Despite Promise, Licensing Deals Come with Both Risks and Rewards
I've attended High Point Market for twenty years, and at the most recent conference, there was one noticeable thing in particular: the amount of floor space dedicated to licensed products. I don't think this is just a coincidence. During a time of change in our industry, licensing deals are providing furniture designers and manufacturers with new approaches to building their business.
But with new opportunity comes new risks as well. By selling your products under someone else's name, you're making yourself vulnerable to someone else's reputation.
Consider what might happen if the person whose name you are licensing makes unpopular or controversial comments. In fact, that's what has happened recently with Paula Deen (licensed by Universal) and the star of "Duck Dynasty" (which is licensed by Jackson Furniture). Both of those licensees have appeared to weather their respective storms, but they were still impacted by the conduct of another party. This kind of conduct could make a licensing agreement troublesome and distracting. By entering into a licensing agreement, you are, to some extent, putting your business in the hands of someone else.
That's why it's important for any licensing agreement to be tailored to your business goals. There is no single correct licensing deal. Weigh the opportunities and risks, and how they may improve or impact design, manufacturing, distribution, retail sales, consumers, suppliers, and vendors. Will a deal give your company an additional sales channel, or will it cannibalize your existing ones? Can you rely on the reputation and brand awareness of your licensing counterparty, and how will you protect your business if something goes wrong?
In fact, there are many aspects to a sound licensing deal. Just some of these issues are:
Use of the licensor's name and likeness. This gives the licensee permission to market a product using the licensor's name and any photo or other graphical representation of the licensor. It is also important to spell out the licensor's role in promoting the product.
Representations from licensors regarding product design, including non-infringement. For the license to be valid, the licensor needs to have full ownership of the name and design being licensed. This representation, which needs to be carefully tied to the indemnification provision, is an assurance of that full ownership.
Royalty rate and deductions from net sales. How much will the licensee pay the licensor, and what items such as chargebacks will be deducted when calculating that amount?
Ownership of designs. If a celebrity (or his or her representatives) design a chair specifically to sell under the celebrity's name, who owns the design of the chair? What happens if the manufacturer adds elements to the design? An ownership of design provision is important to articulate who exactly owns what.
This is not a complete list. But it is meant to show that a good licensing deal needs a lot of discussion to get right. Proceed with caution, and be mindful of the risks and rewards. What has been your experience with licensing? What are examples of good or bad licensing deals you've seen? Comment below or email me at firstname.lastname@example.org.
This blog is intended to provide basic and useful information but not legal advice. As legal advice must be tailored to the specific circumstances of each case, and laws are constantly changing, nothing provided in this blog should be used as a substitute for the advice of competent counsel. We recommend you consult a lawyer to ensure that the information provided, and your interpretation of it, is applicable to your particular situation.