for this
position usually have the following skill sets: vision, creativity, marketing and sales
background, organization, and an ability to represent the company in the licensing
community.
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What a licensor seeks from a licensee
Before attempting to secure a license from a licensor you should determine what the
licensor is seeking in a licensee for a specific license. There are a number of factors
that affect this and every licensor has a different set of requirements.
In general terms licensors seek licensees that are already successful in the business
the licensee is seeking a license for. The licensee should have an established quality,
marketable product line, a strong customer base, adequate infrastructure and the
financial resources to support the licensors licensing program.
Additional resource information
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LIMA, Licensing Industry Merchandisers Association – www.licensing.org
Advanstar Communications, lic@advanstar.com, www.licensingshow.com
EPM Communications, www.epmcom.com
Kidscreen Magazine, www.kidscreen.com
License! Magazine, www.licensemag.com
Royalties, andy.anbmedia@gmail.com
The Licensing Book, www.adventurepub.com
Licensing Royalty Rates, Battersby & Grimes, www.aspenpublishers.com