Advanced Licensing Advice

DISCLAIMER!! I’m not a legal professional. The advice posted below is based on my own experiences on licensing and is not meant to be a replacement for proper legal advice for dealing with contracts.
Advanced Licensing for Visual Artists
It’s a sorry state of things when there are very few artists out there who could say they’ve never been disappointed (or much worse!) with a licensing deal they have had. Licensing has it’s ups and downs, and needs to be treated as an entire, seperate entity in your career that needs special attention to build yourself a portfolio of contracts that you are both proud of and brings you wonderful, spendable, cash!
So, assuming you’ve got one or two contracts under your belt, that may or may not be going well, how do you move forward? Below I’m going to look at a few advanced tips for licensing for visual artists, from building a better relationship with companies to dealing with contracts gone wrong.
Before you sign…
Lets have a think about contracts for a moment. So many artists (and I know, I’ve done it way too many times myself!) get so excited by the prospect of a licensing deal, they will sign away so many of their rights without hesitation- rights that are important, and easier than you may think to keep!
When a company sends you their contract, generally it is a blanket everything-the-company-wants-ever contract, with all the terms being most general and best for the company, but really not so good for the artist! It is so important to remember that you can negotiate! In most business dealings this is EXPECTED. And most of the time, the terms that as an artist we need to negotiate will not hurt the company or jeapordise their sales at all, and they are generally happy to allow.
Here are a few of my pet peeves in contracts, why they are BAD for artists, and how you should change them.
Exclusivity- Of course exclusivity is a pain for artists. One company gets to do your work on that product, and that’s it, no one else. This is one of the terms which in most cases the artist just has to live with, because it is definately in the companies interest for their sales and promotion to not have your artwork also available through their competition. So lets look at a few other terms which help out the artist by freeing up exclusivity of the product in other ways-
Territories- Almost every contract I’ve ever seen has this big, fat “WORLDWIDE” smacked down in the territories listing. This means a company has exclusive rights Worldwide to produce The Product. Seems a bit odd doesn’t it? A company in the USA, stopping you from signing with a company in England for example? Still english speaking right? Oh well, what about Japan? They have a huge merchandising and design market there, does said company distribute to Japan? No? Then WHY could they possibly need a Worldwide exclusive? I have found that this is a very easy term to negotiate with your licensee, and personally, unless you’re signing a contract with Coca Cola, I don’t believe you should EVER sign a worldwide exclusive. Ask your company for a list of regions that they already distribute to, and only have those regions listed in your contract. This frees you up in case you want to break into markets in other continents. Just think about that for a second, other CONTINENTS. All that income potential that could have been lost with that one word- “worldwide”.
Artwork Exclusivity- NEVER, EVER sign a blanket exclusive rights to your artworks. A company could own exclusive rights to everything you have painted, or every will paint, for at least the length of the contract. Artwork exclusivity should be by both artwork AND product (eg. “Unicorn Artwork” on “Greeting Cards”). Generally it is best to request that only the artworks which the company intends to produce are listed on the contract for the licensed product. There are a couple of reasons for this. Firstly, just say you have 100 artworks. You sign with a company for all of your artwork, but they only produce product using 5 of your images. This means you are only receiving potentially 5% of your possible income on your artworks for that product type. You could be getting another 95% of income on the other artworks that are being tied up but not produced! Secondly, some of your artworks are just MORE VALUABLE than others. We all have our best sellers, and we can use these as leverage when signing artwork specific contracts. Just say a company wants rights to your most popular image ever, versus rights to a less popular work. This could be a good opportunity to negotiate increasing your royalties, as long as you have the sales figures to back it up.
Making a contract artwork specific is a little harder sometimes than negotiating the territories term. It can seem to the company just like more work for them, when it’s easier to just have everything. Here are a couple of ways to sooth this negotiation-
1. Allow future artworks to be added to the contract by written agreement. If you trust the company enough, you can agree that if they wish to use more artworks in the future, they can drop you an email, you can agree, and they can go ahead. Simple as that. This makes the company feel as though they always have access to your work while you’re still keeping your rights. Remember, you can always say no, and also keep copies of any such correspondence with your original contract for your records.
2. Offer “Right of Refusal”. A lot of companies like this term, or request it themselves initially. Right of Refusal (generally First Right of Refusal) gives the company the right to be the first company to decide if they want to use your work for a product. So, you’ve just created Artwork A. Company 1 has First right of refusal, but you’re also signed for the same product with Company 2. Company 2 writes you with interest in Artwork A, but because of Company 1’s First Right of Refusal, you will have to show Company 1 the artwork and they must refuse the artwork before you can let Company 2 have it. This means you still get to share the work around and keep your possible income on all artworks, but it means the company with First Right of Refusal (often, the first company you licensed on said product!) still feels like they are getting benefits. Be sure if you use this term you specify a time period in which they must make their decision on an artwork so they can’t tie it up in indecision.
Must produce or forfeit- This is definately one of my pet peeves because it is a term that is rarely seen in contracts where I believe it should ALWAYS be there. It’s simply as it says, a company should have to be producing the product they are signed for, or the contract is forfeited and made null, allowing you to move on to a company that WILL produce your work. Generally this term is guided by a number of time periods, eg, a product must be in production within X months of the contract being signed and a product must not be out of production for X months or the contract can be terminated. This is important not only for the artworks/products initially signed for, but any new additional artworks that are added in or agreed to by the methods above. If a company has you signed for artworks, products or regions they are not selling too, they are simply keeping you from your potential income.
Must see samples of the product- This is both important, and one of the most FUN parts of licensing! Of course everyone loves free goodies, even more so when we are seeing our artworks brought to life in different products, but lets look at the serious business reasons why you should receive free samples from your licensee-
1. Quality- You want to be sure that the product that is representing your artwork is not a piece of rubbish right? If possible, ask to see a sample of their current range BEFORE signing as well as seeing your own products after.
2. Professionalism- Receiving a free sample, more than just the quality of the product, is an all round guage of the professionalism of a company. Can they meet promises? Can they deliver a product in a timely manner? Does the product meet expectations, has the whole transaction been dealt with professionally? You can judge a lot from your free sample…
Ok, we’ve signed our contract and the terms are good. We can just put it away and forget about it now, right? Oh no, no, no. Licensing agreements are a relationship, and you can’t turn your back on them. For one thing, you want to make sure the company continues to meet their obligations, and two, you want to build a relationship with them to help increase sales of your product range, so you can both get paid!
Getting Paid
1. The Check List- Whether you’ve got just one licensing contract, or a dozen, or more, it can be hard to keep track of payments coming in and making sure the company hasn’t forgotten about paying you! Make yourself a little check list that you can print out every financial quarter (or when your companies are set to pay you), which you can tick off each company as they pay. Also include boxes for how much you received, when they paid, whether an itemised sales report was included, and whether you had to contact them to get your money or if they breached any other obligation. Keep all your check lists in a file so you can look back over them to see which companies are performing and which aren’t!
2. Royalties versus flat-fee Some companies will opt to pay you out a flat fee for your artwork usage rather than keep accounts for ongoing royalties. This can be an attractive option, a lump sum up front can be quite substantial! If you go for this option, be sure the contract is for only a short set period of time, and this length of time at least partially corresponds to the amount of product they could sell of your work during that time, so the lump sum is as close as possible to what you would have received from royalties.
3. External Audits This is a term that needs to be in your contract. You need to have the right to have the company externally auditted to check their records are right and they aren’t skipping out on paying you your royalties. If the company is in another country, or just down the street, it’s important to have a way to check up on them. It’s rare you will ever need to use this, but if you get suspicious that there seems to be a large amount of sales going unaccounted for, a couple hundred dollars to set an accountant on them is worth it to make sure they are doing things, er, by the book!
4. Royalty Advances- This is a rare occurance in art licensing, but it does happen. Some companies, as a gesture of good faith when signing an agreement for your art, will agree to pay you an upfront advance on royalties. They will pay you a certain amount up front, and then that will come out of what they owe you out of your royalties over time. Unless you need the money right away, I can’t personally see any particularly good reason to do this. It seems more important to me to be able to see sales patterns and receive payments on a regular basis. Of course, again, lump sums are always attractive! If you are offered this, make sure you are still getting detailed sales reports even if you aren’t earning past your advance yet to know how things are going, and when they will need to be paying you royalties again.
Building a relationship with your Licensee
This may go without saying, but it’s a great idea to try and build a close, friendly relationship with your licensing company. Always be professional in your dealings with them, but also be personable and nice, so that they ENJOY dealing with you, and want to do it more! It’s nice to be able to be friends with your licensee, but remember that this comes second to business and should NEVER be an excuse for unprofessional behaviour on either side. Don’t let them weasel out of important contract obligations because they are your friend.
Some ways to continue to build your relationship and be a good licensor-
1. Always be timely. Both big and small businesses are often short on time, and don’t have time to ask for things more than once. If you don’t deliver what they need (image files, email replies, answers to agreements, etc) ASAP, they will just move on to someone who can. Always go above and beyond the call of duty, because isn’t that what we also expect from them?
2. Cross promote. Take any opportunity you can to promote your licensee, because if they earn money, you earn money. The more they sell of your work, the more interested they will also be to add to your range. It is also a kind courtesy, as it is often in a contract that the company must credit the artist all over the place, so it is nice to return the credit even without a contractual obligation.
3. Remind them you’re still around. Every so often it’s nice to touch base with the company. You could send them some new artwork to review, or ask them how business is going. Another great idea is to send Christmas cards and small Christmas (or birthday if you know when) gifts, of your art of course, to build a friendly relationship with them.
What to do when things go bad?
It’s nice to have contracts that allow you to end the agreement at any time (with written notice for a certain length of time is usual!). But this is rare, normally contracts can only be legally ended if the company is in breach of the terms, or bankrupt.
So what are your options when you’re no longer happy with a contract?
Just dissappointed?
The honeymoon is over, and you’re just not happy. Nothing is particularly wrong, you want to stay with them, but maybe sales are low, or it’s just not progressing as expected?
The best thing to do in these situations is communicate with the company and discuss your concerns in the most non-inflamatory way possible. It is so important that the company understands that you want to stay with them and work with them to reach an arrangement that will benefit you both. Make suggestions on new art you may have, or give them sales figures that they can use to select better selling artwork with. Try and get in touch with some customers and see what they think of your licensed products and what you can do to get them to buy more. The company themselves will often have other suggestions they might like to discuss with you, or they might suggest that you’re better off ending the contract and looking elsewhere. Sometimes artist/licensee relationships just don’t work.
How to terminate a bad contract and what to do if a company breaches your contract
This is the part that it would be nice to never have to deal with- terminating a contract before it’s time. Sometimes you’re just not happy and want out. Unless your contract allows you to give written notice of termination at any time, you will have to try to come to an agreement with the company and hope they will be alright with it. If you’re in this situation, again it is incredibly important to use only the most non-inflamatory language and reasons to leaving. This is all for protecting yourself legally. Whether the company is in the right legally or not, you always have to be careful about what you say, make sure you have facts to back yourself up (their performance history on your checklists for example that can be backed up with further records). The rule is, almost everyone will avoid taking things to legal action if they can, but you don’t want to be the person that pushes them to it.
If the company is in breach of contract, has been late with royalties (either once off or consistently), or otherwise not meeting their obligations, go back to your contract and thoroughly read every bit of fine print. Most contracts will have a term about how to deal with contract breaches. You may find that the company is not even technically in breach until YOU point out to them, in writing, that they are. Often it will be a case of giving written notice, after which the company will have a certain length of time to fix the problems, or allow the contract to be terminated. Even if you want to stay with the company, it is worth giving them a friendly reminder on the terms if they slip up, and keep records of EVERY bit of correspondence in regards to the contract, because they may be useful for if you do want to end the agreement. Keeping records is extremely important, even if things never get into the full blown legal system, it can be helpful just to show the company you’ve got the records and documents to back up your claims, and you don’t embarrass yourself by claiming something you later find out you are mistaken on.
Since first venturing into licensing I’ve seen contracts and deals with companies in many forms. Some turned dodgy and needed to be put down, some have knocked me off my feet with their professionalism and payouts! Some artists see licensing as a goose with golden eggs, a way to get paid for no work. But I believe the most rewarding licensing agreements are mutual relationships built with hard work and benefits for both parties involved. Like much of life you need to make some mistakes to learn from them, but hopefully this article will ease the damage from any mistakes and lead you into a great licensing career!