Learn about Licensing Contracts

Contracts between brand owners (licensors) and manufacturers (licensees) vary from deal to deal, depending on what the counterparties bring to the table, the economics of the industry segment and other special considerations.

As an example, a manufacturer with a very strong distribution network may demand a lower royalty rate, but would offset this by providing higher minimum guarantees or an advance on royalties. An extremely strong brand owner may demand a much higher advance and royalty, but may provide the manufacturer an exclusive for the product line or geography.

In addition to the general “legalese” stuff, the following are typical terms in a brand licensing agreement:

Brand

What is being licensed?
Name, trademark, logo, content, artwork.

Product

What products are included in the license?
Examples: t-shirts, caps, posters, toys.

Distribution Channels

What types of distributions channels will be allowed?
Retail, big box stores, boutiques, online, sub-distributors.

Territory

Geography of the agreement.
By country (U.S., Canada) or by region (Americas, Europe, Asia).

Royalty

Most deals are negotiated between 5-15 percent, with 10% fairly typical.
As an example, major studio properties have more negotiating leverage then lesser known brands.

Minimum Guarantees

Minimum sales figures, which translates to minimum royalties.
Typically, annual guarantees with quarterly payments.

Advances

Stronger brands may ask for an upfront advance on royalties.
Additional royalties are paid only after the advances have been recovered.

Exclusivity

Licensee may ask for exclusive rights to a product.
May be exclusive for a territory or distribution channel.

Term

Length of the agreement
Typically 3-5 years, with 3 the most common