When your career as an artist has advanced to the point that you have a certain following and your art is in demand, it makes sense to consider licensing your work. Licensing will enable you to receive royalties, and over time the amount generated could be substantial. However, you would be wise to familiarize yourself with the procedure before entering into any agreement with a prospective licensee.
Licensing Versus Assignments
You should first understand the difference between “licensing” and “assigning” your work, terms that are very different but that are often used interchangeably. If you assign your work, you will be handing it over to someone else to do with as they please. The work is no longer yours; it is theirs, forever. If you license your work, you give someone the right to use it with certain conditions attached. You will retain ownership of the work, for example, and the license will exist only for a limited time and for limited purposes. Once it expires, the licensee will no longer be able to use your artwork.
Royalty Rate Is Key
Negotiating a good licensing contract revolves around the royalty rate involved. This may appear to be a simple matter. For example, if the royalty rate is determined to be 5 percent, you should receive $500 on sales of $10,000. However, does that figure represent gross sales or net sales? As the artist, you will want to base your royalties on gross sales, but the licensee knows that withdrawing royalties from net sales will be more beneficial to his or her bottom line. If you come to base your royalty agreement on net sales, you will find that other deductions must be considered. These generally include sales tax, discounts and possibly shipping costs as well. Costs that should not be included are those that are totally out of your control, such as payment of sales commissions. Costs or fees that have nothing to do with your artwork would further dilute your royalty amount.
Understanding General Demand
Do your homework and learn all you can about the going rate for royalties in your industry. Consider the level of demand for your artwork and the volume of products the prospective licensee expects to sell. Think about the source. If you place your work with a well-known distributor, for example, the rate they are willing to pay may be smaller, but the royalty you receive may actually be greater because of the sheer volume the distributor is capable of selling.
Critical Clauses
In addition to negotiating the best royalty rate you can, be sure that both an auditing clause and an indemnity clause are included in the licensing agreement. The former allows for an auditor, an outside party, to inspect the licensee’s books to ensure that you are receiving the royalty payments that are due you in the event you suspect a discrepancy. It should also be stipulated that the licensee will pay for audits. The latter, the indemnity clause, should be there for your protection should any lawsuits develop because of the licensee’s use of your artwork.
Putting Together a Good Licensing Agreement
Certain basic considerations should be included in a good licensing agreement:
- Never license your artwork unless you trust the licensing organization. Research the company’s background and reputation, and ask for references, clients you can interview.
- Do not, under any circumstances, give up your copyright.
- Specify an end date for the licensing agreement.
- Be specific with regard to the kinds of products on which your artwork will appear.
- Include your right to approve any company that may become a sub-licensee for your work.
A business and commercial law attorney can help you deal effectively with contract negotiation. Once you feel comfortable concerning the key issues involved with licensing artwork, you can move forward with confidence.
Legal Disclaimer
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.