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Tip of the Week: License Agreement and Additional Costs, by Andrew Richmond

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.

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