Fashion Law : Fashion Lawyer & Attorney : Fox Rothschild Law Firm : Licensing, Intellectual Property

Guest post by Sidney Blum , CPA, CFE, CrFA, CFF, DAFBA, FACFEI, CPEA of Green Hasson & Janks

Part of the joy of the holiday season is preparing your new year resolutions and if your company has licensees, then now is the time to start planning your annual royalty audits, especially if your right to audit provisions will soon be expiring, and especially if they expire before the end of the year.    Here’s how:

First, review your agreement and income streams.  Have you been getting what you expected? 

Second, are your license agreements specific enough to allow for a royalty audit and what documents are to be provided during an audit?  Many licensees are only willing to produce the exact documents specified in an agreement.  A common auditing provision in licensing agreement will state, the royalty auditor can inspect the books and records that support sales.

However, royalty audits require the auditor to examine much more than sales records, such as inventory records, invoices, insurance coverage, sourcing, and perhaps other license agreements for most favored nation pricing.    

A better drafted provision would give the auditor sole discretion to examine all the documents considered relevant by the auditor in order to perform a complete royalty audit, including making personnel available for interviews and requiring the licensor to prepare special reports at the auditor's request.

Third, send written notification to your licensee that you and/or your auditing professional would like to schedule an audit.  If your agreement is not specific, never fear, you can try and use this audit scheduling request as an opportunity to get the specific records listed after the jump.  Sending out an audit notification letter might preserve your audit rights.  After you review the documents, you can actually determine if an on-site audit is needed.

Finally, make sure you follow through.  Over 90% of all licensees under report royalty.

That’s a lot dough not going to your bottom line.

Photo credit: prescription access litigation

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These days everyone seems to be enthralled with Fashion Licensing.  What is it?

Licensing is the process of "renting" your fashion company's intellectual property, generally its trademark, but sometimes its copyright, to another entity for a sum of money called royalties, for a certain period of time, for a certain product or category of products, for an agreed upon period of time within a certain territory.

If you answer yes to both the questions below, your fashion company is probably ready to start liscening: 

1. Does your company own its intellectual property (this will generally be your company' name and/or logo)? and
2. Is your company doing more than $30 Million in sales?

Why consider licensing?  Because every dollar earned goes directly to your company's bottom line.  Done right, licensing gives your company an opportunity for massive growth in a short amount of time, for minimal investment.

On the flip side, if you chose the wrong licensing deal or licensing partner, you will lose customers and all the goodwill you have built up your brand name. 

Is it worth the risk?  Yes.  If you do your homework, spend some time "dating" and make sure you have a good prenup.  Then, utilize the know-how of "specialists" to diversify your most valuable asset and create a revenue stream where one did not previously exist.  Liscensing will turn your fashion company into a lifestyle brand.

Photo Credit: A Reason to Write - India

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You have may heard the term direct to retail or DTR, but ever wonder what it is? It is a licensing relationship where retailer effectively becomes the licensee as well as the seller of the product. This means that the retailer pays a royalty to the licensor and sources licensed merchandise itself. The royalty to be paid can be based on the retail price or vendors' sales price (i.e., the retailer's cost). DTR deals often do not include a guarantee, but the marketing commitment is one of the key terms. Importantly, retailers make better margins on DTR products than the traditionally licensed goods.

Many well known companies such as Disney and Icoxic have been in the DTR game for awhile now. Disney was one of the first. In 2008, Iconix reported that 50% of its approximately 250 million in revenues in came from direct-to-retail arrangements. In 2009, the company projects that those numbers will increase, with 60% of its revenue coming form DTR.

So how do you get a DTR deal?

• Your company must have proven capabilities as a potential supplier or vendor to get in the door;
• Once in, make your pitch to fill an existing gap that you have identified in retailer’s portfolio and why you are perfect to fill it; and
• If you get the deal, remember that establishing a good relationship is the key to long term direct-to-retail success. With the DTR model, retailers generally want to establish long-term relationships on select brands, and once a partnership is formed, it's likely to sustain itself over time.

If the match is a good one, everyone wins. Why? Because when retailers work with their own suppliers, they can get product on the shelves more quickly, and it can be on trend. The minute a property is successful or a movie turns out to be a big hit, retailers can turn something around and have it in store in no time. And for the licensor, that means more money directly to your bottom line.

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