Credit image to Surtex 2018 by Scott Tsai Photography
There is no standard art licensing contract. Everyone is unique and weighs on the manufacturer, industry, product and artist. All this affects the terms and payment. Also, negotiations between the property owner (or representative) and licensee (manufacturer) affect the contract.
Licensees that offer licensing deals to licensors (property owners /artists) usually have their contracts that they want licensors to sign.
A manufacturer new to licensing or rarely offers deals often asks the licensor to supply their own contract. So it is wise for every artist to have a contract before it is needed.
What to know:
Hire: Hire an Intellectual Property (IP) attorney knowledgeable about art licensing to create a generic licensing contract that can be customized for each licensee. Also, hire one to review contracts before accepting them especially if the deal involves a large amount of art and/or multiple stock keeping units (SKUs) and used by retailers to keep track of inventory.
Affordable alternative? If you don’t want to spend on hiring an attorney, think again. Contracts can be complicated and should benefit both licensor and licensee. Missing terms, placement and incorrect use of words, and diminishing rights can make a big difference and ultimately benefit the licensee. So don’t be foolish.
Contract Terms
Advance payment: A non-refundable advance payment against royalties to the licensor is sometimes given when a contract is signed. It shows the licensee has faith that licensors’ art on their products will sell. In the past, advances were often given but recently they are much fewer.
Artwork listing: Contracts should list the art that is being licensed and not state or infer that all the licensor’s artwork is licensed.
Exclusivity: Some licensees want to have an exclusive arrangement with the licensor. That way the licensor does not license their unique work to the licensee’s competition. Usually this is when the licensee wants to introduce a large line of art by the licensor. An exclusive arrangement could be beneficial to the licensor if the licensee markets the art, has a large customer base, and continues to license more art. It is not beneficial to the licensor if the licensee only wants to license a few designs as other licensing opportunities are lost.
Guarantee: Guarantees on the monies to be earned during the length of the contract are rarely offered to artists unless they’re a well known brand with a proven track record.
Length: The length of the licensing agreement depends upon the type of product, how long it takes to manufacture and get to market, and how long the manufacturer anticipates it will be sold. Most contracts last two to three years.
Territory: The territory of the contract lists the countries agreed on. Listing worldwide as the territory is unwise if the licensee does not sell their products worldwide because it limits the potential of licensing the art to other countries.
Payment: There are three types: on-demand, flat-fee and royalty.
On-demand: This type of payment means the licensee does not manufacturer the product until it’s ordered by a client. So the licensor may not receive a fee if no product is ordered. It allows the licensee to secure the use of art without investing in it. A quarterly royalty rate is the fee normally given for this type of payment. The pros for the licensor is the art gets visibility which MAY result in sales. It is up to the licensor to determine if the visibility and the hope that the licensee’s clients buy the products outweighs the cons. Unfortunately this type of payment is becoming more common.
Flat-fee: A licensing flat-fee gives the artist all the benefits in a licensing agreement but instead of getting royalties the artist gets a one-time upfront fee. A flat-fee is usually offered by a licensee but the cons to this is that the artist may lose revenue if the product is popular and has multiple printings. The pros is that the payment is made up front instead of over years or not at all if the product is not made or does not sell. Some licensors recommend taking this kind of deal if the licensee does not have a large customer base or if the theme of the art is a fad and retailers may not reorder enough products.
Royalty: Receiving royalties is usually the choice of payment for licensors as they can potentially make more with this type of payment. But the licensor takes a chance that the product(s) will sell well. If they do not sell well, the licensor may make very little.
Samples: Samples of the product are not always offered to the licensor especially if the product is produced only when ordered by the client. Sample approval by the licensor before the products are mass produced and sold to retailers is not always given. In fact, licensor sample approval is not possible for many licensees because of tight scheduling in producing the products and shipping to retailers.
Every licensee offers different royalties depending on the type of products they sell and are paid quarterly. The average art licensing royalty is in the 4-6 percent range but can be larger depending on the product and how well known the licensor.
Need help in mapping out your Art Licensing journey?
- Just starting out? CLICK HERE
- Been working in your business for two years or more? CLICK HERE
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Take your Art & Design to the next level – SURTEX New York & Brand Licensing London
Call Vinh on +61 410 636 138
Vinh@artshine.com.au