Protect Your Art With a ‘Shopping Doc’

14 02 2014

red heart sheildMany years ago I remember the first time I heard a manufacturer say, “I’d like to ‘shop’ your art around and see if we can get some interest from retailers.” Since then I’ve heard it 1000’s of times, as it’s become a very common practice in the art licensing industry.

As the economy hit below the belt, manufacturers needed a way to hedge their bets.  They no longer wanted to create volumes of inventory that might not sell quickly. This saves them up-front manufacturing costs, warehousing space, time, and of course, prevents them from having to ‘eat’ the cost of goods that don’t sell.

On the artist side, it poses some problems.  Manufacturers are now asking for high-resolution art to create sophisticated mock-ups, and to often produce a very small quantity of product in order to make their retail presentations.  If the retailer ‘buys in,’ then you could have yourself a licensing deal, but if not, the art is already in the hands of the manufacturer and you have no deal and few recourses to ever get digital art destroyed.

So without so much as an agreement, how can you be sure that manufacturers are not utilizing your exclusive art to sell larger quantities of products?  Well, I think there are many (and mostly) reputable manufacturers, who wouldn’t consider taking your art without paying for it.  But there is always someone willing to take advantage of the situation.  And it would make you would feel very vulnerable to send final art to someone when you don’t have a formal agreement.

With my lawyer, I created what I call a ‘Shopping Doc.’ It’s a short document that I can use when this type of circumstance occurs.  It all boils down to keeping track of what the manufacturer said they will do, and what you said you will do, just as with any contractual arrangement.  This is just a short letter, in which you give the manufacturer permission to ‘Shop’ your art to retailers with specific restrictions. It is very clear, in that, a manufacturer has only the right to shop

a) specific pieces of art,

b) for a certain amount of time, and

c) to listed retailers.

It also specifies that you retain the rights to your art AND it allows you to choose between whether or not you will continue to show the art to other manufacturers, during that same time period.  For the manufacturer, it does not obligate them in any way to concluding a deal with you.  So if things do go well, then you just move to a deal memo or straight to a licensing contract.

I believe that whether you use this form, or make up your own, it’s the best way to keep track of your art and what the manufacturer is doing.  It also gives you a detailed time frame in which to follow-up and determine how things are going and what the next steps should be. I find that, in general, keeping everyone accountable is really important. Also, deals are more likely to get signed.

Feel free to click here and get your copy of my ‘Shop Doc’ and to adapt it to your own situations.  No legal document is fool-proof, but it does help provide guidelines in which the manufacturer has set responsibilities with your art during the ‘shopping’ period. It also gives you the peace of mind that comes with knowing there is an end to their ‘shopping’ process, which would be enforceable in court if required.

I hope it makes your heart feel a bit more protected today, too.





When to File Trademarks

23 07 2013

LawyerTrioThis blog article was written by attorney Scott Landsbaum, an attorney and business advisor to individuals and corporations with a focus on the commercialization of intellectual property. His clients include a broad range of companies, entrepreneurs, inventors, designers and artists in diverse industries such as toys, packaged food, apps, pet products, home and garden, apparel, jewelry, marketing and promotional services, health and beauty, and restaurants. Thanks so much for your taking the time to share your knowledge today. I’ve included a few comments at the end of the blog, as well.

A lot of you have been asking J’net about when you should apply to register your trademark, so I’m here to explain a few of the issues you should consider in deciding when to invest in the effort.  Of course, as with the timing of any other investment in your business, there isn’t any bright line rule about when you should file and the timing will depend on a number of different factors that are unique to each person.  In addition, you need to think not just about when to file, but also what products should be covered by your trademark. (This discussion assumes you have a studio name and aren’t simply using your personal name for your artwork. If you only use your personal name, then you’ll need to become very famous before being able to register your name as a trademark.)

In making these decisions, you should keep in mind what the registration process really does for you.  You obtain trademark rights in your name simply by using it in commerce.  By using your name in business – on your artwork, business cards, web site, licensed goods, etc. – you are creating a protectable trademark in connection with your actual business.  The three primary reasons you want to register it are (1) to obtain a broader geographic scope of coverage, (2) to expand the types of products your trademark applies to, and (3) to get better remedies and enforcement rights against infringers and counterfeiters.

Looking at just the issue of the geographic scope of protection, when you use your name without registering it, the protection you get is limited to the geographic area in which your name is known and you do business.  So if you are painting and selling your art at Funky Bastion Studio in Ojai (a name I’m making up), you could stop someone else from doing the same in Ojai, but probably not in San Francisco, Sedona, or anywhere else.  A federal registration changes that and gives you the sole right to use that name throughout the country for the covered product or service.  While this isn’t an issue if all you want to do is sell art out of your studio, it does become important if you want to extend your business throughout the country through a licensing program because you want to know that you have rights to your name throughout the country.

Keeping that in mind, the primary factor in deciding when to register your name is how much confidence you have in your business and what are your realistic projections for the next 2-3 years.  If you already have a deal or two under your belt or you have work coming out soon and you’re realistically optimistic that things are growing, then it’s probably time to apply.  If you’re just starting out and haven’t yet signed any deals, then it may be premature to start.  Of course, by not registering your name you run the risk that someone else might apply for the same name before you and keep you from using that name.  So you need to balance your desire to not invest too soon with your own comfort level at waiting.

In addition to deciding when to file, you’ll need to figure out what products you want covered by your application.  This is important because trademark registrations apply only on a product-by-product basis (Funky Bastion Studio could be registered for both art studios and hair salons by different people) and because the fees charged are on a per-product basis as well.  Going back to point number 2 above, if you’ve signed a new license for your artwork to appear on backpacks and you’ve never had your artwork appear on any before, you may want to register your name for backpacks to expand the product category scope of your protection.  In general, the broader the scope of protection you have, the more valuable your name will become.  But be careful about going too far.  While you may think you’re the next Andy Warhol and see your artwork on tableware, notebooks, iPad covers, and t-shirts, that’s four separate product categories and four times the fees.  That’s why I stress that you need to make realistic projections of where your business is growing and to file accordingly.

Finally, once you do decide to file an application, the best tip I can give you is to search, search, search before you do.  Get on the U.S. Patent and Trademark Office (uspto.gov) web site and search the database.  Get on Google and track down all the similar names.  The last thing you want to do is invest in the filing and then find out your name is already taken.

This information is presented for educational purposes only.  Always consult your own attorney about your particular circumstances.

J’net Comments: This information is applicable for art, design and character brands.  I would only add that in your planning and projections you need to think about how broadly (across what territories) you want to protect your trademarks. They are not only registered on a per-product category, but on a country-by-country basis.  So those new backpacks you are licensing in the U.S., Australia and the U.K. will require trademark registrations in that product category in three different countries (i.e. backpacks in the U.S., backpacks in Australia and backpacks in the U.K.).





Five Overlooked Clauses in Licensing Contracts

23 07 2013

The following blog article was written by Jed Ferdinand and it was originally posted March 2nd, 2013 on www.licensing.org.  My thanks to you both for your generous permission to re-post this informative piece.  At the end of this blog, I’ve also included my comments about this post.  Tomorrow I will share another excellent legal article that covers information about Trademarks for artists.

License agreements come in all shapes and sizes – ranging from the “back of the napkin” variety that are built on little more than a handshake, to fifty-page heavily negotiated documents that spell out the parties’ rights and obligations in excruciating detail.   Whether your preference is keep it simple or for a detailed written agreement, this article will highlight five important and often overlooked clauses that apply to all licensing deals.

Definition of Net Sales:  The parties often spend considerable time negotiating the royalty to be paid by the licensee.  This is an important consideration to be sure. However, the way the parties define “net sales” is equally critical because royalties are typically paid as a percentage of licensee’s net sales.  Left unchecked, the licensee will seek to deduct as many items as possible in an effort to arrive at the lowest possible net sales figure from which a royalty is to be paid.  For this reason, the licensor should take great care to ensure that the licensee’s deductions from gross sales are strictly limited to bona fide returns and closeouts, discounts and allowances actually shown on invoices, subject to a cap in the range of 5 to 10%.  No other deductions for manufacturing, marketing, distribution or sales, or for uncollectible accounts, should be permitted.

FOB Sales:  When retailers elect to take possession of the licensed products at the point of manufacture (i.e. in China) rather than domestically at a U.S. distribution center, this results in a significant cost savings of as much as 30%.  The price paid to the manufacturer will be lower, resulting in less royalty income for the licensor.  To address this, licensors should ask for an extra one or two points above the domestic royalty rate for sales made on an FOB basis.

Product Approvals:  To ensure quality control, licensors should have approval over product and packaging at each stage of the production process.  This includes: (1) design or concept approval; (2) prototype approval; (3) pre-production approval; and (4) post-production approval, which is critical to ensure that shipments of manufactured licensed products conform to the designs and specifications previously approved by Licensor.  At the same time, a licensor should never permit silence (i.e. a failure to respond to an approval request within a certain defined time period) to be deemed approval.

Assignments:  The industry standard is that licenses are not assignable by the licensee without the licensor’s consent.  There are additional considerations that should be addressed as well to ensure greater protection for the licensor.   The definition of an assignment event should include a merger or acquisition, change in control of the licensee or when a factor or other financing entity takes control over the licensed products.  The parties can negotiate in advance an appropriate measure of compensation for the licensor’s consent to an assignment.

Marketing Commitments:  While this will vary depending on the size of license, licensors should seek to obtain specific marketing commitments from licensees.  This can include:  (1) a minimum commitment that the licensee will spend on marketing (typically one or two percent of net sales): (2) an additional contribution by the licensee to a pooled marketing fund that can be spent by the licensor (also typically one or two percent of net sales); (3) attendance at defined trade shows; (4) for fashion licenses, construction of a showroom to display the licensed products to retailers; and (5) preparation of an annual marketing plan.

These five points are only a small fraction of the important terms to be negotiated in licensing contracts.  Additional terms such as territory, product introduction dates and termination will be addressed in future articles.

Jed Ferdinand is the founding member of Ferdinand IP, LLC with offices in New York and Westport, CT, and is a member of the 24 IP Law Group, with offices in Germany, France and the U.K.  Jed’s practice focuses on the protection and exploitation of brands in the United States and internationally.  He can be reached at JFerdinand@24IPLG.com.

J’net Comments For Art Licensors:  These five points are really crucial.  As an art licensor, you will find that not all of your initial contracts will include each 0f these items. You definitely want a strict and enforceable Definition of Net Sales and, if at all possible, a cap should be in place to prevent excessive discounts and expenses taken off the Net Sales price.  I agree, that if your contract does include F.O.B. Sales you need to request a higher royalty rate for those items. This should be done whether your contract is small or large (and whether you are new to licensing or a veteran). Product Approvals must be included in all of your agreements, but many art licensees will be hard-pressed to include four levels of approvals.  Try to include one or two rounds of approval to make sure that you are protected and it’s done right. Then as your agreements grow in value, request further approvals. Assignments, or the inability for a licensee to assign your artwork to another manufacturer without your written approval, is really a deal-breaker so make sure it’s covered in your agreements.  And finally, I totally agree that  Marketing Commitments are a wonderful addition to any contract.  As your clout in the business grows, so will your (or your agent’s) ability to negotiate these types of commitments.  Early on you can request catalog or web coverage with a picture and bio to assure that you are given credit for your art.  Also think about specific types of PR or trade show exposure you could negotiate.  These are a great place to start.





Rule #19

12 12 2011

Learn to read and understand contracts.

Let me start by asking you, “Do you know what a deal looks like?” This is an important first step in entering and being successful in the licensing business. You need to be prepared to discuss and negotiate opportunities, which include flat fee offers, work-for-hire contracts, and royalty-based licensing agreements. And you need to understand both the contractual obligations, as well as the financial risks and potential rewards of the actual deal.

Manufacturers often hope to pay you a flat fee for your art.  In fact, there are many manufacturers who only pay a flat fee. There are also manufacturers willing to pay royalties, so that you can share in the profits of your joint venture. And, contrary to what you might think, any type of contract can request to own your art outright. So be wary. Learn to read and understand your contracts, even when using an agent.

If you are an artist who has done business on a flat fee basis before, I challenge you to tell them you are now moving on to a royalty-based model. If the manufacturer isn’t willing to move to a royalty basis, then you must negotiate a higher flat fee or be committed to moving on. No one is going to transition you out of the flat fee, or work-for-hire business models, except yourself.

With manufacturers who only work on a flat-fee basis, you need to evaluate whether the deal is right for you. Gather information from the manufacturer and compute the potential revenue for the product(s) with your art. There are actually flat fee deals that bring in more revenue than a royalty-based licensing deal would have generated; it just depends on the royalty percentage rate and volume of sales.  Then there are times the offer is so low it’s a joke, and you’re probably better off working with somebody else. You need to learn how to evaluate offers and decide on an individual basis whether a deal works for you.

If you want to work on a royalty basis and get licensing revenue, then you need to go to manufacturers who do licensing deals with artists. Since you cannot expect to change a manufacturer’s business model, it is best to look for manufacturers who are already working with artists on a royalty basis.

In this industry, licensing revenue and income are closely held secrets because most companies are privately held and this financial information is not publicly disclosed. I know artists who make in the tens of thousands of dollars, and in the hundreds of thousands of dollars each year from art licensing revenue. And there certainly are the icons of the industry that make millions. You can bet they know how to read and understand contracts.





Blog #17

28 11 2011

Manufacturers today want a sure thing.

As the economy has gotten tougher for manufacturers, they have gradually become more and more risk-adverse. They no longer like to produce product, shelve it in the warehouse, hold the stock, and hope it sells. That approach makes them vulnerable since product must ultimately sell to pay for the inventory created on speculation.

Rather than wait for sales from the product produced in the warehouse, manufacturers only spend money to produce product when it’s actually ordered by their retail customer.

This approach has become quite commonplace, though few people talk about it.  A manufacturer might ask, “I’d like to shop your art around. Is that okay?” Or, “Can I take this out to retailers and get some feedback?” Both of these questions mean the same thing: they want to show your art to retailers to try and get “buy-in”—a retail commitment—before they actually sign a licensing deal with you.

What I want you to know is that these scenarios do happen. Don’t be surprised.  Get some kind of agreement in place, if not a contract, at least a ‘shopping doc‘ to clarify what they can and can’t do. You just need a plan for how to deal with this situation, and a way to determine whether it is a good idea for you at the time.  The answer may vary, so be prepared for that as well.  Think about the potential outcomes if the manufacturers are successful ‘shopping’ your art, and if they aren’t.  And what are the potential risks and rewards when manufacturers show your art to retailers without your having a deal commitment.

I am sure many of you have been experiencing this in your art licensing business.  Perhaps you’d like to share your story.  This new way of doing business definitely has its benefits and negatives.





Rule #7

10 10 2011

Get sound business advice before sound legal advice.  

This one is a little tricky. Licensing artists definitely need a good IP lawyer—that’s an Intellectual Property lawyer. But there are definitely ways of keeping expenses in check. For example, making sure you understand your business first, before you get the lawyer involved, is one great way to keep your costs down.

Every person who hires a lawyer is looking for legal advice, but few lawyers will provide business advice. First learn the business of Art Licensing through classes, coaching, blogs, articles, and by researching online. Everything you learn about the Art Licensing business is going to save you time and money in the long run.

Educating yourself about standard terms, royalties, advances, agreements, art development, approvals, product design, manufacturers, line development, production processes and retail distribution will be invaluable when it comes to creating contracts. This is because, while the lawyer can create the contract, they don’t know what business decisions are right for you (the licensor) and your business partner (the licensee).

Let me repeat that: your lawyer can create a contract, but they can’t possibly know what business decisions are right for you and the manufacturer. And every contract has a significant part of it which requires art licensing business decisions, such as the royalty rate, advance, grant of rights, territory, length of the agreement, to name a few. These are the ‘terms’ that the licensor and licensee must ‘plug’ into the contract, and they should not (generally) be recommended by your lawyer.

So back to Rule #1 of our ’20 Rules for Starting Your Art Licensing Business’—learn as much as you can about the Art Licensing business, and I recommend getting advice from licensing experts, as well as colleagues, manufacturers and fellow artists who have experience in the business. But don’t expect a lawyer to give you advice on the business terms for your contract.





Rule #5

3 10 2011

Understand copyrights and trademarks.

You own the copyright to your artwork the moment you create them. I encourage you to register your copyrights when you create them, or at least when you begin to use them in business.

As you build your Art Licensing business, you may also need to look into securing trademarks for your brand, art collections and characters. This blog won’t go into the detail about how to do this, but I want to be clear about telling you that the registration of your copyrights and trademarks is the only thing that provides legal ‘teeth’ to pursue and win an infringement case, should you ever need to.

The law is written in a way that states that you must protect and defend your copyrights and trademarks. It’s never done for you. Once you have registered them, it’s really your privilege and obligation, to protect and defend them.

Without registering them, you really won’t have a foot to stand on in court.  It’s a very important point to understand.

Note: If you are interested you can check out three phenomenal classes covering Copyrights, Trademarks and Contract Language, which I teach with Attorney Elizabeth Russell. You’ll appreciate the simple terminology of the Legal Ease 3-class series, yet they incorporate full explanations and thoughtful presentations designed specifically for artists looking to license their artwork.  We even teach you how to economize on the paperwork and cost so you can maximize the process of protecting your art.

Visit our website to purchase and download these classes.








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