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Jerry Cohen

What Ashley Teaches Us About Licensing and Partnering. Part One

It’s not surprising that Ashley has one of the most successful programs for opening single-brand stores by granting licenses to retailers to sell Ashley products exclusively. 

Recently Ashley and a subsidiary of Jennifer Convertibles, a top 100 Furniture Today retailer, entered into an Agreement granting the licensee the right to sell only Ashley products (Jennifer Convertibles filed the Agreement with the SEC as required by law and it’s available to the public). We’ll be reviewing the Agreement to peek at Ashley’s licensing program (honestly who can resist) and glean general lessons for both licensors and licensees thinking of entering into collaborations.

An ideal win-win licensing agreement is attained when each party understands and communicates its reasonable business goals. For Ashley and other manufacturers it may be a matter of controlling the commercialization process from manufacturing/sourcing the product to delivering the product to the customer. 

Ron Wanek is quoted in The New York Times stating: “It’s very difficult for the independent retailer to do a very good job. They don’t know how to professionally lay out a store and select the merchandise and do the advertising and have a good computer system.” For retailers the goal may be security, differentiation, and using the manufacturer’s platform to get a leg up on the competition. In an interview with Furniture Today, Harley Greenfield, CEO of Jennifer Convertible, said “When you look at the kind of growth Ashley has had, it’s certainly the type of brand that if you have an opportunity to tag along with, you want to tag along. There’s noting like being attached to a winner.” Watch how Ashley and Jennifer Convertibles incorporate their respective goals into their strategy and the Agreement that we’ll be reviewing.

A couple of ground rules first. This is not a critique of this business deal or the players’ negotiating skills. Although we may sometimes scratch our heads regarding why the licensee would agree to certain provisions, the cornerstones of negotiating are experience (knowing what to ask for which we’ll be reviewing) and leverage (a position of strength to get what you ask for) – it’s apparent that Ashley has leverage and many of its licensees do not.

At times the Agreement falls into the usual lawyering traps (I’m sometimes guilty of the same but I’m on a twelve step lawyer program). For example the Agreement may state the obvious but make it sound complicated: Section 41(D) states that “The terms “will” and “shall” are to be construed as obligatory”. Well, last time I checked the dictionary that’s what the terms meant. Other times the Agreement may be long winded when stating a simple concept (no, lawyers are not compensated by the word but sometimes it seems that way): A sentence in Section 6 provides that “Licensee will not sell, assign, transfer, or otherwise distribute the Trademark Product Line Inventory to any person or entity in a wholesale manner or in any other manner that would facilitate or permit the further distribution or resale of the Trademark Product Line Inventory in connection with the business of any third party.” Huh? There is a lot of comfort in boilerplate (believe me I know), but how about “Licensee will sell the Trademark Product Line Inventory only to end user customers” and leave it at that. Our discussion, however, will focus more on significant business terms rather than on language. We’ll also highlight where licensors may be overreaching or where licensees may want to explore alternative business concepts.

So let’s get started; please click here for my general comments regarding licensing agreements using the Ashley Homestores, Ltd. Trademark Usage Agreement as a model. The agreement was somewhat long so I’ll post my thoughts in two parts. Stop by soon for part two and let me know what you think in the meantime by posting a note below or emailing me at jcohen@homefurnishingslaw.com.