Merchandise license agreements are used when an artist wants to give permission to someone else to reproduce their visual art (or in some cases, text) on consumer products—things like mousepads, lampshades, coffee mugs or T-shirts. This template kit provides a basic merchandise license agreement as well as explanatory background and instructions for filling out the template.
Why use a merchandise license?
What’s cool about merchandise license agreements is that artists (licensors) can get paid for allowing others (licensees) to reproduce their work, through payment of royalties. The artist (or whoever owns the image or text) is paid a percentage of income from sales of items that include the artist's work. The artist/licensor doesn’t have to deal with the hassle of manufacturing, leaving those details to the licensee. Because royalties are calculated based on products sold, the company that produces the merchandise (the licensee) takes on minimal risk and pays out only as long as money is coming in.
If the license is successful, everybody makes money and everybody’s happy. If the license is not successful, things can sometimes get sour. In both scenarios, the terms of the written agreement are crucial in determining the ultimate outcome.
Under a merchandise license, the licensor usually doesn’t need to do much beyond simply furnishing the artwork in an acceptable format. The licensee, however, typically has obligations to the licensor such as auditing sales, issuing payments, maintaining quality control and enforcing legal rights.
Alternatives to merchandise licenses
If a merchandise company doesn’t want to deal with the details of licensing from an artist, it has options other than licensing agreements. One is to acquire an assignment which is essentially an agreement to purchase copyright in the artwork, after which it is the owner of the artwork and can use it however it wants, without having to ask permission (i.e. get a license).
Another alternative is for the merchandise manufacturer to hire an artist, photographer or musician to create the material either as an employee, or as a contractor with a work-made-for-hire agreement. In both those cases, the end result would be that the company owns the artwork and does not have to ask the artist for permission to use it in merchandise or other uses.
This agreement is not for trademarks. A trademark is any word, photograph or symbol that is used to identify a business’s products or service, including logos and branding icons. This agreement should not be used to license the use of trademarks on merchandise. Although trademarks are commonly used on merchandise, there are some unique aspects to trademark licenses that are not present in this agreement.
Typical royalty rates for merchandise licensing
Royalty rates for merchandise licensing vary depending on the merchandise involved. Below are some typical royalty rates:
About Rich Stim
Attorney Richard Stim specializes in small business, copyright, patents, and trademark issues at Nolo. He practices law in San Francisco and has represented photographers, software developers, craftspeople, publishers, musicians and toy designers. He is the author of many books, including Music Law: How to Run Your Band’s Business; Patent, Copyright & Trademark: An Intellectual Property Desk Reference; and Profit From Your Idea. Stim regularly answers readers’ intellectual property questions at Dear Rich: Nolo’s Patent, Copyright & Trademark Blog. Rich is also an author on Intellectual Property Law Firms. Stim also produces audiobooks, such as Nolo’s Crash Course in Small Business Basics, and performs and records with two bands, MX-80 and angel corpus christi. You can also find Rich on Google Plus.