Character License Exclusivity: Like Moths to the Flame
You've seen the pitch at The Licensing Show from the independent licensing agent representing Colossal Studios for its new second sequel in a series of theatrical motion pictures based on "The Moth", a comic-book hero who also appeared in a TV series that's no longer on air and in two earlier theatrical releases, "Moth 1: Larva My Life" and "Moth 2: Pupa's Got a Brand New Bag".
The second sequel is said to include a breakout performance by the new Oriental pre-teen idol, Wing Ling, and you're sure that a licensed category of "Moth" action figures and accessories would be a great addition to your line. One of your competitors had the property for the first two pictures, but their recent venture into e-commerce has left them insolvent and the rights to "Moth 3: Coming Out Party" (working title) are available.
The agent has pitched you hard, and you have decided to make a proposal for exclusivity in your product categories. As you are deciding what levels of advance, guaranty and royalty rate to offer, here is another thing to ask yourself: When I pay for exclusivity, will I get it?
Who controls "the Property"?
You're talking with an agent representing a movie studio distributing a picture made by an independent production company based on a character created by an artist/writer made famous by a comic book publisher on which a TV series was based. When the agent tells you he will give you exclusivity for "Moth 3", what does that mean?
Let's assume that "Moth 3" is going to be a huge success, and one or more of your competitors would love to market an action figure line that could ride your coattails. Can anyone along the chain starting with the artist and ending with the studio also sell a license to "Moth 3"? Probably not, assuming you're dealing with a reputable agent, but that isn't your only concern.
Might the artist retain rights to unpublished forms of the hero character that could be licensed to your competitor? Their figures might not use the likeness of Wing Ling or the title "M3: Coming Out Party", but if they're sold in the action figure aisle in packages called "The Moth", you might wish they weren't.
The same questions apply all the way along the chain. Can the:
- Comic publisher license comic-based figures?
- TV producer license TV-based figures?
- Studio license figures based on "Moth I" or "Moth II"?
In order to be sure that your "Moth 3" figures aren't merchandised against any of these others, you will need due diligence and appropriate contract language, possibly including signoffs from other members of the chain of property.
What are your "Exclusive Products"?
Your proposal described to the agent your concept for a first-year line of 5-inch figures with 3 scaled vehicles, 2 playsets and a sculpted carry case. The draft agreement that you received says you have exclusive rights for "5-inch articulated action figures, toy vehicles and playsets scaled to the figures and hard-sided carrycases sculpted in the form of a moth's body".
Is this the exclusivity you want? Not if you would object to your competition selling a licensed line of "Moth 3: Coming Out Party" 3-inch or 7-inch or 12-inch articulated figures and accessories or a line of bendable figures, or a flat-sided or soft-sided carry case, all of which might bear "Moth III" artwork (including Wing Ling's likeness). None of these would be precluded if your rights are defined as above.
What are your "Channels of Trade"?
If the draft agreement says that you have exclusivity for "National Discount/Mass Retailers, Regional Discount/Mass Retailers, Chain Toy Stores and Toy Wholesalers" do you have the exclusivity you want? Not if you would object to a competitor's licensed "Moth 3: Coming Out Party" products showing up in Warehouse Clubs, Chain Drugstores, Non-Chain Toy Stores, Hobby Stores, Gift and Specialty Stores, etc., etc. And in this case, the competing products can be identical to yours. The concept of parsing the various wholesale and retail outlets this way is a fairly recent development, but one enterprising licensor has already divided the marketplace into more than 75 such channels and in fine print says that all channels not specifically licensed to you are reserved for exploitation with "similar or identical products".
What about Premiums?
Many character licenses reserve QSR and other premiums to the licensor. It doesn't matter whether you sell toys, tee shirts or tire irons - if someone is giving away millions of a substitute product, how successful will you be in selling yours? You may be able to leverage concessions that will protect your line to some extent, but first you have to be aware of this crucial exception to your exclusivity, and if you don't see it in the draft, look again. It wears too many disguises to list in this initial article, and it's probably somewhere in the draft.
This article addresses only a few of the ways your "exclusivity" might metamorphose into something else. Your ability to identify and understand these limitations and "loopholes" should enable you to negotiate proper protections for your product line and/or adjustments to your financial commitments for the license.
Future articles will help you identify other ways your rights might be diluted as well as how to recognize and avoid "hidden costs" in your license agreements.
The writer is a veteran of 20 years representing licensors and licensees in negotiating entertainment, sports, artwork, brand, invention and technology agreements. Mr. Kipling is currently with Frost Brown Todd LLC in Cincinnati, Ohio and can be reached at firstname.lastname@example.org, (513) 651-6101.