Licensing Artwork? How to Protect Your "Assets" When Entering into an Agreement to License Art

For an artist or graphic designer there's nothing more rewarding than seeing your art on actual product out in the retail environment. I've been designing and developing art and products for licensing for quite a while now and it's still like Christmas every time I receive product samples for approval. I can't tell you how much I enjoy opening boxes filled with various product samples that I have designed and created. Maybe you already know this feeling or maybe you are just starting to venture out into the world of artwork licensing. I hope so! If you are just starting out then you should check out Surtex National Stationery and Gift Show in New York. This show is one of the best ways to show your work to people actively seeking new talent.

Artwork Licensing can be an extremely rewarding and profitable venture. There are many benefits to licensing your artwork. The obvious benefits are that you retain ownership and copyrights to your creations while other people market and distribute your creative works for sales. This allows you to gain passive income through royalty payments, usually payed quarterly, and the ability to use that same art in new ways for future profit.

As fun and exciting as Art Licensing is, there are some things you should know before entering into any contractual agreement. First of all, there is a lot that you won't know in the beginning of your licensing career and a ton that you will learn along the way, but you should have a good understanding of what the terms of your agreement will be before signing anything. If you are presented with a licensing contract - review it and understand that you are the one licensing the art and you have the power to negotiate your terms. Also, it's always a good idea to have your own copyright attorney review the contract.

Before we discuss this topic further let's get familiar with a few terms, that is if you are not already familiar with them.

1. Licensor - You!
2. Licensee - the company you are licensing artwork to.
3. Royalty - The percentage you will be payed on the sales of your art.
4. Net Sales Price - the price for which the Licensee sells the Licensed Products
5. Licensed Design - shall mean those designs owned by Licensor and incorporated into one or more Licensed Products
6. Sell-off-period - A period of time used by the Licensee to clear out licensed product. This usually takes place at the end of a contract when the licensee needs to dispose of all of its existing inventory of Licensed Products on hand. During the Sell-off Period, no royalties shall be payable to Licensor for the sale of Licensed Products that must be liquidated (sold at or below cost).

Every licensing contract can vary in detail, however, there are some key points that should never change. Your licensing contract should clearly state that the licensed artwork is yours and that you retain the rights to the artwork being licensed. You should specify that the "licensee" (the company you are licensing your artwork to) does not have the right to sublicense your art to other companies without your written approval. Also, under no circumstances is the licensee entitled to any ownership rights to your original art nor do they gain any copyrights to any piece of your art. In fact, you should specify your own copyright line to be used on every product that the licensee produces. Would read something like;

© YOUR COMPANY NAME HERE  All Rights Reserved
Licensed by (Licensee's Company Name Here)

You will probably find that most negotiation comes into play when determining your royalty percentage. Here are a few common ranges of royalty rates in the giftware industry that may help guide you in determining an appropriate royalty percentage.

* Greeting cards and gift wrap: 2% to 5%
* Household items such as cups, sheets, towels: 3% to 8%
* Fabrics, apparel (T-shirts, caps, decals): 2% to 10%
* Posters and prints: 10% or more
* Toys and dolls: 3% to 8%

As I previously mentioned this is a scale of acceptable industry standards. In my own experience, I have found 5% to be a very standard and acceptable rate for most items. However, for some stationery items like gift cards and gift wraps 2% is the acceptable standard. If you are just establishing yourself as a licensing artist it would probably be wise to aim for the 4-5% as opposed to the 10%.  In this part of your contract you can expect to see a line stating that no royalties shall be payable to Licensor for the “closeout” sale of Licensed Products that have been deleted from Licensee’s line of products. The licensee will almost certainly include this statement in your contract, however, one thing that you should stipulate directly after that line is that the Licensor must be notified in writing prior to the “closeout” of a line or products and that any licensed products sold during the “sell-off-period” that are non-liquidation orders are subject to royalties. Yes, a company will liquidate it's products and product lines to clear out inventory, but not all sales made during the sell-off-period are liquidation sales which you should be paid a royalty for.

Keep your licensing arrangements clear, concise and simple. You may get advice from people to get an advance against royalties or negotiate a one time licensing fee. These are not  common practices for people just getting into licensing. An advance against royalties is exactly what the term states - an advance payment on future royalties on a licensed work. My personal belief is that it is better to negotiate terms with a fair percentage that works for you. Then make sure to avoid unnecessary deductions such as sales commissions, undefined "fees", or any marketing, promotional and advertising expenses that the licensee engages in. Some deductions are acceptable, for instance deductions made before the royalty is calculated for taxes, credits, and quantity discounts.

I really enjoy art, graphic design, and the rewarding feeling you get from seeing your art out in the market place. I would like to see more artists reaching out to the public with their creative works. It takes time to build a successful licensing career. The key is always play to your strengths. Stand apart by doing what you do well and not replicating others. When it comes time for you to enter into a licensing arrangement - I hope that you have found this article helpful. I would also like to offer a template for a standard contract regarding the licensing of artwork as a resource to help give you a heads up on how to protect your “assets”. This licensing contract template, set up for a standard 5% royalty.

You can find this template at:
http://www.pixelproductionsinc.com/news.php
or
http://pixelproductionsinc.com/blog

Please note: This contract is intended to be used as a reference to help artists looking to establish licensing agreements for their artwork. Any legally binding agreement that you enter into should be reviewed by you and your attorney prior to enacting said agreement. This material is a reference for you, but we are not responsible for any legal agreement you enter into.