MERCHANDISING AND LICENSING

Makingsenseof the law
M E R C H A N D I S I NAGN D
LICENSING
ByAmyB. Goldsmith,
Esq.
Toys.
A ctionfigures.Dinnenrvare.
Whatdo these
/-\ Mugs.Jewelry.
itemshavein common?Eachcanbe an
importantpartof an integrated
plan,designed
merchandising
to
promotea commonbrandnameandto
sellthe itemsthemselves.
In thisarticle,
we'lldiscussstepsa companyshould
taketo protectits brandand the benefits
of designing
andimplementing
a
plan.
merchandising
The latestexampleof merchandising
successis apparentin everybookstore,
theatreanddepartment
store- the
phenomenon
of HarryPottero.Author
J.K.Rowlingbeganwitha seriesof
booksregardinga youngwizardnamed
HarryPotterandthe popularity
of the
bookshas brokenrecords.Evena
moviehascometo fruition.The
possibilities
for licensing
and
merchandising
areimmense,
butwhat
do we meanby licensing
and
merchandising,
andhowis a plan
established?
plancan
A successful
merchandising
drawattention
to a primaryproductand
increase
its sales.Today'sconsumers
havebeenbroughtup in a worldwhere
Amy B. Goldsmithis a paftner of the New
York City intellectual property law firm of
Goftlieb,Rackman & Reisman,P.C. and is a
frequentlecturerand author of articleson
patents,trademarks,copyrightsand trade
dress issues. She can be contacted at
[email protected].
theyexpect
thata popular
themeor
brandwillbe
reflectedin
commercial
products.
lt
began
decadesago
withthe
popularity
of
Supermano
comicbooks,
whichis an
exampleof a venerable
successful
plan.Brandownershave
merchandising
knownfor quitea whilethatmaximizing
the notoriety
of the brandthrough
collateral
items(suchas actionfigures,
papergoods,mugs,etc.),willserveto
increase
salesandkeepa themealivein
the public'smind.Today,consumers
whobuythe HarryPottero booksand
viewthe moviesexpectthata wide
rangeof products
willbe available
for
theirpurchase.
To date,thetrademark
hasbeenregistered
beforethe U.S.
TrademarkOfficefor a widerangeof
goods,including
apparel,footwear,
photo
headgear,
bags,books,figurines,
frames,toysandsportinggoods,and
evenglass,ceramicandearthenware
goods,namely,mugs,bowls,plates,
cups,beverage
ware,cookiejars,
buckets,servingutensils,
thermal
insulated
for foodor
containers
beverages,
anddinnerware,
including
paperplatesandpapercups.Harry
Pottertablewarefirstappearedon the
marketin August,2000.
However,a companydoesnot needto
havea famousbrandin orderto reap
plan.As
rewardsfroma merchandising
a tablewaremanufacturer,
therearea
numberof products
a companymay
primarygoodsand
offerto complement
keepa brandin the mindof existingand
prospective
clients.
Trademarkchoiceand protection
Thefirststepis to choosethe brand
underwhichto marketthe varietyof
goodsandservices
whichwillbecome
partof themerchandising
plan.lf a
companyis wellknownin the industry
undera particular
trademark,
thenthatis
the brandto choose.The nextstepis to
choosethe products.
Manycompanies
beginwithrelatively
inexpensive
productsto giveawayto favored
lf the productsare popular,
customers.
thenexpansion
intosalesis natural.
Whatproducts
shouldbe considered?
Writinginstruments
andphotoframes
commonly
seen
in majordepartment
are
storesadjacentto thetableware
display.
Oncethe brandandthe productsare
chosen,it is essential
to conducta
trademark
screening
searchto
determine
whetherthe brandis available
for usein the marketplace
andcanbe
registered
beforethe U.S.Trademark
Office.We haveexplained
thisprocess
beforein thiscolumn(seeourarticles,
"Understanding
theTrademark
Process",Februa,ry/March
Application
2000and"NewProtection
for Famous
Trademarks",
December/January
1999).
Onceagainwe reiteratethatfederal
protectsthem
registration
of trademarks
gives
perpetual
nationwide
and
ownership
as longas thetrademark
is in
use.
Manufacturing
and licensing
negotiations
Anycompanymaynot havethe abilityto
manufacture
andmarketa widevariety
of collateralproducts.So the fourthstep
is to choosea reliablemanufacturer,
decideuponthetargetmarket(i.e.highenddepartment
storesor mailorder
catalogs)
andenterintoa license
agreement.lf a manufacturer
is
required
onlyto providethetrademark
ownerwiththe products,
whichthe
ownerwillthenintroduce
to the
marketplace,
thennegotiations
willbe
relativelystraightforward.
Notethat
underno circumstances
should
negotiations
beginwithoutconducting
a
screening
searchandfilinga trademark
application
to protectthetrademark.
lf
foreignterritories
are beingconsidered,
thenthisprocessmustbe followedin
eachcountry.
Basicinformation
abouta few
manufacturers
shouldbe acquiredprior
to selecting
one,including
a listof other
for whomit hasproduced
companies
andmarketed
thesetypeof products,
andan understanding
of its marketing
capabilities.
Withrespectto the latter,an
inquiryshouldbe madeas to whether
the manufacturer
hasestablished
relationships
withthe segmentof the
marketbeingtargeted.
An off-price
companywouldnot be a goodfit witha
plandirectedto large
merchandising
department
stores.Beforenegotiating
withpotential
manufacturers,
each
manufacturer
to sign
shouldbe required
a
Non-disclosure
andConfidentiality
protecting
Agreement,
thetrademark
owner'sinterests.Next,a visitto the
officesof the manufacturer
to meetwith
the personnelresponsible
for
manufacture
andmarketing
of the
products
shouldbe arranged.Lastly,
requesting
a businessplanfroma
prospective
is an excellent
manufacturer
methodof determining
if the
manufacturer
is the rightone.The
planshouldincludeannual
business
salesprojections,
advertising
budgets,
strategies,
distribution
andanticipated
promotions
andadvertising,
including
proposed
(i.e.
print,
media television,
the
Internet).
Afterselecting
the manufacturer
and
plan,the
reviewing
the business
following
is a checklist
of the mattersto
priorto
be discussed
in negotiations
preparation
of the trademark
license
agreement:
Trademark:ldentifythe trademarks,
the
owner,andthe conditions
of useof the
markby the manufacturer.
Definethe
partyresponsible
for fundingandfiling
trademark
applications.
Products:ldentifythe products(for
photoframesshouldbe
instance,
- sterlingsilver,
identified
by material
woodor plastic.Also,discusson what
termsandconditions
additional
typesof
productsor newproductscan be added
duringthetermof theAgreement.
Discussdisposition
of disapproved
products.
Term:Decidehowlongthe Licensewill
last. Discusswhetherit willbe
automatically
renewedor if minimum
salesor royaltiesbe requiredto,renew.
Territory:ldentifythe USA,its territories
andpossessions,
duty-free
areaand
militaryexchanges;
discusswhether
foreignterritories
shouldbe included
initially
or in thefutureandon what
termsandconditions.
Channelsof tradewithinthe territory:
ldentifythetargetmarket;if department
stores,thetype. WhetherInternetsales
andotherlimitations
are permitted
(homeshoppingnetworks,
mailorder,
premiums,
etc.)
Typeof license:Discuss
whetherthe
(suchthatonly
licensewillbe exclusive
the manufacturer
canmakethe
products)
or non-exclusive.
Reservethe
company's
rightto usethistrademark
for otherproducts
andothertrademarks
andin otherterritories;
Productdevelopmentand quality
control:ldentifywhetherthe company
or the manufacturer
willbe responsible
for designingthe productand whowill
own copyright,patentand tradedress
ights. Discussnumberof annual
guarantees,
collections,
minimum
production,
design,
anddelivery
schedules,
implementation
of quality
controlstandards,
approvalmechanism,
andinspection
schedules.
Advertising/promotion
responsibilities:
Discuss
whetherthe
willbe
companyor the manufacturer
placement
responsible
for creationand
of advertising
anddistribution
of
promotional
materials.lmplement
for approval
schedules
andreporting.
Discusswhetherthereshouldbe a
minimummonetary
commitment
by the
manufacturer
towardsthe company's
advertising
or to thatof the manufacturer
(i.e.co-opads). Discusstradeshow
attendance.
Natureof royaltyobligation:Define
whattypeof royaltyis suitable(for
instance,flat rateperyearor royalty
basedon netsales.lf the latter,be sure
deductions
and
to definethe permitted
anycapson discounts).Discuss
minimum
advancepayments,
guaranteed
royalties,
timingof
payments,
reports,andright
accounting
to audit.
Defaultand terminationof license:
Determine
thetriggersfor a defaultand
discusscureprovisions.Discussunder
whatcircumstances
eitherpartymay
terminate
the licenseandanypenalties.
Discussdisposition
of inventory
and
sell-offperiod.
lnsuranceand indemnification:
Typically,
the manufacturer
is required
to
carrybusiness
insurance,
including
productliability,
for itsandthe licensor's
benefit.Alsodiscussunderwhat
circumstances
an indemnity
willfunction.
Forinstance,
the licensorusually
indemnifies
the manufacturer
for any
claimarisingoutof the properuseof the
trademark
by the manufacture,
andthe
manufacturer
indemnifies
the licensor
withrespectto claimsarisingoutof the
customer's
useof the product.
Third partyinfringement:Discuss
enforcement
of trademark
or other
propertyrightsas againsta
intellectual
thirdpartyinfringer.Typically,
thisis the
responsibility
of the licensorandthe
manufacturer
is requiredto assistif
requested.
Sublicensing
and assignment:
A
permitsthe manufacturer
sublicense
to
designatea thirdpartyto peform tasks
An assignment
of the manufacturer.
permitsthe manufacturer
to assignall of
its rightsunderthe license.Discuss
whethersublicensing
andassignment
permitted.
are
Disputeresolution:Establish
a
mechanism
to resolvedisputeswiththe
manufacturer,
eitherarbitration
or
litigation,
anddiscusswhichstatelaw
willapplyandwhowillbe responsible
for
attorney'sfees.
Thischecklist
is notintended
to be
exhaustive;
a professional
shouldbe
consulted
beforenegotiating
andsigning
a licenseagreement.
Amongthesepointsis an important
one
whichshouldnotbe forgotten.
In order
to protecta company'sinterestsin any
productswhichare partof the
plan,a company
merchandising
should
property
neverrelinquish
its intellectual
patentor
rights(trademark,
copyright,
tradedress).Norshoulda companyfail
to protectits rightsby forgettingto file a
trademark,
copyright,
or patent
application.
CONCLUSION
A well-organized
merchandising
plan- coordinated
withtrademark
screening
andfilingapplications
in the
USAandabroad- canbe verybeneficial
to increase
salesof primaryproducts
andmaintainpublicrecognition
in the
marketplace.
And remember,
the next
HarryPotterois just aroundthe corner.
pleasefax
lf youhaveanyquestions,
Gottlieb,
Rackman& ReismanP.C.at
(212)684-3999
or sendyoure-mailto
[email protected].
Youmayalsorequesta
copyof our Intellectual
PropertyPrimer,
"What'sa Copyright
/ Trademark
/
(212)
Patent?by calling
684-3900
or
visitourwebsiteat http://www.qrr.com.
February/March
&
April/May2002
Reprintedlion:
TnelnwARE
rn
IODAY
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