Your frequently asked questions get answered...
From what brand licensing is, to the different types of contracts and how it benefits everyone involved, find out the answers to some of the most asked questions in licensing.
What is brand licensing?
Brand licensing is an agreement between a brand owner and a retailer or manufacturer to use a licensed property on their product range. This agreement can apply to any product category in any territory for any given time period and is beneficial to both the brand owner and the licensee.
What is intellectual property?
Intellectual property can often be referred to as the ‘property’ or IP. In terms of brand licensing, this label covers all categories including but not limited to film, book or television characters, a television show or movie franchise, celebrities, a name or signature, sports clubs, players, stadiums, museum and heritage institutions, logos, art and design collections and food, lifestyle and fashion brands.
What is a...?
A licensor is the owner of the intellectual property, or brand.
A licensing agent is the company appointment by the licensor to manager the licensing programme of a particular IP.
A licensee is the party – whether manufacturer, retailer, service provider or promotional agency – that is granted the rights to use the IP.
What is a licensing agreement?
A licensing agreement is the legal document signed by a licensor and licensee that provides the licensee the right to use the IP in association with a product, for an agreed period of time, within an agreed territory.
There are 3 main types of licensing agreements:
Standard licensing agreement
This is the most common type of licensing agreement and means that the licensee is free to sell their products to any customers within the agreed parameters of a deal. The general rule is the more product categories you have, the broader your customer base, and the more countries you can sell to, which results in the greater likelihood of sales and royalties.
Triangle sourcing licensing agreement
In a triangle licensing agreement, the retailer and supplier effectively agree an exclusive arrangement. The supplier (licensee) may take on the legal responsibility (the contract with the licensor is usually in their name) but the retailers will be equally bound to buy their merchandise. This minimises risk for the licensee and allows them to give the retailer a little bit more margin. A variant is where the licensee works with different retailers and their nominated suppliers.
Direct to retail (DTR) licensing agreement
In direct to retail licensing agreements, the licensor has an agreement directly with the retailer, who will then source products from their supply chain and pay the licensor any royalties due. Retailers benefit from using their own supply chain, helping to optimise margins, while licensors have some security in knowing the products will be available in stores.
What is a non-exclusive licensing agreement?
A non-exclusive licensing agreement grants the licensee the right to use an IP, but it also means that the licensor is free to allow any other number of licensees to do the same. Unless you’re paying a very high guarantee, most licensing agreements are non-exclusive, however it is unlikely that a licensor would compete against themselves and sign more than one licensee for the same product type.
What is an exclusive licensing agreement?
An exclusive licensing agreement permits only the licensee and licensor to produce products with an agreed IP.
What are royalties?
Royalties is the money paid to the licensor (or collected by the licensing agent on their behalf), usually paid on gross sales with certain limited deductions.
What is an advance payment?
In licensing, it can take many months from signing a deal to a product being made and distributed in stores. An advance against royalties is usually paid by the licensee to the licensor upon signing the contract, which is offset against future royalty payments.
What is a minimum guarantee?
A minimum guarantee is an amount of prepaid royalties that a licensee is contractually obliged to pay a licensor that is not dependant on if they sell any products. It is typically calculated by taking a percentage of the licensee’s estimated royalties for the entire term of the licensing agreement.
What are the benefits of brand licensing for a brand owner?
As a brand owner, licensing your properties brings many benefits, including:
- The ability to expand into new territories without the high start-up costs and need for local knowledge
- You can partner with experts in their field and easily expand into product categories without the need to build a new development processes and factory lines
- You could also take up more aisles in stores, further increasing the reach of your brand and potential for revenue
- Licensing also grows your brand exposure and encourages more interaction with your properties
- You will receive royalty payments for the use of your properties
What are the benefits of brand licensing for a retailer?
In the first quarter of 2017, the Retail Gazette reported that retail sales were seeing a decrease across the board. Despite this, the growth in sales of licensed products, which according to LIMA reached $262.9 billion in 2016, is offering retailers a great way to drive revenue.
There are many benefits for retailers engaging in licensing, including:
- Increased excitement and engagement – licensing can create a buzz in store with bright engaging designs and concepts
- Brands also bring with them a loyal fan base which can increase sales and encourage cross-category purchases
- Working with leading brand owners, you can secure exclusive rights to a brand or product offering and stand out from your competitors, becoming the destination
What are the benefits of brand licensing for a manufacturer?
As a manufacturer, stepping into the world of brand licensing can elevate your products. There are many benefits including:
- Product differentiation from your competitors – partnering with a brand will make you stand out on retail shelves
- You can also see increased sales – your products won’t only appeal as a product in themselves, but will also bring a loyal fan base of the property
- You can become an expert in your field – build up a reputation and be the manufacturer of choice for many leading brands
How to get into brand licensing?
There are different routes into the lucrative world of brand licensing depending on your position and what you’re looking to achieve.
- If you’re the creator of a brand or design, you can secure the rights to your work and own the IP you have created. You will then be able to start working with manufacturers and retailers of your choice and distribute your products to customers.
- If you’re a manufacturer who’d like to start producing licensed consumer goods, you will need to start conversations with the brand owners whose property you’re interested in and pitch why you’d be a good fit and what you can achieve together.
If you’re new to the industry, Brand Licensing Europe can be a great starting point. Bringing together 7,500 retailers and licensees with 280 brand owners, it’s your opportunity to learn from the experts in various seminar sessions, discover the latest trends and network with the industry. Registration to attend as a visitor is free, and if you’re looking for opportunities to showcase your work there are still stand options available to suit any budget.