Create Better Licensing Deals—Eight Essential Contract Review Steps

7 04 2010

While coaching a client today we were discussing preparations for Surtex, as well as a couple of contracts she was recently provided by licensees.

As you all know, I am not a lawyer, nor do I purport to be one or give legal advice. But I do want to train artists to understand contracts, so they can negotiate business the terms and reduce the amount invested in legal time and fees. So, we went through the contracts and discussed how to negotiate the best business terms for her situation using the following eight contract review steps:

1) Once you receive a licensee contract, read it thoroughly.

2) Highlight in one color all the things you don’t understand.

3) Highlight in another color the items you understand and don’t agree with. We’ll assume that the remainder of the language you both understand and agree with. Now you have a number of items which you can address with your licensee.

4) Before you engage your lawyer, call or email the licensee with a very organized outline of your needs, such as “I have four (or whatever) questions about the contract, things I need you to explain further. I also have a couple of items I’d like to change.” With this information your licensee can feel confident you aren’t changing everything, but that you clearly need their attention to discuss the contract.

5) Point out the terms you don’t agree with and get their opinion of how important they are to the licensing company. You need to know if they deal-breakers, or not so critical? The goal is to get as much information as possible to understand the entire contract and not agree to anything on the first round of discussion.

6) This gives you time to think about your decision or to get advice from a licensing consultant, lawyers, or industry colleagues—if you need help determining which terms are good or just okay, and which you want to request changes on.

7) Then decide which of the terms you MUST have changed, and which you WANT changed but can accept if necessary. Now you know what your bottom line is.

8) Now it’s time to request your changes and get a read on their response (which may come in the same conversation or may take some time, so be patient). Either way, you already know that you don’t need all of the terms accepted to be able to sign off on the deal.

If the word “negotiating” makes your stomach turn, just remember that your primary goal is to understand everything to the best of your ability. The more organized you are in approaching the contract and the more matter-of-fact (non emotional or scared) you are, the easier it will be to get a few changes made or turn down a contract that has a term (or terms) that would be detrimental to your growing business. Of course, once you’ve nailed down your business terms with your licensee, you will want to have your attorney review the legal language before signing it.

How do you maximize your business terms? Leave your comments below.

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