In a license agreement, the licensor often requires the licensee to maintain various insurance policies and, for some of those policies, add the licensor’s name to the policy for the term of the agreement plus a post-expiration period.

Before entering a license agreement, a licensee should confirm with its insurance provider that the licensee: a) has in place (or can secure in a timely fashion) coverage for the licensor-required policies; b) has (or can secure) sufficient coverage to meet the licensor’s minimum (e.g., per occurrence) and maximum (e.g. aggregate) limits; c) can add the licensor as an additional named insured; and d) can provide certificate(s) of insurance to licensor within the licensor-proscribed time period. Below is a brief recap of the more common licensor-required policies:

General Liability: Comprehensive policy which covers contractual liability (covers insured in the event that insurer fails to perform under the contract); products liability (covers insured from liability that may incur as the result of some defect in insurer’s manufactured or sold product); property damage (covers insured from property damage from insurer’s defective product); and personal injury (covers insured against personal injuries from insurer’s defective product). Although some license agreements may not require general liability insurance, one or more of these components, most commonly product liability insurance, will be required.

Advertisers Liability: Covers insured against claims for libel, slander, defamation, infringement of copyright, invasion of privacy, etc., arising out of insurer’s advertising program, and may not be applicable if licensee does not advertise its licensed products.

Workers’ Compensation: Covers employees for any injury arising out of and in the course of employment. All states have laws that require such protection for workers and prescribe the length and amount of such benefits provided. A licensor will not require its name to be added to the licensee’s workers’ comp policy and this policy is less frequently addressed in the license agreement.

Errors and Omissions Insurance: Covers insured for mistakes made by non-medical professionals for business mistakes, and also less-frequently required.

“Tip of the Week,” is written by attorney Andrew Richmond, president of the Richmond Management Group, Inc. (RMG). Andy has more than 15 years of business and legal affairs experience with such companies as Fox, Hallmark, Jakks Pacific, and Sony. Currently, as president of RMG, Andy provides his clients with business and legal affairs representation, with a focus on licensing, promotions, marketing, and related matters.  Andy can be reached at andy@richmondmanagement.com.

During initial negotiations between a licensor and prospective licensee, a licensor will want to know as much as possible about the prospective licensee. A licensor should perform research to determine whether the licensee is the right fit for representing the licensor’s property, taking into consideration the following factors:

Financials: If the company is publicly traded, the licensor should review reliable, third party finance websites, which will have detailed information on the company. If the company is privately held, the licensor will need to purchase a third-party prepared report (e.g., Dun & Bradstreet report), which includes collected data detailing a company’s credit-worthiness and financial stability. These types of financial data provide the licensor with needed nuts-and-bolts information vital in assessing whether the prospective licensee has the financial ability to succeed with the license opportunity.

Referrals and Recommendations: The licensor should contact other licensors who previously worked with the company to get their assessment of a prospective licensee’s adherence to license agreement provisions, quality and timeliness of work, sales efforts and achievements, payment history, availability for discussions, etc.

Samples: The licensor should require prospective licensees to send samples of past work.

In-person Assessment: The licensor should request a visit to a prospective licensee’s corporate offices, factories, warehouses, etc. This look into the prospective licensee’s business provides the licensor with the opportunity to engage in face-to-face conversations and observe the company’s business operations. Nothing impresses more than a well-run, professional operation.

“Tip of the Week,” is written by attorney Andrew Richmond, president of the Richmond Management Group, Inc. (RMG). Andy has more than 15 years of business and legal affairs experience with such companies as Fox, Hallmark, Jakks Pacific, and Sony. Currently, as president of RMG, Andy provides his clients with business and legal affairs representation, with a focus on licensing, promotions, marketing, and related matters.  Andy can be reached at andy@richmondmanagement.com.

Creating and marketing a licensed property is a costly, time-consuming endeavor. To improve the chance of financial success, a licensor may include provisions in its long-form license agreement requiring the licensee to pay additional costs. Depending on the licensor, some or all of these costs may be incorporated in the licensor’s standard agreement. Licensees need to be aware of the existence of these additional costs and raise issue if a given cost is perceived to be excessive or overly burdensome. A few examples and brief definitions of these costs include:

PROMOTIONS

Marketing commitment, the spend requirement to market and promote products and/or licensed property; advertising requirement, the spend requirement on television, radio, and/or print advertising; and artwork if the licensee requires licensor to create unique artwork incorporating the licensed property.

PENALTIES

Late fees if the licensee is late in paying royalties; audit fees if a licensor audit discovers that licensee underpaid past royalties in excess of the agreed percentage; transfer fees if the licensee requests to transfer license rights to another company; and a replacement Style Guide if the licensee loses style guide.

It is the licensee’s duty to identify those costs that are unreasonable, trivial, excessive, etc. and request their removal or reduction, but these additional costs are a necessary and ultimately beneficial part of the licensing process.

“Tip of the Week,” is written by attorney Andrew Richmond, president of the Richmond Management Group, Inc. (RMG). Andy has more than 15 years of business & legal affairs experience with such companies as FOX, Hallmark, JAKKS Pacific, and Sony. Currently, as president of RMG, Andy provides his clients with business and legal affairs representation, with a focus on licensing, promotions, marketing, and related matters.  Andy can be reached at andy@richmondmanagement.com.