Alt Legal Connect Session Summary: Licensing: Using Trademarks and Copyrights as Business Assets
Alt Legal Team | October 27, 2020
On Monday, October 26, Stephanie Pottick of Pottick Law PC and Chris Ott of Capital One presented a fun and practical session at Alt Legal Connect, “Licensing: Using Trademarks and Copyrights as Business Asset.” During this session, they lent their experience as in-house counsel and outside counsel, representing both creators and licensees, and provided important information about how to increase a company’s valuation through licensing.
Stephanie and Chris began by talking about how to identify IP assets and partners to work with in order to generate revenue. They mentioned that in our current market, there’s almost a saturation of opportunities and choices in terms of partnerships and that it can be harder to make a splash. Nevertheless, brand owners trying to find partners to extend their brands can play “matchmaker” by attending the licensing expo in Las Vegas. Stephanie suggested that for new creators who might have a harder time finding a partner than an established brand, that they make connections, talk to friends, and put the word out on social media or Kickstarter.
Next, the presenters discussed entering into an agreement. The most important thing, they noted, is that the license should be in writing. Seems obvious, right? But both Stephanie and Chris have seen situations where parties entered into a handshake agreement and things went terribly awry. They also shared the importance of having a deal memo with negotiated terms, but keeping it separate from the license agreement and non-binding until the license is finalized.
The presenters then turned to negotiations. Stephanie and Chris acknowledged that bigger, more established entities will have greater leverage when it comes to the battle of forms. Stephanie noted that it is especially important to communicate with clients about what they are signing, particularly if things look unusual. Stephanie and Chris agreed that there may be some burdensome terms that are simply not worth negotiating, but there are certain terms that are worth your time (and your client’s time) to negotiate. Both noted that the license grant is particularly important and that it is crucial that you must be very specific in your language to protect your clients. You must make it very clear what it is that you are licensing and where you can sell it. This is especially important when dealing with large companies like Disney or Marvel that break things up in a very bureaucratic way.
Additionally, the presenters stressed quality control. Creators want to ensure that the licensee is making a quality product and that they represent your brand and level of reputation. Stephanie and Chris discussed the importance of negotiating approval rights which may take the form of an unannounced factory visit. On the flipside, Chris noted that in his experience at Payless, it was important to allow certain levels of approval, but parties must maintain balance. At Payless, Chris said, they would not enter into agreements where the licensor dictated how many stitches would go into a shoe.
The speakers also discussed the importance of negotiating audit rights – something you don’t always think of until you have to go through it. This is especially relevant when, for example, products are found to be made in a sweatshop. As the licensor, you want to be sure that you have control and have the right to terminate based on certain egregious behaviors.
Next, Stephanie and Chris noted that it is essential to clearly identify the parties involved. Again, what seems obvious is surprisingly important to consider, particularly when there is a holding company involved. Stephanie and Chris also advised that the license specifically identifies a person who you can speak with on the phone about particular issues. Oftentimes, an email address or a mailbox isn’t enough when there’s a pressing issue that must be addressed.
Stephanie and Chris agreed that the most successful licenses are those that are partnerships where both parties work to achieve the same goals or vision and both make money. The key to these successful partnerships is communication. Unfortunate things happen and parties need to be able to have open and honest dialogue and manage expectations. If the expectation is the same on both sides, there’s much less of a chance for a dispute. A good practice tip is to reach out to clients periodically to ensure that they are meeting deadlines and expectations set forth in the license. This also is a good opportunity to check in and make sure that there has been no naked licensing or side handshake deals.
Similarly, when it comes to addressing problems that arise in the licensing agreement, Stephanie and Chris said that communication is key. Chris said that mistakes or bad things happen from time to time and it’s important not to try and cover these things up. He said you should always come clean to the extent possible and get ahead of the problem. Acknowledge any quality control issues immediately and develop a plan to remedy them. Bottom line – communicate!
Lastly, Stephanie and Chris went over ending a licensing relationship. Stephanie noted that it’s much like a prenup and it’s important to put these terms in the license agreement from the onset so that both parties have the expectations up front. Important concerns include: how final payments will come in, how to wind down the product (sell through or destroy), and whether there will be automatic renewal rights.
Access the Recording and Materials: Click here
Resources Mentioned:
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There’s a new drafting tool that a former in-house attorney created that analyzes your prior agreements and provides them to you in Word: counselhq.com
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The Kenneth Adams book is my go-to! I also took his masterclass (www.adamsdrafting.com) which was great! (Thanks, Glinnesa Gailliard!); https://www.amazon.com/Manual-Style-Contract-Drafting/dp/1634259645/ref=asc_df_1634259645/?tag=hyprod-20&linkCode=df0&hvadid=312114682075&hvpos=&hvnetw=g&hvrand=13833026608262135116&hvpone=&hvptwo=&hvqmt=&hvdev=c&hvdvcmdl=&hvlocint=&hvlocphy=9003447&hvtargid=pla-643705944632&psc=1
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Search for applicable Court cases via your legal search tool (I use Westlaw Next) for type of provision you are looking for that was litigated. If it’s a federal case, you can then go on pacer.gov and download the pleadings, which likely will include the contract as an exhibit to the Complaint. If it’s a state case, you can similarly obtain it from electronic court records from that court or can request copies from the Clerk of that Court, usually for minimal costs. There are also various vendors that offer this service. (Thanks, Rob Powers!)
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Alt Legal (for scheduling various dates in licenses)
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If you want to hear more from Stephanie, check out Alt Legal’s Beyond the Docket interview with her last year: https://www.altlegal.com/blog/alt-legal-ip-docketing-blog/beyond-the-docket-stephanie-pottick