How Licensing Works -Transcript

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Annette

Let’s talk licensing. What is licensing all about? Well, licensing is a really cool tool that we have in the law that allows owners of copyrighted content to take that content and give others permission to use it, usually in exchange for a fee.

Now, in order to really understand licensing, we first have to understand copyrights. But don’t worry, I’ve already created a video for you titled, “Understanding Copyrights.” And in it, I go into my copyright pie – a thing that I just totally made up because I love making analogies to food when talking about the law. So make sure to watch that video first. 

In this video, though, we’re gonna dive into some of the key terms that you’re going to see in licensing agreements. So with that said, let’s dive in. 

Before we dive into all of these terms, I do want to let you know that some of these terms may not be exactly what you see in the version of the licensing agreement that you’re reviewing. But generally speaking, you’re going to hit terms like this, maybe the exact ones are similar to these. 

So first up licensor. So this is the person or entity that gives another person or entity permission to make, do or own something. So for example, let’s say you’re an illustrator, and you want to license out your illustrations to a fabric company, who’s then going to put those illustrations onto fabric. That fabric company is going to be the licensee. So this is the person or entity that is granted permission by another person or entity to make do or own something. So this is the person that entity, that company who’s going to have your permission to use your content under certain circumstances.

The work. Now these are one of those terms that may or may not be identified as work in the contract. However, there should be a defined term that really identifies what content the licensor is going to give the licensee permission to use. It’s important to be really clear and specific about what it is that that licensee is going to have permission to use, because if it’s stated too generally it may be confusing down the road as to what content falls under this category, or under this licensing agreement.

Licensed products. So this is where we want to identify the product types, the categories that the licensee will have permission to use the work on or for. Let’s say this illustrator is licenses out its illustrations to a home goods company. And they identify the products as home goods. Well, that could be so many different things – that could mean pillows that can use aprons, it can mean furniture. So what I really recommend is that people be very specific as to what is encompassed under the licensed products definition. Is it pillows? Is it aprons? Is it furniture? And if so, say that specifically. 

So going back to our example, let’s say you enter into a licensing agreement with a company for home goods, and it’s an exclusive arrangement. But let’s say that company only has intentions to take your designs and put them on pillows. Well, because the licensed products have been so broadly defined. And because you have entered into an exclusive licensing agreement, arguably, you may be potentially foreclosed from going to another company that makes home goods. So for example, let’s say you want to go to a company who doesn’t make throw pillows, but they make blankets. Well, in this example, where you have an exclusive licensing agreement for a category that’s so broadly defined, that licensee may have an argument saying, wait, you can’t go to that other company and give them permission to use those same designs for throat for blankets, because that’s potentially a home good license. So this is essentially the permission that’s given by the license or to the licensee to use the work on those licensed products according to certain conditions. 

Now, if you’ve watched my video regarding understanding copyrights, you have already seen a slide similar to this that talks about the copyright pie. Now, if you remember one of the slices of the copyright pie is that you have when you own the copyright to content, you have the authority to make copies, or authorize others to make copies which essentially is licensing. And that right can be further sliced and diced into by time period, by geographic area, by category, medium of use, and language. So you can go ahead and say I’m going to go to Company A, I’m going to give you for the next two years, the right to take my designs, and put them on T shirts and sell them in the United States. 

And you can also make these rights exclusive or non exclusive. So those are pretty self explanatory. Exclusive means that whatever permission you’re giving to the licensee, they are the sole sole company, the sole entity that has that permission. You’re not authorized to go to another potential competitor or another company and give them the same rights. Non-exclusive, on the other hand, is what it means – non exclusive. So that means that you can go and give similar or the same rights to another company. They are not only for that one licensee. So as you can see, it’s a very, very powerful thing to own a copyright to content, because you have the option to monetize it through licensing. And then further slice and dice it by all of these different elements.

Next are the royalties. Now this is the sum of money paid by the licensee to the license or in exchange for the license. Now, this can be structured in so many different ways. And based on your industry, there might be different practices. It’s usually a standard percentage of net sales, meaning that if the licensee once the licensee sells the product, the licensor then gets a certain percentage of that sale. Usually, you can go ahead and negotiate this. And it’s going to vary on a number of different factors, including the industry, the market, your position in the marketplace in terms of the content creator. So there are a lot of factors here. But the key here is to really understand that the sum of money that’s usually paid out in exchange for this permission to use the content is something defined as royalties. 

Now that you understand some of the key terms about licensing, you might be thinking, where am I going to get a licensing agreement? Well, you’re in luck.  You can find them over at yourlegalbff.com – where you can get an attorney drafted merchandise and artwork licensing agreement contract template. 

Now, what’s so great about these templates is not only is it drafted by an attorney who understands that area of law and your business, but you get way more than just a template. You get step by step videos explaining each clause of the contract in order to guide you through how to customize the contract. Because our goal here at Your Legal BFF is not just to give you a template, but to give you the understanding you need in order to confidently start and grow your business.

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