PLAYDIGM Entertainment Licensing & Branding

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.

More on the clause by clause breakdown of a general Licensing Agreement:

Usually at the end of the contract Preamble is the following line:

NOW, THEREFORE, in consideration of the mutual promises, covenants and conditions hereto contained, it is hereby agreed as follows:

1. GRANT

1.1 The Licensor grants to the Licensee the right to use the (describe Property) and certain trade marks in association with the (mention your products or services you intend to use the Property on or with), shipment, marketing and distribution of the products within the Licensed territory. The rights to use the Property and trademarks are granted to the Licensee and are restricted to the (list products the Property will be on or used in conjuction with) and may not be assigned, sub-licensed or granted to any additional parties.

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The Grant of Rights clause determines what the Licensee is getting and what they can use the Property on and for. The above is a brief version of this clause and I would recommend that a more detailed explanation be given on what the Licensee products are and how the Property will be used.

Usually the Licensor will not allow the Licensee to re-license their use or rights of the Licensor’s Property to another Party and this is why the last sentence is there.

The next installment is Licensing Agreement #4 Term.

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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 advice which are expressed 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.

So you have that great idea rolling around in your head but you are not a writer, painter, computer code programmer, artist, singer/songwriter or musician.  You decide to pay someone to help develop your concept into a real physical product.

Accordingly to Copyright law, each creator owns what they produce upon creation.  Which means, even if you pay someone to create something for you, they own the copyright, especialy if you have not done anything to copyright your version prior to retaining the other person to create their version, for you.  Having both parties sign a Confidentiality Agreement would provide you with more protection than you have without one, but there is one other thing you can do to retain your ownership.

Have the person or company helping makr your dream into fact, sign a ‘Work For Hire’ contract that explains precisely that you retain ownership of whatever it is that is being produced, in return for you giving them money or whatever other bartering deal you may manage to put together.

One thing I have learned over the years is that everything is negotiable. I have offered my consulting services in exchange for services to be rendered by artists to help develop my projects to the next step.

What needs to be in a Work For Hire agreement?

Briefly these are the most important clauses that should be included.

The date of the agreement.

Both full names and addresses of each party involved.  One should be identified as the ‘Owner’  of the property ‘the Work’ and the other is the ‘Contractee’ (the person who will draw the artwork, or write the screenplay or create the music or do what you need done).

The Preamble expresses what each party desires to achieve from such a contract. For example: The Contractor/Owner expects to receive work (a painting of such-and-such, a screenplay based on the owner’s short story, etc.) while the Contractee expects to be paid in cash or services or some other agreed upon payment.

Contract Clauses are the meat of a binding agreement and lay out the terms for such a deal between the parties.  They should detail the following:

1. Work for Hire Terms of the agreement and Delivery dates when the work will be completed.

2. Type and time of payment for services.

3. Copyright Ownership in the Work remains with the Owner not the Contractee.  The Contractee transfer their copyright to the Owner for all services rendered under this contract.

4. Waiver of Moral Rights by the Contractee.

5. That the agreement does not create a partnership or employee relationship between the parties.

6. Titles and sections of the agreement if deemed illegal do not terminate the contract.

7. Liability and Indemnification understanding.

8. Jurisdiction territory

9. Signatures of both parties and any witnesses signatures if necessary.

The above is a basic outline and not a complete contract.  Should you be interested in obtaining a detailed ‘Work For Hire’ contract or further  information, contact me at info@Playdigm.com or contact your legal counsel.  I am not a lawyer but I have created, negotiated and signed many  contracts during my professional career.

Once you have an agreement between all the parties, prior to signing it,  you should seek your own legal counsel to ensure the contract says exactly what it is supposed to.

Work For Hire agreements are a great way to maintain complete ownership of your project when work you are unable to do is required to be done.

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Orders for the FROM THE MIND TO THE MARKET – ebook will be available in late 2009. Preorder now by contacting Info@Playdigm.com and for further information. (c) Tuey All Rights Reserved.

Want to save some money?

So you are doing lunch or talking over coffee about some great idea or project until you agree to do something for someone and/or vice versa. Entering into a verbal agreement with a person(s) is as legal as a binding written agreement. So be careful what you say or commit to. Everyone knows you should always consult with legal counsel on any contractual matters or legal agreements, but lets say this is the long weekend or you can’t reach your lawyer for some reason or you are a poor starving artist.

In the spur of the moment you shake hands and realize that you have just entered into a verbal agreement without a signed written contract.  Nothing is in writing.  Both parties should draw up an agreement to sign but again, lets say there is no access to printers or legal counsel or some unknown reason both parties can’t sign anything at this time.  Trust me it happens.

Doing your homework before engaging a lawyer can save you a substantial amount of money. What I mean is after your meeting go somewhere and write down ‘your understanding’ of what you are committed to do and what the other party has agreed to do.  Then email a letter to the other person/group with all these points.  This is the first record of a deal.

If there is any future dispute, winning the case all comes down to evidence and the talents of the lawyer you retain.  Note the following:

1) The best case is to get it in writing and all involved signing a contract.

2) If not able to do so, here are a couple ways to protect your position in a deal.

a) Verbal Agreements are a binding contract but it is important to sign a contract explaining in detail what both parties will be doing and what compensation each is expected.  Record your understanding in a daytimer.

b) After a meeting where a verbal commitment is now expected from you and the other party, how to prove what was said and agreed upon? Well start by sending a follow-up email or letter indicating that you enjoyed the meeting on such-and-such date and look forward to achieving the goals both agreed to. Then write exactly what you believe the verbal understanding is and send it to the other party.  Don’t forget anything.

Should the deal fall apart for any reason and it becomes necessary to go to arbitration or court to sort things out, then the legal system will appreciate what ever evidence that can be reviewed. Even an email that lays out the conditions of the agreement from only one parties side.

If the receiving party of your email does not respond negatively or challenge any of your points and understanding of your agreement, most likely the email will be accepted as a good representation of the agreement. Otherwise, if the email was not the complete understanding of both parties, the other party would have responded to clarify exactly how they interpret the contract. Their silence could be deemed consent of the written facts expressed in your email. Believe me,  it is better than nothing to help substantiate your verbal contract.

3) Audio and video tape records are good, as long as it is legal in your jurisdiction (check with police on that). During a conversation (telephone or live) make sure all parties involved are identified and participating in the conversation, try and fit in the date as well.

It is my understanding in Canada, that it is legal to record someone without having to inform them you are doing so (as long as you participate in the conversation). For example. You can not record other people at another table in a restaurant without being involved in that conversation. That is considered eavesdropping and is illegal.

For those living in America, I would love to know how this is reflected in the law, so if you know  – post a comment.

In the end, if the verbal contract turns into a disagreement  and a ‘he said – she said scenario’, over who agreed to what, a judge will most likely agree to what was written and delivered to the other party.  If the other party does not respond, then what was laid out and received, is most likely the correct understanding of the agreement, or why didn’t the receiving party not bring up any changes or alterations to the only written version of it.

Bottom line is – “Always be careful what you say and agree to”.

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Orders for the FROM THE MIND TO THE MARKET – ebook will be available in 2009. Preorder now by contacting Info@Playdigm.com and for further information. (c) Tuey All Rights Reserved.