Art Licensing Rules
Surface Design News
Global sales of licensed products and services topped out at nearly $293 billion in 2019, according to the Sixth Annual Global Licensing Survey, released by Licensing International.[i] Fifty-eight percent of this revenue is transacted in the United States and Canada combined. The second fastest growing area of licensing is art licensing, which saw a ten percent increase from 2018 to 2019. The foundation of this market and the manner in which the market transacts business is called licensing.
In theory, art licensing is a simple concept. In exchange for the artist (the “licensor,” or us) granting a license to a third party (the “licensee,” or them) who desires to use the artist’s work on products the third-party licensee sells, the licensee pays the artist/licensor a royalty based on a percentage of the income the licensee derives from the sale of the licensee’s products containing the licensor’s licensed artwork. In reality, however, the negotiation of a licensing agreement and the memorialization of that agreement into a licensing contract is frequently detailed and complex. For the first time licensor, this process can seem intimidating and overwhelming. However, with a little coaching and guidance from a qualified attorney, this process can be beneficial to both contracting parties and result in the creation of a solid business relationship that can last for years. To achieve this outcome, however, it is important that surface pattern designers have at least a general understanding of the most important provisions in a licensing agreement and the potential pitfalls to avoid.
In my experience, there are a baker’s dozen cardinal rules regarding the negotiation and creation of mutually beneficial licensing contracts. For your protection, every licensing contract should follow these basic guidelines. By following these rules, you set yourself up for success in licensing.
Rule Number 1: Do not license your art unless you trust the licensee. Research the licensee’s reputation and business practice, talk to other designers who are licensed with the licensee, and find out how the licensee’s company works. The more you know about the licensee, the more comfortable the artist will feel in the negotiation and licensing processes.
Rule Number 2: Licensing agreements are full of legal jargon. Nevertheless, it is critical that the parties clearly understand the meaning ascribed to words and phrases used in the agreement. Accordingly, the agreement should always contain a “Definitions” section. This is particularly true when the defined words and phrases determine the nature and quantity of the licensor’s royalty payments, the length of the agreement, and the description of the licensor’s products on which the artwork is to be placed.
Rule Number 3: Unless you are granting an exclusive license for a very high fee, do not EVER give up your copyright. Once you transfer your copyright, you will not likely get it back and all rights to your artwork are forever lost. Licensing should allow you to keep your copyright and to license your art across multiple product lines, with different licensees, to leverage the artwork for multiple income streams. Every licensing agreement should contain a provision protecting your copyright, which is expressly NOT surrendered as part of the agreement.
Rule Number 4: Always include a specifically identified date on which the licensing agreement terminates. Specifying the term of the agreement as “two years,” for example, is good, but it is better to nail down the expiration date to a date certain that is specified in the agreement, such as “December 21, 2021.” Without a well-defined termination date, the contract could be viewed as indefinite or tantamount to an exclusive license, neither of which is desirable.
Rule Number 5: Always describe as specifically as possible the exact nature and type(s) of products on which the artist’s designs will appear, which are to be sold by the licensee. General descriptions like “home goods” or “partyware” are too broad and should be narrowed, for example, to “cushions for outdoor/patio chairs, sofas, and recliners, decorator pillows, and curtains,” and
“seven-inch round paper plates and stoneware chip and dip serving set.” The more specific you can be in describing the licensee’s products, the easier it will be to relicense your designs across multiple, non-competing product lines for multiple streams of revenue.
Rule Number 6: Always include the artist’s right to be informed about and to approve in writing of any other company, affiliate, or other third party to whom the licensee wishes to sublicense the artwork. Licensee’s routinely grant sublicenses to other third parties, affiliates, and contractors. This provision should also address compensation, if any, to the artist for the sublicense to be granted by the licensee.
Rule Number 7: The territory that the artist grants to the licensee must be specifically identified and as narrow as possible. Typically, the territory is the sum of the locations where the licensee currently sells its products. For instance, the territory can be described as “all of licensee’s retail locations in the Greater Dallas, TX, metropolitan area,” or “throughout the United States and Canada,” or “and including England, Wales, and Ireland.” Territory identified simply as “worldwide” is far too broad. By narrowly identifying the territory of the license, it leaves the artist free to license with other companies in other territories.
Rule Number 8: Always specifically define the term or length of the agreement. Typically, the term should be a short as possible and most license agreements are made for only one or two years. Longer terms can tie up and severely limit the artist’s ability to license work.
Rule Number 9: The licensing agreement should always contain a provision by which the licensee is required to provide the artist with samples of all products on which the artwork appears. The provision should also require the artist’s approval of the product samples before the product is made available for sale to the general public. The samples should be sent free of charge to the artist by and at the cost of the licensee, and should not be returnable.
Rule Number 10: The placement and inclusion of artist’s signature or logo upon the products sold by the licensee should be specifically determined in advance by the parties. For instance, the artist would want both her signature and logo to be included on the selvedge of any fabric printed with the artist’s design, or label of any decorator pillow made using the artist’s design. Be as specific as possible in describing the location and content of any artist attribution required by the licensee.
Rule Number 11: The licensing agreement should have an “escape” clause which allows the artist to “get out” of or to cancel the contract on thirty days written notice, should one of several described events occur. For instance, if the licensee does not sell the product in commercially sufficient amounts, of if the licensee sells its company, or if the licensor is not timely and/or fully paid by the licensee, or if the licensee otherwise breaks any term or condition contained in the licensing agreement, the artist should be able to terminate the agreement and walk away. No artist wants to be contractually obligated to a licensee which does not live up to its part of the deal.
Rule Number 12: The licensing agreement should always include a provision by which the artist is allowed to audit the records of the licensee in the event that the artist reasonably believes that the licensor has misrepresented the amount of sales of licensed products and the cost of those sales. The provision should: 1) describe when the artist or the artist’s representative may call for an audit and access the licensee’s records; and 2) provide that if the audit uncovers a substantial error (usually more than $500), the licensee will not only have to pay the artist the shortfall, but will also have to pay the cost of the audit.
Rule Number 13: Always include an indemnity clause in the licensing agreement which protects the artist from liability for and any lawsuits that may arise from the licensee’s use of the artwork on a product.
This is by no means an exhaustive list of the various issues raised in the negotiating and drafting of licensing agreements. If any of the provisions discussed above are absent from a proposed licensing agreement, it should raise red flags. That’s why it is important to seek the counsel of a qualified attorney when presented with a licensing agreement for approval. Do not let fear of the cost of an attorney review scare you away from getting help with your licensing contract. An experienced attorney should be able to review the contract and discuss it with you in an hour or less. Hourly rates vary based on the attorney’s experience and locality, but should generally fall in the range of between $200 and $500 per hour. You also might be able to reach an agreement with the attorney to review the contract on a flat fee basis, rather than based on an hourly rate. Most attorneys also give free (half hour to one hour) consultations. Additionally, Volunteer Lawyers and Accountants for the Arts (“VLAA”) provides free and low cost legal and accounting services to artists who qualify based on low income. For a list of state and local VLAA organizations in the U.S. and Canada, please visit https://vlaa.org/get-help/other-vlas/. If your income disqualifies you from receiving VLAA assistance directly, however, the organization will refer you to a qualified lawyer who can assist based on reduced rates. Finally, attorney referrals from your online support community also can be invaluable.
With all of capital and increased opportunity within the licensing marketplace, there is no reason why surface pattern designers shouldn’t get their fair share of that pie. Being up to speed on the ins and outs of licensing and licensing agreements will both protect the artist and her work, and ensure that the artist is timely and fairly compensated.
[i] The survey can be found at: https://licensinginternational.org/get-survey/ . The results are discussed in detail at https://www.licenseglobal.com/industry-news/sales-licensed-goods-and-services-45-percent.
Michael Sheridan is a surface pattern designer and illustrator located in Central Florida. He also is a Florida-licensed attorney, who practiced general civil law and litigation for 25 years. Michael can be found at www.michaelsheridandesigns.com.