In our previous post, we spoke a bit about a dispute involving a merchandise licensing agreement with Duck Commander. Such litigation, it could be pointed out, is a reminder of the importance of careful navigation of licensing agreements, both for licensors—those granting a license—and licensees—those obtaining a license.
From the perspective of sales and marketing, of course, licensing can be a great way to sell a product and build a business. It can also be a great way for the company controlling the protected material to capitalize on a brand. For those considering licensing, there are several things that should be kept in mind, though.
First of all, there is a difference between licensed products and promotional materials in that licensed products are sold at a premium so as to profit the licensee over and above licensing costs and royalty fees. Proper pricing of licensed products is, therefore, important.
Second of all, the terms dealing with royalties should be clearly defined in the licensing agreement. Royalties typically include an advance monthly fee paid upfront as well as ongoing royalties as a percentage of each sale—usually around 5 percent of the wholesale price of each product. Whatever the agreement, though, it needs to be clearly laid out to avoid problems later on.
Third, licensing agreements should clearly spell out not only compensation for the licensor but also the rights of licensee. This is critical, because establishing a beneficial agreement can save a licensee a significant amount of money later.
Several addition points to keep in mind are that an entrepreneur seeking a license may need to patent the licensed product in order to fully legally protect it. In terms of actually obtaining a license, the usual approach is to secure a license from the account manager for licensing at the company controlling the brand, and the company usually is going to want to see a strong business plan and knowledge of the markets, customers and competition, as well as a distribution plan and possibly an established distribution network.
As can be seen, a certain amount of legwork is involved in licensing, and it can help a great deal to work with an attorney who is experienced with the licensing process.