by Attorney Richard Stim
When you allow someone in another country to manufacture, distribute, or sell your work, watch out that the licensee doesn't juggle the sales numbers, filch on royalties, or diminish the quality of your work.
Foreign licensing of your artwork can be lucrative but it can also be a minefield. When you allow a foreign company to license and sell your artwork as merchandise, the most important issue that arises has to do with people, not the contract. After all, you can hire the world's greatest lawyer to draft a bulletproof foreign license agreement but if the other party is a scoundrel or a cheat, or simply inept, it doesn't matter what's printed on the agreement; you are going to have to chase them into court in a foreign country and -- assuming you are lucky enough to win -- you'll still have to collect your judgment before the licensee (the company who licensed your artwork from you) goes bankrupt or folds his corporate tent.
Seek U.S. References From Potential Licensees
When considering foreign licensing, start by asking two questions:
- Has this company or person ever licensed artwork from a U.S. artist before? Don't be the first U.S. artist to deal with a foreign licensee. If a company has no experience with American licensors, you should have a strong reason to proceed with them (for example, the principals of the company are experienced in international licensing, although the company itself is new).
- If the company has licensed artwork from U.S. artists, who are they and how can you contact them? Get the names and contact info for all of the artists who license with the foreign company -- not just those recommended by the company. Find out whether they are satisfied with the company's quality, accounting, and general responsiveness.
Include Legal Protections in Your Agreement
Assuming you're satisfied that the company is reliable, you'll either be given a standard licensing agreement or you'll have to furnish one. In the case of foreign licenses, you're best off providing your own. You can modify the sample license agreement included in Nolo books: for crafts licensing, use Your Crafts Business: A Legal Guide; for art licensing, use Getting Permission: How to License and Clear Copyrighted Materials Online and Off.
Below is a summary of some important foreign licensing issues to keep in mind.
- Approval of licensed goods. When major U.S. manufacturers license products to companies abroad, they often arrange periodic inspections of the manufacturing facilities to ensure the quality of the goods (and also to monitor whether the licensee is siphoning off products or engaging in illegal labor practices). It's unlikely you'll be able to afford such onsite inspections but you can demand that copies of your licensed work be sent to you on a regular basis for approval. This offers you some assurance of consistency and quality for your work.
- Royalties and accounting. Payment of royalties from a foreign licensee can get tricky, especially when you consider issues like currency conversion rates (probably best to always insist on payment in U.S. currency), how the money will be paid (best to use wire transfers), and what taxes may be applied against your sales or royalties (before signing the license, inquire into national or local tariffs or taxes that may apply). Also, although it's unlikely you can afford to hire an accountant in India or Malaysia, it's still wise to include an audit provision (which allows you to inspect the foreign licensee's books).
- Jurisdiction. Sometimes referred to as personal jurisdiction, jurisdiction is the power of a court to bind the parties by its decision. Unless the company does substantial business in the states, the only way to get a foreign licensee into a U.S. court is to include a provision in the license agreement that requires the licensee to consent to U.S. jurisdiction.
- Choice of law. Every country (and every state) has laws as to how contracts are interpreted. The licensee will want the disputes to be resolved under the laws of its country. Unless you're interested in learning about the laws of Sierra Leone or Singapore, try to include in your agreement that disputes will be resolved under U.S. law for copyright purposes and the laws of your state when it comes to contract issues.
- Arbitration. Using arbitration, instead of filing a lawsuit, the parties hire a neutral arbitrator to evaluate the dispute and make a determination. You'll almost always benefit by agreeing to have disputes arbitrated and inserting this in your agreement. Also, if possible, your agreement should award attorney fees to the victor in the arbitration.
Hopefully, the licensee will agree to arbitrate the matter in the United States. If not, there are three popular (though expensive) spots for international arbitration: London (The London Court of International Arbitration), Paris (The International Court of Arbitration of the International Chamber of Commerce), and Stockholm (The Arbitration Institute of the Stockholm Chamber of Commerce).
- Foreign registrations. If your works are protected by U.S. intellectual property laws like copyright or design patent law, you should determine whether it's worth your while to obtain foreign copyright or patent registration in the countries where your work is being manufactured or distributed. You may be able to require that the licensee handle these administrative tasks as part of the license.
Use Terminology and Common Sense
Two final suggestions:
Learn the trade terminology. Become familiar with international trade terminology and rules so you can speak knowledgeably about things like "F.O.B." and "letters of credit." You can get a crash course by reviewing the resources below.
If in doubt, don't do the deal. Don't let your desire to earn royalties overcome your common sense. Keep in mind that no foreign license may be better than a bad foreign license.
