Art Licensing: Key Legal Terms from the Manufacturer’s Perspective

One of the biggest art licensing shows, Surtex, is happening in New York this week. Licensing Show 2011 is Las Vegas is approaching in June. Last week, I reviewed some the key provisions of an art license. This week, I examine an art license from the Licensee/Manufacturer’s perspective.

• Require artist support. Make it clear that the artist must support the manufacturing efforts. For example, the artist must cooperate to make the artwork commercially acceptable. The artist must also deliver artwork on time. The licensee should also request the right to launch a public relations campaign that uses the artist’s name and photograph.
• Examine dates. Be sure the license term provides sufficient time for growth. Typically, an art license requires at least two selling seasons to generate sufficient royalties for the arrangement to be declared a success. Deadline dates for product introduction should provide at least six months before the manufacturer must commence distribution or marketing of products. Finally, if sales achieve certain levels of royalty compensation during the initial term, the manufacturer may want to control an option to extend the term of the contract.
• Be clear about compensation. Define net sales and royalty obligations with specificity. The contract should provide exclusions for returned items, opportunities to offer trade discounts and allowances, deductions for costs, and minimum levels for royalties to apply.
• Have an escape clause. Preserve your right to terminate if faced with unsatisfactory, nonconforming, or consistently late artwork, particularly at the time of submission of initial drafts. Have warranties and indemnities that guarantee the originality of the artwork provided and declare the artist’s right to enter into this agreement.
• Have a cure period. The manufacturer should preserve its rights to cure any alleged breach of the contract rather than the contract automatically terminating. This is crucial for protecting sell-off rights.
• Negotiate sell-off rights. The licensee will also wish to negotiate a sell-off period after any termination of the agreement, regardless of who terminates. This will provide an opportunity to clear out existing inventory. Such a sell-off period is typically anywhere from three months to one year.
• Retain control over the license. The manufacturer should allow for quality control by the artist, but delineate how many samples the artist can examine, when the artist can give approval during the production process, the deadline for providing artist approval, and that the artist cannot be unreasonable. Consider limiting the artist’s right to inspect facilities for quality control breaches and to inspect books to once a year and with reasonable notice so that your business can proceed unencumbered.
• Be fair. If you have discovered an artist who offers the opportunity to grow a brand, nurture the artist with provisions that encourage his creativity and keep him producing for you.