Licensing Advice from Chris Muggleton

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Giveaways and Promotions(Posted: 12-06-2009)

By Chris Muggleton

Hello!

Well for those that attended, I do trust you all survived Las Vegas and it was a good show.  I am looking forward to Richard updating me with tales of debauchery, not his of course, but those he witnessed as a bystander.

This month we will discuss the issue of Giveaways and Promotions.

Nothing causes more conflict during an audit, than when Licensed Articles have been given away free of charge or used in promotional activity without the prior consent of the Licensor.

So what are they?  As ever, our discussions are limited to the “mythical” Standard Merchandise License Agreement.  A Giveaway is self evident. It is where a Licensed Article has been distributed free of charge, either as gift, or as a “sweetener” for other products being purchased.  A Promotion in our limited context is where Licensed Articles are distributed free of charge as a means of promoting the Brand or are used as prizes in lotteries, sweepstakes or competitions.

It is imperative that any Giveaway and Promotions clause clearly prohibits either of the above practices without the prior written approval of the Licensor.

Are Royalties due?  In short yes, and where the Licensee had failed to get prior written approval, paying royalties maybe the least of their worries as they have breached the contract and damages could be owed.  The main problem is that a Licensor may not be aware such practices have happened until they have performed an Audit of the Licensee, as it is very rare for a Licensee to have declared they have distributed Licensed Articles free of charge. 

Obviously there are a number of steps that Licensors and Licensees can each do.

For Licensors, we would advise the following:

·          Review a Licensee’s declarations thoroughly, examine the units sold to the sales value and work out an average unit price if it is not included in the declaration. If there is an unusually low unit price, speak to the Licensee and ask for a written explanation.

·          Ensure that the Licensee has to report all movements of Licensee Articles, including samples and giveaways in their royalty declaration.

·          Request that the Licensee submit samples of products, packaging, and promotional material on a regular basis checking that none of these mention prizes or competitions that have not been approved.

For Licensees, we would advise the following:

·          Be upfront and open with the Licensor, talk to them about your sales practices get them to agree in writing to a level of giveaways, the royalty to be paid and whether those royalties can be off-set against the Minimum Guarantee already paid.

·          Report Giveaways separately, highlighting the issue so the Licensor can monitor.

·          With Promotions, again speak to the Licensor. They may wish to run a similar promotion and there could be mutual gains.

·          Finally, do not rely on the assumption that you will not be audited and/or the Licensor will accept the rationale that “giveaways are a cost of doing business as they drive sales”. They will however, accept that it is your cost of doing business and not theirs.

As ever we have only scratched the surface in this small space. However do feel free to get in touch should you require any further explanation. I can be reached at chris@licensingadvice.com

Next month I will discuss Assortments & Non Association.

Chris