Brand Licensing Agreements Negotiating Key Deal Terms, Avoiding Common Pitfalls, and Maximizing Brand Value

Presenting a live 90-minute webinar with interactive Q&A

THURSDAY, SEPTEMBER 6, 2012 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

Today’s faculty features: Thomas Dover, Partner, Nossaman LLP, Los Angeles Kelly Payfer, Vice President - Licensing, Perry Ellis International, New York

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Brand Licensing Agreements: Negotiating Key Deal Terms, Avoiding Common Pitfalls, and Maximizing Brand Value

THOMAS DOVER KELLY PAYFER Brand Licensing Agreements: Thomas Dover Negotiating Key Deal Terms, Avoiding Partner; Chair, IP/Media Group Common Pitfalls, and Maximizing NOSSAMAN LLP Brand Value. [email protected] T 213.612.7879 THOMAS DOVER F 213.612.7801 KELLY PAYFER 777 South Figueroa Street, 34th Floor Los Angeles, CA 90017 Stafford Publications Thomas Dover provides cutting-edge legal strategies focused in the areas of Legal Publishing Group intellectual property, corporate transactions, advertising, and entertainment law. He provides licensing representation and intellectual property protection, both in the U.S. and internationally, and has assisted with over 100 "new media" licenses, 250 entertainment brand licenses, and 1,500 advertising agreements. Mr. Dover is dedicated to the intersection of digital content and I. Defining Brand distribution in our daily business and personal lives. He earned his LL.M. in a II. Intellectual Property Rights pioneering program for Media and Entertainment Law, and is the Chair of III. Key Deal Terms Nossaman's Intellectual Property and Media Practice Group. Mr. Dover's entertainment talent representation work includes continuing IV. Common Pitfalls management as well as negotiating high-value endorsement and licensing V. Best Practices transactions for a variety of entertainment, video gaming, and retail businesses. He has extensive experience with new technologies and was among the first attorneys pioneering the direct licensing and distribution of music and entertainment content via the internet and mobile platforms. He represents entertainment production and distribution companies, internet/digital platform distributors, and video gaming/content developers on transactional and litigation matters. Mr. Dover lectures widely on industry topics and serves as Adjunct Professor of Law at the Thomas Jefferson School of Law.

6 Brand Licensing Agreements: Negotiating Key Deal Terms, Avoiding I. Defining Brand Common Pitfalls, and Maximizing Product Defined. Brand Value. Corporate Identity.

Entertainment Property. THOMAS DOVER KELLY PAYFER Advertising Initiatives. Celebrity, personality, and similar. Stafford Publications Legal Publishing Group

I. Defining Brand II. Intellectual Property Rights III. Key Deal Terms IV. Common Pitfalls V. Best Practices

7 Brand Licensing Agreements: Negotiating Key Deal Terms, Avoiding I. Defining Brand Common Pitfalls, and Maximizing Product Defined. Brand Value. Corporate Identity.

Entertainment Property. THOMAS DOVER KELLY PAYFER Advertising Initiatives. Celebrity, personality, and similar. Stafford Publications Legal Publishing Group

I. Defining Brand II. Intellectual Property Rights III. Key Deal Terms IV. Common Pitfalls V. Best Practices

8 Brand Licensing Agreements: Negotiating Key Deal Terms, Avoiding I. Defining Brand Common Pitfalls, and Maximizing Product Defined. Brand Value. Corporate Identity.

Entertainment Property. THOMAS DOVER KELLY PAYFER Advertising Initiatives. Celebrity, personality, and similar. Stafford Publications Legal Publishing Group

I. Defining Brand II. Intellectual Property Rights III. Key Deal Terms IV. Common Pitfalls V. Best Practices

9 Brand Licensing Agreements: Negotiating Key Deal Terms, Avoiding I. Defining Brand Common Pitfalls, and Maximizing Product Defined. Brand Value. Corporate Identity.

Entertainment Property. THOMAS DOVER KELLY PAYFER Advertising Initiatives. Celebrity, personality, and similar. Stafford Publications Legal Publishing Group

I. Defining Brand II. Intellectual Property Rights III. Key Deal Terms IV. Common Pitfalls V. Best Practices

10 Brand Licensing Agreements: Negotiating Key Deal Terms, Avoiding I. Defining Brand Common Pitfalls, and Maximizing Product Defined. Brand Value. Corporate Identity.

Entertainment Property. THOMAS DOVER KELLY PAYFER Advertising Initiatives. Celebrity, personality, and similar. Stafford Publications Legal Publishing Group

I. Defining Brand II. Intellectual Property Rights III. Key Deal Terms IV. Common Pitfalls V. Best Practices

11 Brand Licensing Agreements: Negotiating Key Deal Terms, Avoiding I. Defining Brand Common Pitfalls, and Maximizing Product Defined. Brand Value. Corporate Identity.

Entertainment Property. THOMAS DOVER KELLY PAYFER Advertising Initiatives. Celebrity, personality, and similar. Stafford Publications Legal Publishing Group

I. Defining Brand II. Intellectual Property Rights III. Key Deal Terms IV. Common Pitfalls V. Best Practices

12 Brand Licensing Agreements: Negotiating Key Deal Terms, Avoiding II. Intellectual Property Rights Common Pitfalls, and Maximizing Trademark. Brand Value. Copyright.

Patent. THOMAS DOVER KELLY PAYFER Trade Secret. Right of Publicity. Stafford Publications Legal Publishing Group The term “trademark” includes any word, name, symbol, or device, or any combination thereof--

(1) used by a person, or

(2) which a person has a bona fide intention to use in commerce and I. Defining Brand applies to register on the principal register established by this chapter, II. Intellectual Property Rights to identify and distinguish his or her goods, including a unique product, III. Key Deal Terms from those manufactured or sold by others and to indicate the source of the IV. Common Pitfalls goods, even if that source is unknown. V. Best Practices 15 USCA Sec. 1127 [Emphasis added]

13 Brand Licensing Agreements: Negotiating Key Deal Terms, Avoiding II. Intellectual Property Rights Common Pitfalls, and Maximizing Trademark. Brand Value. Copyright.

(1) used by a person, or

Distinctiveness requirement: (1) arbitrary or suggestive marks, or (2) descriptive marks with secondary meaning.

14 Brand Licensing Agreements: Negotiating Key Deal Terms, Avoiding II. Intellectual Property Rights Common Pitfalls, and Maximizing Trademark. Brand Value. Copyright.

(1) used by a person, or

Distinctiveness requirement: (1) arbitrary or suggestive marks, or (2) descriptive marks with secondary meaning.

BRANDING ISSUES: (1) TITLES OF ARTISTIC WORKS (not in a series). (2) INDIVIDUAL CHARACTERS/ACTOR’S PORTRAYAL. (3) CELEBRITY NAMES/LIKENESS.

15 Brand Licensing Agreements: Negotiating Key Deal Terms, Avoiding II. Intellectual Property Rights Common Pitfalls, and Maximizing Trademark. Brand Value. Copyright.

Patent. THOMAS DOVER KELLY PAYFER Trade Secret. Right of Publicity. Stafford Publications Legal Publishing Group COPYRIGHT: 1. Compare to TM: A. Term of Protection: Indiv – life + 70; Work/Hire – 95/120 I. Defining Brand B. Protects against copying regardless of ad “comparison.” II. Intellectual Property Rights C. Consider: Mickey Mouse as artistic work. III. Key Deal Terms 2. Use in Entertainment/character licenses. IV. Common Pitfalls 3. Separate Cause of Action for grey market infringement. V. Best Practices

16 Brand Licensing Agreements: Negotiating Key Deal Terms, Avoiding II. Intellectual Property Rights Common Pitfalls, and Maximizing Trademark. Brand Value. Copyright.

Patent. THOMAS DOVER KELLY PAYFER Trade Secret. Right of Publicity. Stafford Publications Legal Publishing Group PATENT: 1. Compare to TM: A. Term of Protection: 20 years/filing date or earliest priority date. I. Defining Brand B. Protects against any marketing, manufacture & distribution. II. Intellectual Property Rights C. Consider: Design patent. III. Key Deal Terms 2. Use in apparel, consumer electronics, etc. IV. Common Pitfalls 3. Separate Cause of Action for grey market infringement. V. Best Practices

17 Brand Licensing Agreements: Negotiating Key Deal Terms, Avoiding II. Intellectual Property Rights Common Pitfalls, and Maximizing Trademark. Brand Value. Copyright.

Patent. THOMAS DOVER KELLY PAYFER Trade Secret. Right of Publicity. Stafford Publications Legal Publishing Group TRADE SECRET: 1. Compare to TM: A. Generally protects manufacture-specific know-how, client lists, and marketing plans/processes. I. Defining Brand II. Intellectual Property Rights B. Limited value for licensee against infringement. Licensor typically encounters issues re proof of infringement and III. Key Deal Terms damages. IV. Common Pitfalls 2. Use in manufacturer environment not otherwise protected by patent. V. Best Practices 3. Separate Cause of Action for grey market infringement.

18 Brand Licensing Agreements: Negotiating Key Deal Terms, Avoiding II. Intellectual Property Rights Common Pitfalls, and Maximizing Trademark. Brand Value. Copyright.

Patent. THOMAS DOVER KELLY PAYFER Trade Secret. Right of Publicity. Stafford Publications RIGHT OF PUBLICITY: Legal Publishing Group 1. Compare to TM: A. Generally protects name, likeness, voice, etc. of a person (typically a personality or celebrity). B. Term of Protection: See chart. I. Defining Brand C. State-created right.. II. Intellectual Property Rights 2. Separate Cause of Action for grey market infringement. III. Key Deal Terms IV. Common Pitfalls NY NY CA CA INDIANA Civ Rts Civ Rts CC §3344 CC §32-36-1-1 V. Best Practices §50 §51 §3344.1 to -20 Protection: X X X X Living

Dead X X

Transfer of X X Right

Term Life + 70 Life + 100

19 Brand Licensing Agreements: Negotiating Key Deal Terms, Avoiding II. Intellectual Property Rights Common Pitfalls, and Maximizing BRANDING ISSUES: Brand Value. (1) TITLES OF ARTISTIC WORKS (not in a series). THOMAS DOVER (2) INDIVIDUAL CHARACTERS/ACTOR’S PORTRAYAL. KELLY PAYFER (3) CELEBRITY NAMES/LIKENESS.

Stafford Publications TITLES OF ARTISTIC WORKS (not in a series). Legal Publishing Group Not protectable as TRADEMARKS. As a practical matter, titles of mass distributed works are often accompanied by merchandising where the title may be protectable. I. Defining Brand II. Intellectual Property Rights III. Key Deal Terms IV. Common Pitfalls V. Best Practices

20 Brand Licensing Agreements: Negotiating Key Deal Terms, Avoiding II. Intellectual Property Rights Common Pitfalls, and Maximizing BRANDING ISSUES: Brand Value. (1) TITLES OF ARTISTIC WORKS (not in a series). THOMAS DOVER (2) INDIVIDUAL CHARACTERS/ACTOR’S PORTRAYAL. KELLY PAYFER (3) CELEBRITY NAMES/LIKENESS.

Stafford Publications INDIVIDUAL CHARACTERS/ACTOR’S PORTRAYAL. Legal Publishing Group Character = copyright Actor = right of publicity

License of Actor portraying Character = ? It depends. Best practice: I. Defining Brand ensure that licensee has rights of both the character, actor, and any II. Intellectual Property Rights trademark attached to either due to other/prior merchandising. III. Key Deal Terms IV. Common Pitfalls V. Best Practices

21 Brand Licensing Agreements: Negotiating Key Deal Terms, Avoiding II. Intellectual Property Rights Common Pitfalls, and Maximizing BRANDING ISSUES: Brand Value. (1) TITLES OF ARTISTIC WORKS (not in a series). THOMAS DOVER (2) INDIVIDUAL CHARACTERS/ACTOR’S PORTRAYAL. KELLY PAYFER (3) CELEBRITY NAMES/LIKENESS.

Stafford Publications CELEBRITY NAMES/LIKENESS: Legal Publishing Group Issue: Protection is state-created, not consistent among the states. International is also a patchwork of inconsistent protection. Licensor best-practice: secure trademark and service mark (endorsement I. Defining Brand services) for the celebrity. II. Intellectual Property Rights Licensee best-practice: do your homework regarding distribution territory protection and ensure that the license includes reps/warranties for III. Key Deal Terms those territories. Do not rely on licensor alone. IV. Common Pitfalls V. Best Practices

22 Brand Licensing Agreements: Negotiating Key Deal Terms, Avoiding III. Key Deal Terms Common Pitfalls, and Maximizing Brand Value.

THOMAS DOVER KELLY PAYFER

Stafford Publications Legal Publishing Group

I. Defining Brand II. Intellectual Property Rights III. Key Deal Terms IV. Common Pitfalls V. Best Practices

Fashion

Direct-to- Entertainment Retail (DTR) Licensing

Brand

25 THE LICENSING PROCESS

•research brand recognition level Finding the •identify brand’s core characteristics right clients •identify logical product mix

Finding •match brands to partners •making a good match/finding Licensees that “get” the Licensees brand and are capable of selling in the brand’s market

Negotiating the Term Sheet

26 Licensing Term Sheet o Product Category: this should be in as much detail as possible so as to clearly define the

boundaries of the category (i.e. “ladies’ footwear” rather than “footwear”), as well as to

reserve rights to license out to other companies or add on to the Licensee’s agreement later o Territory: Again, should be clearly defined and limited to the territory the Licensee

intends/has capabilities to sell. New territories can always be added later. o Channel of Distribution: generally limited to retailers the Licensor sells to. Other retailers

(specialty stores, boutiques etc.) need to be approved by the Licensor in writing o E-Commerce, Flash Sites: also need to be approved by Licensor o Type of Contract: License o Rights to sub-license: in fashion, generally not allowed

27 o Contract Dates/Length: standard is three years, sometimes 5 years for footwear or

fragrance o Renewals: renewal terms are not generally negotiated in advance, but thresholds for renewal

can be set out at the time of the initial agreement. o Royalty Formula: Royalties are generally paid on Net Sales. The definition of Net Sales

can vary but is generally defined as gross sales minus allowable deductions (which can

include taxes, trade discounts, allowances and returns up to an agreed-upon percentage) o Amt Due Upon Execution: Usually 25%- 50% of the Year 1 Guaranteed Minimum Royalty o Payment Periods: Usually quarterly, based on calendar year, with statements and payments

due 30 days after end of quarter.

28 o Dedicated Design Personnel: “dedicated” vs. “exclusive” o Dedicated Sales Management: “dedicated” vs. “exclusive” o Dedicated Licensor Showroom: need an area reflecting the brand

aesthetic o Design Approval: Very important for Licensor to implement and control

approval process o Design Rights: Licensor sometimes reserves the rights to use the

approved Designs outside of the Territory

29 o Promotional Product: Licensee to supply Licensor at no cost with a

certain amount at wholesale each year for promotional purposes o Q.C. how managed: QC/Social Compliance practices o Advertising and Marketing Approval: Necessary in order to control

brand image o Request for financial statements/Auditing: Need a structure in place for

audits

30 Licensing Minimums

INITIAL TERM GMS ROYALTY GMR ADV CONT. GMAR RATE RATE

YEAR 1 $ 1,000,000 8% $ 80,000 2% $ 20,000

YEAR 2 $ 1,500,000 8% $ 120,000 2% $ 30,000

YEAR 3 $ 2,000,000 8% $ 160,000 2% $ 40,000

GMS= Guaranteed Minimum Sales

GMR= Guaranteed Minimum Royalty

GMAR= Guaranteed Minimum Advertising Royalty (paid to Licensor)

31 Brand Licensing Agreements: Negotiating Key Deal Terms, Avoiding IV. Common Pitfalls Common Pitfalls, and Maximizing Ownership – Copyright reversion right. Brand Value. Selling in unauthorized channels and territories

Misuse of Logos and Marks THOMAS DOVER KELLY PAYFER Bankruptcy/Non-payment of Royalties Licensor BK, 11 USCA Sec. 365(n) Stafford Publications Licensee BK, Security Interest in TM Legal Publishing Group

Ownership – Copyright reversion right. I. Defining Brand Generally, a Copyright owner may terminate a license or grant of rights at any time during a period of 5 years commencing at the expiration of II. Intellectual Property Rights 35 years from the date of the grant. 17 USC 203. III. Key Deal Terms Note: Compare pre-76 act (Jan. 1978) – calculate termination date. IV. Common Pitfalls Note: The owner must strictly comply with a statutory notice V. Best Practices requirement. Best Practice: Always…conduct your own chain of title review. “Next best” Practice: Specifically call out copyright reversion representations in the license agreement requiring the licensor to warrant that they have (1) disclosed all ownership and rights and (2) own the rights granted for the entirety of the term.

32 Brand Licensing Agreements: Negotiating Key Deal Terms, Avoiding IV. Common Pitfalls Common Pitfalls, and Maximizing Ownership – Copyright reversion right. Brand Value. Selling in unauthorized channels and territories

Misuse of Logos and Marks THOMAS DOVER KELLY PAYFER Bankruptcy/Non-payment of Royalties Licensor BK, 11 USC Sec. 365(n) Stafford Publications Licensee BK, Security Interest in TM Legal Publishing Group

Selling in unauthorized channels and territories I. Defining Brand • Generally, Licensees are allowed to sell to the same II. Intellectual Property Rights retailers/channels as Licensor. Any requests to sell outside these channels must be made and approved in writing III. Key Deal Terms • Licensees selling in unauthorized channels can damage the IV. Common Pitfalls reputation and image of the brand V. Best Practices • Selling in unauthorized territories can interfere with the core brand's expansion plans • Licensor must also check on TM registrations before authorizing sales to a new territory; if a Licensee sells without authorization it can possibly be without that class being registered in that territory • Penalties can range from warning to termination of License Agreement with the Licensee responsible for payment of guaranteed minimums over the balance of the Agreement

33 Brand Licensing Agreements: Negotiating Key Deal Terms, Avoiding IV. Common Pitfalls Common Pitfalls, and Maximizing Ownership – Copyright reversion right. Brand Value. Selling in unauthorized channels and territories

Misuse of Logos and Marks I. Defining Brand • Licensees are generally issued guidelines on logo/mark usage when II. Intellectual Property Rights starting development III. Key Deal Terms • Misuse of logos and marks can hurt the overall brand image- consistency is important! IV. Common Pitfalls • Very important that all products developed by Licensee are reviewed V. Best Practices and approved by Licensor to ensure brand consistency • Misuse can also interfere with the registered logos/marks of other brands, causing confusion and inviting legal action

34 Brand Licensing Agreements: Negotiating Key Deal Terms, Avoiding IV. Common Pitfalls Common Pitfalls, and Maximizing Ownership – Copyright reversion right. Brand Value. Selling in unauthorized channels and territories

Bankruptcy – Licensee: I. Defining Brand TM, Copyright, and Patent Licenses are “Assets” of a bankrupt estate II. Intellectual Property Rights and are assumable or may be rejected under the Bankruptcy Code. III. Key Deal Terms 1. Licensor can file a Motion to Compel rejection or assumption. IV. Common Pitfalls 2. Licensor can file a Motion to Determine Rights (generally termination) V. Best Practices under a license. 3. Assignability of the license is an unsettled area and is largely determined by the nature of the license, the ability of the assignee to provide “adequate assurances” that it can perform under the license. Generally, licensor must acknowledge and agree to the assignment. 4. Consider: sale of a trademark must accompany sufficient assets to ensure the transfer of the goodwill of the business to avoid an assignment in gross.15 USC 1060.

35 Brand Licensing Agreements: Negotiating Key Deal Terms, Avoiding V. Best Practices Common Pitfalls, and Maximizing Designer Agreements. Brand Value. Gray Market.

THOMAS DOVER Internet Distribution. KELLY PAYFER

Stafford Publications Designer Agreements – Individual/Named Labels licensed to Manufacturer. Legal Publishing Group Rights – TM, Right of Publicity, and rights to designs/materials. Royalty – range 8% to 11%+

Defined by “Net” – negotiate to exclude chargebacks due to failure to I. Defining Brand follow vendor agreement, packaging/shipping requirements, and II. Intellectual Property Rights defectives. III. Key Deal Terms Advance – 25% to 50% upon acceptance of each PO. IV. Common Pitfalls Authorized Retailers. V. Best Practices Approvals – POs/pricing. samples: pre-production, top of production, and retailer sample. Termination – sell-off, often allow manufacture/distribution of new PO’s if in negotiation at time of termination. Insurance.

36 Brand Licensing Agreements: Negotiating Key Deal Terms, Avoiding V. Best Practices Common Pitfalls, and Maximizing Designer Agreements. Brand Value. Gray Market.

THOMAS DOVER Internet Distribution. KELLY PAYFER

Stafford Publications Gray Market = genuine goods, manufactured by owner or authorized Legal Publishing Group licensee, but not intended to be imported into the US. Section 526 of the Tariff Act of 1930 – Prevents the Importation of Infringing & Counterfeit Goods. 19 USC 1526

I. Defining Brand K-Mart v. Cartier (1988) – parallel imports are prohibited where the US company (1) acquires or licenses a mark from a foreign manufacturer II. Intellectual Property Rights for distribution in the US or (2) owns the US mark and licenses a III. Key Deal Terms foreign manufacturer for distribution outside the US. IV. Common Pitfalls But…foreign subsidiary manufacturers or distributors of US mark owners may produce and import product. Imports originating from foreign V. Best Practices “affiliate” not prohibited. Still very much unsettled.

37 Brand Licensing Agreements: Negotiating Key Deal Terms, Avoiding V. Best Practices Common Pitfalls, and Maximizing Designer Agreements. Brand Value. Gray Market.

THOMAS DOVER Internet Distribution. KELLY PAYFER

Stafford Publications Internet Distribution: Legal Publishing Group 1. Territorial Restrictions. 2. Sales v. Marketing v. Informational purposes.

3. “Sub” license to e-commerce provider with marketing rights? I. Defining Brand

II. Intellectual Property Rights III. Key Deal Terms IV. Common Pitfalls V. Best Practices