PLAYDIGM Entertainment Licensing & Branding

For the next few posts I will be breaking down a general Licensing Agreement clause-by-clause and giving brief explanations on what it all means. For the beginning of this series of posts, start at the first one dated Sept 14, 2009 (scroll down).

This is the next clause in a Licensing contract:

11. PURCHASE PRICE

11.1 The Licensor agrees to purchase the Licensed Product from the Licensee for the amount of ten dollars ($10.00) U.S. for the sale to their (Licensor name) members. Their sales price to their members shall be for what ever price they desire. The Licensor’s minimum purchase shall be limited to one case/carton. One case or carton of games shall not be more than twelve (12) units.

11.2 Payment times and policy by Licensor from Licensee shall be detailed in a separate agreement letter and agreed upon in writing by both parties.

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Clause 11.1 explains that the Licensor can buy the Licensed Product the Licensee is manufacturing for ten dollars American and that they can sell the product for what ever price they decide. It also details that the Licensor can not purchase less than one case of games( in this contract the Licensed Products) at a time and that there shall not be more than twelve Licensed Products in a case. Total price for twelve would be $120 U.S.).

11.2 states that details regarding payment for such Licensed Products shall be expressed in a separate agreement that requires both parties to sign.

In Agreements that I have negotiated since this one was created and signed, I have now added a clause 11.3 that ensures that the Licensor must pay for the shipping and handling costs for processing all orders to them. The production price was estimated to be $6.40 Cdn, with a handling fee of $2.50 Cdn, so there was to be a good profit margin on this secondary market as the Licensor was not to be the main industry the Licensed Products were going to be sold into. Shipping is now defined as needing to be arranged by the Licensor and all costs shall be their responsibility.

At the time, the Licensor was the American Automobile Association who not only had around 50 million members, they also could sell Licensed Products utilizing their triple A logo but would also sell the Licensed Product to their members by direct mail and through their hundreds of stores. it was a win-win situation, because the Licensee’s main sales were into the Toy and Game industry which promoted both companies to the children who are the future drivers of the world.

I also now add another clause 11.4 that defines that the Licensee can sell the Licensed Product for any price they want.

Next – Licensing Agreement #14 TERMINATION

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As most of you know, I am not a lawyer or an accountant and I recommend everyone seek their own legal counsel, accounting and tax advice in all contractual matters.

I provide consulting which is detailed on the ‘services’ page of this website.

Hope this contract breakdown helps you understand the intricacies of a Licensing Agreement. Should you have any questions contact me at info@Playdigm.com – please put ‘Your name & Licensing’ in the subject line of your email.

Thank you.

Sandford Tuey

For the next few posts I will be breaking down a general Licensing Agreement clause-by-clause and giving brief explanations on what it all means. For the beginning of this series of posts, start at the first one dated Sept 14, 2009 (scroll down).

This is the next clause in a Licensing contract:

10. PREMIUMS, PROMOTIONS AND SECONDS

10.1 The Licensee shall have and retain the sole and exclusive right to utilize or license third parties to utilize any of the Licensed Products in connection with any premium, giveaway, in-theater sales, promotional arrangement or fan club (collectively referred to as “Promotional Products”). The Licensee shall still pay the royalty percentage to the Licensor for these products.

10.2 The Licensor shall be able to sell, promote or advertise the Licensed Product to their (Licensor name) membership and may utilize any of the Licensed Products in connection with any premium giveaway, sales, promotional arrangement or fan club (collectively referred to as “Promotional Prdoucts:”). The Licensor shall still pay for these games at the agreed upon price stated in Section 11 or an agreed upon price made in writing and signed by both parties.

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Technically, this first clause outlines that the Licensor allows the Licensee to license to other companies, the products they make that use the Licensor’s Property for sales, premiums (could almost be any type of discount, marketing tactic, loss leader, or variation thereof), give away (usually to media and potential buyers or celebrities for endorsement/testimonial and friends/family and shareholders), in-theater sales (there was talk of a movie or television show at the time), and other promotional arrangement (which could be almost any other way to market the Licensed Products). Of course the Licensee is expected to pay to the Licensor an agreed upon royalty for all of these.

10.2 Lets the Licensor also sell, promote or advertise the Licensed Products to their membership (which at the time was around 50 million people). They would also be able to sell, promote, giveaway, or use as premiums to their members or customers in pretty much any way they liked. Since this Licensor also has outlets throughtout North America and Associated branches throughout the world, it made sense to allow them to sell and market the Licensee’s products. This deal helps both the Licensor and the Licensee make money and cross promote their identities, which is a great way to brand your company or intellectual property. Of course the Licensor will have to purchase these Licensed Products from the Licensee at the price stated in Section 11 (which I will be covering next post).

Next – Licensing Agreement #13 PURCHASE PRICE

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As most of you know, I am not a lawyer or an accountant and I recommend everyone seek their own legal counsel, accounting and tax advice in all contractual matters. I provide consulting which is detailed on the ‘services’ page of this website.

Hope this contract breakdown helps you understand the intricacies of a Licensing Agreement. Should you have any questions contact me at info@Playdigm.com – please put ‘Your name & Licensing’ in the subject line of your email.

Thank you.

Sandford Tuey

For the next few posts I will be breaking down a general Licensing Agreement clause-by-clause and giving brief explanations on what it all means. For the beginning of this series of posts, start at the first one dated Sept 14, 2009 (scroll down).

This is the next clause in a Licensing contract:

9. INDEMNIFICATION

9.1 The Licensor hereby agrees to defend, indemnify and hold the Licensee harmless against any claims, demands, cause of action and judgments challenging the authority of the Licensee to use the Property in ‘Schedule A’ by the Licensee as authorized by this agreement.

9.2 The Licensee hereby agrees to defend, indemnify and hold the Licensor and/or any of its related entitles harmless against any and all claims, demands, cause of action and judgments arising out of Licensee’s designs, manufacture, distribution, shipment, advertising, promotion, offering for sale and/or sale of the Licensed Products and/or Promotional materials with respect to the foregoing indemnity, the Licensee agrees to defend and hold the Licensor harmless at no cost or expense to the Licensor whatsoever including, but not limited to attorneys’ fees and court costs. The Licensor shall have the right to defend any such action or proceeding with attorneys of its own selection.

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The first clause of this section allows the Licensor to defend, indemnify and hold the Licensee harmless against any claims, demands, cause of action and judgments challenging the authority of the Licensee to use the Licensor’s Property expressed in ‘Schedule A’ by the Licensee as authorized by this agreement. Therefore allowing the Licensee to use the Licensor’s Property even if the Property is challenged in court or has other claims against it. Of course, a court could decide otherwise but in the event that the Licensor’s Property is being contested in some way, the Licensee can continue to use it unless a court decision deems otherwise.

9.2 The Licensee agrees that if a lawsuit or claim against them arises they will defend, indemnify and hold the Licensor and/or any of its related entitles (associates/entities) harmless. Since there are risks to the Licensee regarding intellectual designs, manufacturing procedures and process, distribution errors or problems, shipment mistakes, advertising and promotional liability, questionable techniques of offering for sale and/or sale of the Licensed Products and/or Promotional materials, Licensor wants to remain protected from Licensee in every way. Also the Licensee agrees to defend and hold the Licensor harmless at no cost or expense to the Licensor. Yet the Licensor shall have the right to defend any such action or proceeding with attorneys of its own selection (insert ‘at their own cost’).

My recommendation is to give the Licensee the same indemnification rights as the Licensor receives in both clauses above. Fair is fair.

Next – Licensing Agreement #12 PREMIUMS, PROMOTIONS & SECONDS

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As most of you know, I am not a lawyer or an accountant and I recommend everyone seek their own legal counsel, accounting and tax advice in all contractual matters. I provide consulting which is detailed on the ‘services’ page of this website.

Hope this contract breakdown helps you understand the intricacies of a Licensing Agreement. Should you have any questions contact me at info@Playdigm.com – please put ‘Your name & Licensing’ in the subject line of your email.

Thank you.

Sandford Tuey

For the next few posts I will be breaking down a general Licensing Agreement clause-by-clause and giving brief explanations on what it all means. For the beginning of this series of posts, start at the first one dated Sept 14, 2009 (scroll down).

This is the next clause in a Licensing contract:

8. GOOD WILL AND BENEFITS

8.1 The Licensee recognizes the value of the good will associated with the Licensor’s Property stated in Schedule A and acknowledges that the Property and all rights therein are the good will pertaining thereto, belong exclusively to the Licensor. The Licensee further recognizes and acknowledges that this Property has secondary meaning in the mind of the public. The Licensee agrees that during any Term of the Agreement, or thereafter, it will not attack the title or any rights of the Licensor in and to the Property.

8.2 The Licensee agrees that its use of the Property shall inure to the benefit of the Licensor and that the Licensee shall not, at any time, acquire any rights in the Property stated in Schedule A by virtue of any use it may make of the Property.

8.3 The Licensor agrees that its use of the Product shall inure to the benefit of the Licensee and that the Licensor shall not, at any time, acquire any rights in the Product or related characters/components stated in Schedule A by virtue of any use it may make of the Product.

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Clause 8.1 defines the benefit in and to all the Property are owned solely and exclusively by the Licensor and the Licensee shall not attack in any way verbally, in writing or in court, the value or rights of the Property during the contract or any time after.

8.2 details that the use of the Property by the Licensee does not grant any rights or benefit to the Licensee in any way.

8.3 expresses that the Licensor recognizes and agrees that they will not acquire any rights in the Product bearing their Property and all benefits from the product remain with the Licensee who created it.

Next – Licensing Agreement #11 INDEMNIFICATION

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As most of you know, I am not a lawyer or an accountant and I recommend everyone seek their own legal counsel, accountant and tax advice in all contractual matters.

I provide consulting which is detailed on the ‘services’ page of this website.

Hope this contract breakdown helps you understand the intricacies of a Licensing Agreement. Should you have any questions contact me at info@Playdigm.com – please put ‘Your name & Licensing’ in the subject line of your email.

Thank you.

Sandford Tuey

For the next few posts I will be breaking down a general Licensing Agreement clause-by-clause and giving brief explanations on what it all means. For the beginning of this series of posts, start at the first one dated Sept 14, 2009 (scroll down).

This is the next clause in a Licensing contract:

7. OWNERSHIP OF RIGHTS

7.1 It is understood and agreed that the Licensor is the sole and exclusive owner of all right, title and interest in and to the Property detailed in Schedule A.

7.2 It is understood and agreed that the Licensee is the sole and exclusive owner of all right, title and interest in (insert products to use Licensor’s Property) and related components and characters on the cover of the box.

7.3 Nothing contained in this Agreement shall be construed as an assignment to the Licensee of any right, title and/or interest in and to the Property as stated in Schedule A (other than for usage). Nothing contained in this Agreement shall be construed as an assignment to the Licensor of any right, title and/or interest in and to the product and or related characters/components.

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7.1 This first clause is a straight forward explanation to clear up that only the Licensor owns the Property and Trademarks expressed in Schedule A that are to be licensed by the Licensee. I will break down what is in Schedule A at the end of this Licensing Agreement since it is attached to the back of the document.

7.2 This clause clarifies that the Licensee owns all right, title and interest to the products they manufacture of which they desire to use the Licensor’s Property upon. The Licensee also retains ownership and all rights to all related components and characters on the cover of the box. The characters are the Licensee’s copyright and brand.

7.3 Nothing in the Agreement allows for any transfer or assignment from the Licensor of any right, title and/or interest in and to the Licensor’s Property as detailed in Schedule A (other than for the use of that Property as described in this Agreement). Nothing contained in this Agreement allows for the Licensor to have any right, title and/or interest in and to the Licensee’s products and or related characters/components.

In Licensing Agreements I have been involved with since this one was created and signed, I make sure that the Licensor’s Property and Licensee’s Products are stated in more detail in this section of the contract. The most important part is that none of the above allows for the granting or transfer of ownership rights from, or to either party and it clarifies who owns what.

Next – Licensing Agreement #10  GOOD WILL BENEFITS

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As most of you know, I am not a lawyer or an accountant and I recommend everyone seek their own legal counsel, accountant and tax advice in all contractual matters. I provide consulting which is detailed on the ‘services’ page of this website.

Hope this contract breakdown helps you understand the intricacies of a Licensing Agreement. Should you have any questions contact me at info@Playdigm.com – please put ‘Your name & Licensing’ in the subject line of your email.

Thank you.

Sandford Tuey

For the next few posts I will be breaking down a general Licensing Agreement clause-by-clause and giving brief explanations on what it all means. For the beginning of this series of posts, start at the first one dated Sept 14, 2009 (scroll down).

This is the next clause in a Licensing contract:

6. SAMPLES AND QUALITY

6.1 The quality of the Products bearing the Licensor’s Property shall be at the least as high as the quality of other products produced by the Licensee. This shall include advertising, all promotional materials and other items that includes the Property and/or Trademarks and shall be in full conformance with the applicable laws and regulations.

6.2 A reasonable number (1-5) production samples will periodically be sent to Licensor to ensure quality control, and should Licensor require additional samples for any reason, Licensor may purchase such at Licensee’s cost (for sample purpose only).

6.3 The Licensee agrees that all Licensed Products and all Promotional material/Advertising shall contain appropriate legends, markings and/or notices as required from time to time by the Licensor, to give appropriate notice to the consuming public of the Licensor’s right, title and interest thereto. The Licensee agrees that unless otherwise expressly approved in writing by the Licensor each usage of their Trademark and Property shall be followed by either the TM or the Circle R Trade Mark Notice symbol, as appropriate, and initially the following legends shall appear at least once on each Licensed Product and on each piece of Promotional/Advertising material.

“Artwork and Product Copyright: (date) (Licensee name)(Product Title) Trade Mark and Logo are owned by (name of Licensee). The (Licensor name) and Logo are Trade Marks of (the name of Licensor).”

6.4 Upon commencement of manufacture, shipment and distribution of the Licensed Products and/or Promotional materials relating to said Licensed Products the Licensee shall submit, at its own cost, an addition five (5) samples of the Licensed Products and/or Promotional materials to the Licensor.

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Clause 6.1 ensures that the quality of the Products using the Licensor’s Property and Trademark shall be the same quality as other products designed and produced by the Licensee previously. This also includes advertising, all promotional materials (brochures, one sheets, etc…) and other items that includes the Property and/or Trademark and shall be in full conformance with the applicable laws and regulations. The Licensee should try not to have all their Licensed Products, Advertising and promotional materials requiring the written approval by the Licensor as this will cause delays in production of such products/materials. You can have a response time limit. where any materials sent to the Licensor by the Licensee for approval is automatically approved by the Licensor if no response if given within thirty days. This clause also puts the onus on the Licensee to conform to the laws of each company they market the Licensed Products into.

6.2 Allows the Licensor to receive a reasonable number, up to five production samples, that will be sent periodically to the Licensor to ensure quality, and if the Licensor requires additional samples for any reason, Licensor may buy such at Licensee’s production cost (for sample purpose only). This makes sure the Licensor can only purchase a limited number not for resale to any mass market, as this would limit the Licensee’s ability to make a profit from these type of sales into similar markets. It is best to come to an agreement on the price of these sample Licensed Products and the Licensee should try to build in a marginal profit.

6.3 states the Licensee agrees to make sure all Licensed Products and all Promotional material/Advertising they make will contain appropriate legends, markings and/or notices as required from time to time by the Licensor. This allows the consuming public to know that the Licensor owns, has right, title and interest in the Property and Trademark. The Licensee also agrees that if approved in writing by the Licensor each usage of their Trademark and Property shall be followed by either the TM notice or the Circle R Trade Mark Notice symbol, and they will appear at least once on each Licensed Product and on each piece of Promotional/Advertising material. The below is exactly the lay out that was required to be on each item.

“Artwork and Product Copyright (date) (Licensee name)(Product Title) Trade Mark and Logo are owned by the Licensee. The (Licensor name) and Logo are Trade Marks of the Licensor.”

6.4 Upon commencement of manufacture, shipment and distribution of the Licensed Products and/or Promotional materials relating to said Licensed Products the Licensee shall submit, at its own cost, an addition five (5) samples of the Licensed Products and/or Promotional materials to the Licensor. I recommend to send these items every time you do a new production run.

Next – Licensing Agreement #9 OWNERSHIP OF RIGHTS

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As most of you know, I am not a lawyer or an accountant and I recommend everyone seek their own legal counsel, accounting and tax advice in all contractual matters. I provide consulting which is detailed on the ‘services’ page of this website.

Hope this contract breakdown helps you understand the intricacies of a Licensing Agreement. Should you have any questions contact me at info@Playdigm.com – please put ‘Your name & Licensing’ in the subject line of your email.

Thank you.

Sandford Tuey

For the next few weeks I will be breaking down a general Licensing Agreement clause-by-clause and giving brief explanations on what it all means. For the beginning of this series of posts, start at the first one dated Sept 14, 2009 (scroll down).

This is the next clause in a Licensing contract:

5. AUDIT

5.1 The Licensee shall keep, maintain, and preserve (in the Licensee’s principal place of business) for at least two (2) years following the termination or expiration of the Term of this Agreement or any renewal(s) hereof, complete and accurate records of accounts including, without limitation, invoices, banking, financial and other records pertaining to the various items required to be submitted by Licensee. Such records and accounts shall be available for inspection and audit at any time during Licensee’s business hours and upon fourteen (14) days notice by Licensor or its nominees. The expense of audits initiated by the Licensor shall be at their expense.

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Clause 5 is self explanatory. Keeping proper records is a good idea, even if you don’t license an entertainment property. This Agreement forces the Licensee to keep accurate records of all accounts, including invoices of sales to stores/clients, banking statements, financial records and other records pertaining to the various items required to be submitted by the Licensee in the Royalty Statements (see previous post).

These records and accounts shall be available for inspection and audit at any time during Licensee’s business hours and must be kept at the Licensee’s principal office until two years after the expiry or termination of the Agreement. The Licensor can only commence an audit after fourteen (14) days notice from the Licensor or its nominees. Add written notice for clarification in future contracts.

The expense of audits started by the Licensor shall be at their expense. This line is very important and ensures that the Licensor will not only pay for audits they commence but will not do audits without justification as they can be quite costly.

Next – Licensing Agreement #8 Samples & Quality

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As most of you know, I am not a lawyer or an accountant and I recommend everyone seek their own legal counsel and accounting and tax advice in all contractual matters. I provide consulting which is detailed on the ‘services’ page of this website.

Hope this contract breakdown helps you understand the intricacies of a Licensing Agreement. Should you have any questions contact me at info@Playdigm.com – please put ‘Licensing’ in the subject line of your email.

Sandford Tuey

For the next few weeks I will be breaking down a general Licensing Agreement clause-by-clause and giving brief explanations on what it all means. For the beginning of this series of posts, start at the first one dated Sept 14, 2009 (scroll down). This is the next clause in a Licensing contract:

4. STATEMENT AND PAYMENTS

4.1 The Licensee shall provide the Licensor, within thirty (30) days after the end of each calendar quarter (the ‘Royalty Period) due March, June, September, December, a complete and accurate statement of it’s Net Sales of Licensed Products for the Royalty Period and Term. Said statement is to be certified as accurate by the Licensee and to include information as to the number, description and gross selling price of the Licensed Products, shipped, distributed and/or sold by the Licensee during the preceding Royalty Period, information as to discounts given and returns actually credited. Such statements shall be furnished to the Licensor whether or not any Licensed Products have been shipped, distributed and/or sold, and whether or not Actual Royalties have been earned during the proceding Royalty Period. Payment of Royalty shall accompany the statement.

4.2 The receipt and/or acceptance by the Licensor of any of the statements furnished or Royalties paid hereunder to the Licensor (or the cashing of any Royalty Checks paid hereunder), shall not preclude the Licensor from questioning the correctness thereof at any time and, in the event that any inconsistencies or mistakes are discovered in such statements or payment, they shall be rectified within thirty (30) days by the Licensee and the appropriate payment shall be made by the Licensee immediately.

4.3 All payments made hereunder shall be in United States currency drawn on a Canadian Bank US account, unless otherwise specifically agreed by both parties in writing.

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Paragraph 4.1 indicates that the Licensee agrees to submit to the Licensor accurate Statements and Payments regarding the products they have made (using the Property) which have been sold, shipped to clients and/or distributed. The statements and payment must be made withing thirty days after each calendar quarter (every three months plus one month for Licensor to receive statement) and if there are any errors, these will have to be corrected within a further thirty days of this being pointed out by either party.

These statements are also to be certified as accurate, which translates to the Licensee guaranteeing they are true and that they are liable for any inaccuracy. Make sure there is at the least a thirty day correction period if mistakes are made to ensure you have time to fix them within this period or you could be paying interest and fines or possible legal costs and penalties in a future court case.

There is always a clause describing the information to be included with the statements, in this case it is to be the number of units sold, description (if the Licensee has multiple product types using the Property) and gross selling price of the Licensed Products (gross price is the complete full price each product costs a buyer), then the net price (the price of each product after agreed upon deductions), the date all Licensed Products are shipped, distributed and/or sold by the Licensee during the preceding Royalty Period. In this statement the Licensor also wants to know what kind of discounts were given to the Licensee’s clients and how many returned Licensed Products have been credited to the account.

Of course statements need to be sent to the Licensor, whether or not any Licensed Products have been shipped, distributed and/or sold and whether or not any Actual Royalties have been accrued during the preceding Royalty Period (every ninety days). Most importantly is that each Payment of Royalty must accompany the Statement the royalties were earned within.

4.2 Clearly states that when the Licensor receives and/or accepts the Licensee Statements or Royalties paid or has cashed any Royalty Checks, the Licensor can still question the correctness of all statements and payments at any time and, if there are inconsistencies or mistakes that are discovered in such statements or payment, the correct amount shall be fixed within thirty (30) days by the Licensee and the appropriate payment shall be made by the Licensee immediately.

Clause 4.3 is self evident. All payments made to the Licensor by the Licensee must be in American dollars and paid from a Canadian Bank using a US account, unless other methods are approved by both parties in writing. This was due to the fact that the Licensee (my company) is based in Canada and the American Automobile Association is base in the United States of America. Of course, the currency will usually be determined by the Licensor and the country the Licensee are located in.

Next – Licensing Agreement #7 Audit.

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As most of you know, I am not a lawyer or an accountant and I recommend everyone seek their own legal counsel and accounting advice in all contractual matters. I provide consulting which is detailed on the ‘services’ page of this website.

Hope this breakdown helps you understand the intricacies of a Licensing Agreement. Should you have any questions contact me at info@Playdigm.com – please put ‘Licensing’ in the subject line of your email.

Sandford Tuey

For the next few weeks I am breaking down a general Licensing Agreement clause-by-clause: For the beginning of this series of posts, read the first one starting Sept 14, 2009 (scroll down). This is the next clause in a Licensing contract:

3. ROYALTY PROVISION

3.1 Licensee agrees to pay the Licensor a non-refundable Royalty of 10% (ten percent) as stated in the attached Schedule A, based on the Licensee’s Net sales of the Licensed Products using the Property (the ‘Actual Royalty’). The Actual Royalty shall accrue when the Licensed Products are sold, shipped, distributed, billed and/or paid for. Net Sales is described as gross sales less returns.

3.2 Actual Royalty payments shall be made by Licensee to the Licensor on all licensed Products sold, shipped and/or distributed by the Licensee or sub-licensed manufacturers, even if not billed (such as in the case of introductory offers, samples, promotions, and the like, including all sales other than those to the Licensor or Licensor’s associated distribution networks. Those products using the Licensor’s Property sold to the Licensor shall be exempt from any royalty payment(s) from the Licensee.

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Paragraph 3.1 details that the Actual Royalty the Licensee will pay the Licensor is 10 % (ten percent) of the Net Sales price. Every Royalty amount is different – it can be a specific per unit cost or a percentage of sales like this one. Negotiate the best deal you can. This royalty will be paid on all products the Licensee makes using the Licensor’s Property and will need to be paid on any products sold, shipped from the plant,distributed, billed and/or paid for.

In this case, Net Sales are described as the gross sales price minus any returns from customers. This is important, especially if you are in the book industry, where many months after delivering books to retail stores, any unsold books can be returned to the Licensee for a refund. The Licensee will then request a credit for these unsold/returned Licensed Products and try to resell them (without having to pay the royalty twice) or if they are damaged and not able to be resold, the same amount of returned Licensed Products will be credited against new Licensed Products being manufactured. Example: If 1,000 books are returned too damaged to resell they are destroyed and the next 1,000 Licensed Products would not have to have the Actual Royalty paid to the Licensor. All this is taken care of in the Royalty Statement and by accountants.

Paragraph 3.2 is clear that a Royalty must be paid on all Licensed Products the Licensee has sold, shipped and/or distributed directly by the Licensee or by any sub-licensed manufacturers, even if not billed. The better way to write this clause is to have the Actual Royalty paid upon manufacture. This allows you to get the royalty payment when production happens and will be paid faster than waiting for the billing or selling process to start. It also is easier for auditing purposes. However, this will allow the Licensee to justify the Actual Royalty to be a lower amount than if it was based on the higher sales price. It would be a good idea to clarify what is exactly meant by introductory offers, samples, promotions, and the like, including all sales other than those to the Licensor or Licensor’s associated distribution networks. Those products using the Licensor’s Property sold to the Licensor exempt any royalty payment by the Licensee. This benefits the Licensor if they have access to mass distribution but ensure there is an agreeable purchase price the Licensor will pay for products using the Property produced by the Licensee.

The next installment is Licensing Agreement #6 Statement and Payments.

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As most of you know, I am not a lawyer or an accountant and recommend everyone seek their own legal counsel and accounting advice in such contractual matters. I also provide negotiation consulting which are detailed on the ‘services’ page of this website.

Hope this breakdown helps you understand the intricacies of a Licensing Agreement. Should you have any questions contact me at info@Playdigm.com – please put ‘Licensing’ in the subject line of your email.

For the next few weeks I will be breaking down a general Licensing Agreement clause-by-clause: For the beginning of these series of posts read the first one starting Sept 14, 2009. This is the next clause in a Licensing contract:

2. TERM

2.1 This Agreement is for the term of three (3) years commencing on (date) and shall terminate (date), unless an extension to this agreement is agreed upon in writing and signed by both parties. At the end of the term of this agreement, the Licensee and Licensor shall, in good faith, renegotiate any further continuance of the licensing for use of the Property and trademarks by the Licensee.

2.2 Renegotiation of this agreement shall begin between both parties at least ninety (90) days prior to the termination date of this agreement as set in and cited in article 2.1. During this ninety day period of renegotiating the continuance of licensing the Property, the Licensee is restricted from manufacturing additional products using the Property, unless written permission is granted by the Licensor.

2.3 If the Licensor does not respond within thirty (30) days after receipt of such written request for extension from the Licensee, then it will be considered that the Licensor has granted permission to continue production until the end of the term of this agreement.

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Paragraph 2.1 indicates that the Licensing Agreement starts at a specific date and will last three years (it is a good idea to spell and indicate the number of days for clarification. especially if foreign languages are involved). You can request any amount of time limit but keep it as short as possible for two reasons- a) another party or company may become interested in your Property rights and offer more money to license the use of your Property, and b) if the present Licensee desires to continue the license, you can negotiate a larger advance/royalty payment at the end of the present term. Of course the opposite is true for the Licensee, in that, the longer the term of the agreement, the better for the Licensee.

Paragraph 2.2 refers to the requirement that any continuance of the Licensing Agreement must be made in written form and signed by the Licensor (You) and the Licensee. It also forces the Licensee not to manufacture any products they are putting the Licensor’s Property onto during the ninety day renegotiation period unless allowed to in writing from the Licensor. As a Licensee, I would try and make sure the last sentence of clause 2.2 is removed or not in the original contract, since this will stop you from producing your products using the Property ninety days prior to the end of the actual term of the Licensing Agreement.

The extension request information is to ensure both parties are aware that there is a time frame to start negotiating any change to the term period. The Licensee should ensure they register mail the written extension request letter for any continuance of production of products utilizing the Property, because the Licensor would have the ability to state that because they did not receive any notice that Licensee production of products using the Licensor’s Property must stop ninety days prior to the end of the agreement and also that no effort was made to commence renegotiation of the original Licensing Agreement, so the Licensor can refuse to relicense or start negotiations again.

Clause 2.3 Gives the Licensee automatic approval to continue manufacturing their products using the Property if the Licensor does not respond to the Licensee’s attempt to get permission to continue production until the end of the term. Note that this does not give an extension to the Licensing Agreement but just the ability for the Licensee to keep production going until the final term date. If the Licensee desires, they should initiate negotiations for a continuance with the Licensor many months prior to the ninety day notice because the lawyers involved on both sides could take longer than expected to complete and finalize the extension or new agreement if one has been requested by either side (very often this is the case).

Next Licensing Agreement #5 Royalty Provision.

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As most of you know, I am not a lawyer or an accountant and recommend everyone seek their own legal counsel and accounting advice in such contractual matters. I provide other consulting which is detailed on the ‘services’ page of this website.

Hope this breakdown helps you understand the intricacies of a Licensing Agreement. Should you have any questions contact me at info@Playdigm.com – please put ‘Licensing’ in the subject line of your email.