LICENSING BUSINESS GLOSSARY

Note: The following definitions are excerpted from "The Licensing Business Handbook," by Karen Raugust, © 2007 by EPM Communications, Inc. The complete glossary includes nearly 300 licensing business terms.


Advance. Part of the payment required for a license, usually due upon contract signing. Often a portion of the guarantee rather than an additional payment.

Auditing. A means of verifying that correct royalty payments have been made. Licensing contracts usually contain a provision allowing the licensor to audit the licensee’s books.

Brand. 1) A property that, over time and with significant investment, has gained value among consumers and is perceived by consumers as having a consistent image or message. 2) Often used by licensors to refer to any property, especially one positioned as a current or future evergreen.

Brand equity. The value associated with a brand by consumers.

Brand extension. An additional product line under an existing brand umbrella. Brand extensions into related areas outside a manufacturer’s area of expertise are often licensed.

Classic properties. Properties that have a long life marked by strong, steady sales (with some cyclical ups and downs).

Collateral materials. Sales materials used to help promote a licensed product line, including brochures, flyers, sales packets. Must be approved by the licensor if the licensed property is featured in conjunction with the materials.

Contract. Agreement between licensee and licensor, licensor and licensing agent, or manufacturer and licensing consultant. Outlines the rights and responsibilities of each party in the scope of the agreement.

Co-op money. Financial contributions by licensees or licensors to a retailer’s promotional or advertising efforts.

Copyright. The laws governing the protection of works of art, music or literature from infringement.

Cross-licensing. Combination of two or more properties on one licensed product.

Cross-merchandising. Joint retail display of two or more different licensed products based on the same property. Cross-merchandising tends to increase sales and is a growing phenomenon for properties of all types from designers to characters to sports to trademarks.

Cross-packaging, Co-packaging. Act of combining two or more licensed products based on the same property in the same package for one price. Examples include videos that come with plush toys and action figures that are packaged with comic books.

Customs. 1) Governmental departments in each country that oversee imports and exports. Customs officials around the world are key allies in the fight against counterfeiting. 2) Businesses and lifestyle practices in a given country. Variations in customs affect international licensing tactics.

Deal memo. A document, signed by licensor and licensee, that outlines the key points to be included in a licensing contract. While not binding, a signed deal memo allows partners to proceed with product development while the details of the final contract are being negotiated.

Differentiation. 1) The act of distinguishing a manufacturer’s products or a retailer’s store from its competitors’. Associating with a licensed property is one method of differentiation. 2) The act of creating a difference between upscale and mass market products to avoid cannibalization.

Disposal period. Period of about 30 days after contract termination, during which licensees are allowed, on a non-exclusive basis, to sell off remaining inventory produced under the terms of the agreement. Disposal usually occurs at close-out prices.

Distribution channels. Method by which licensed merchandise reaches the consumer. Distribution channels include traditional retailers of various types, mail order, tele-shopping and concession stands.

Distribution tiers. Levels of retail stores. Two major distribution tiers are upstairs, including department and specialty stores, and downstairs, including discount stores, category killers, convenience, variety, drug.

Exclusivity. Agreement that allows a licensee to be the only party granted rights to use a property in a particular product, territory or distribution channel. Exclusivity can be defined broadly or narrowly.

Exploitation. Commercial use of a trademark. Trademarks must be exploited in various classifications of products, or their validity in those classes could be questioned.

First shipping date. Date at which manufacturers must make their first shipment of a licensed product line to retailers. Usually written into the contract because of the importance of having merchandise in stores in time for key selling seasons.

Flat fee. An alternate method of payment for a license; usually applies to promotional licensing. Sometimes applies to products, particularly when several licensors are involved, in which case a flat fee per unit may be charged in lieu of a royalty.

Grant of rights. Major provision of a licensing contract outlining what properties, products, territories and distribution channels are authorized under the agreement.

Guarantee. A minimum royalty payment, usually based on expected sales. Actual royalty payments accrue against the guarantee amount; whatever remains of the guarantee after total royalties are tallied is due at the end of the contract period. If royalties exceed the minimum guarantee, no further money is owed. (In some non-exclusive licensing agreements, the guarantee can simply be a performance criterion, rather than a required minimum payment.)

Infringement. Unauthorized use of a trademark.

Interactive multimedia. A term referring to technologies that allow the user to input and manipulate information as well as receive it (interactive) and that combines sound, video, computer and other technogies (multimedia). A current question is whether there will ever be one standard for interactive multimedia.

Key category. An important product category. Its importance may relate to the awareness or advertising it generates (e.g., a master toy licensee for an entertainment property); to the way it enhances the core property and creates a connection between the consumer and the property (e.g., home video, videogames or publishing); or to the fact that it is the category for which a brand is known (e.g., sportswear for a fashion brand).

Knock-offs. Illegal products that are confusingly similar to legitimate licensed merchandise. May or may not be exact copies.

Legal protection. The act of registering appropriate trademarks and copyrights in order to have a legal means to counteract counterfeiting and infringement.

Licensed promotions. Events that generate awareness for the promotional partners, of which a licensed property is the focus.

Licensee. Party that acquires the rights to utilize a property, usually for a retail product but sometimes for promotional use.

Licensing. Lease agreement in which a licensor rents the rights to a legally protected property to a licensee for use in conjunction with a product or service.

Licensing agent. Company or individual that acts on behalf of the licensor in launching, administering and/or evaluating a licensing program. The agent takes over many of the licensor’s duties, with approval by the licensor, in return for a commission.

Licensing consultant. Company that represents the interests of a licensor in launching or administering a licensing program, or that represents the interests of the licensee in seeking and acquiring licenses. Several licensing consultants specialize in serving manufacturers only. Usually paid with a retainer or some combination of retainer and commission.

Licensing in. Act of acquiring a license. Licensees license in.

Licensing out. Act of leasing rights to other parties. The licensor licenses out.

Licensor. The property owner.

Logo. A graphic representation of a trademark or brand. Logos are usually one element of a property that can be used by a licensee. Special logos are often created for special events, for sub-brands based on a property, or as an umbrella to tie diverse properties together.

Manufacturer’s representative. 1) In licensing, a consultant exclusively representing the interests of licensees in seeking licenses, managing licensing programs and negotiating contracts. 2) In sales, a company that serves as a middleman in selling a manufacturer’s products to retail.

Master licensee. Major licensee in a given category, with rights to several products within that category. May sub-license certain products to other manufacturers.

Net sales. Amount to which royalties are applied. Usually is the wholesale price to retailers less certain allowable deductions.

Nonexclusives. Licensing agreements allowing more than one licensee to produce merchandise that is similar or identical and/or overlaps in distribution level and/or territory.

Premium. 1) Promotional item purchased by or given to consumers and members of the trade. Good sales outlet for authorized licensees. 2) A higher price. Licensed products in some industries command premiums over generic products, allowing licensees to pass royalty costs to consumers.

Product approvals. Quality control process by which the licensor monitors the manufacture of licensed products based on its properties. Approvals are generally required for conceptual drawings or models, pre-production samples and production samples.

Product category. Group of related products. For example, toys and games is a product category containing dolls, plush, board games, activity toys, action figures, etc.

Profit margins. The difference between revenues and expenses, divided by revenues (stated as a percentage). Licensors would consider licensing over in-house manufacturing if profit margins for an internally produced merchandise line promise to be less than royalty revenues for the same line, if licensed.

Promotional licensing. Act of licensing for advertising, premiums or other marketing purposes, rather than for a retail product.

Promotions. Events that support a licensing program by generating awareness. Can include sweepstakes or contests, discounted merchandise, live appearances, cross-merchandising, exclusive product lines at retailers, or other elements.

Property. Legally protected entity that forms the core of a licensing agreement—what is leased by the licensee from the licensor.

Property type. Method of classifying properties by origin.

Public domain. The collection of properties that are, in effect, owned by the public and therefore available for commercial use without permission. Examples include properties whose copyrights have expired, trademarks that have lapsed due to lack of exploitation or monitoring, and nonprotectable events (e.g., the millennium). Some are unavailable, in a practical sense, due to lack of access.

Retail exclusives. An agreement between a licensor and retailer whereby the retailer has an exclusive window of opportunity in which it is the only promotional partner and/or the only source for licensed merchandise. Exclusives can take many forms and timeframes range from six weeks to indefinite.

Royalty. Basic form of payment in a licensing agreement; usually a percentage of the net sales price of each unit sold.

Sell-off period. Period of about one month after the termination of a licensing agreement during which licensees have the opportunity to dispose of excess inventories of licensed merchandise on a non-exclusive basis. After the sell-off period, the licensee is not allowed to let merchandise reach the market.

Stock-keeping units (SKUs). Unique numbers assigned to each product to allow retailers and manufacturers to keep track of sales on a product-by-product basis and to help in the reordering process.

Stylebook. Guide created by licensors to illustrate to licensees the allowable uses of a property, product specifications and required legal markings.

Sub-agents. Licensing agents specializing in one territory or product category, who are retained by a master licensing agent rather than by the licensor.

Territory. A geographic region. One of the key elements in the grant of rights.

Term. Duration of a licensing agreement. Varies, but commonly two to three years for sports, entertainment properties, longer for fashion, corporate trademarks.

Trademark. 1) A method of legal protection; the most common and effective method for licensors to legally protect their properties. 2) A type of property. Refers to corporate trademarks and brands, as opposed to trademarks originating in fashion, entertainment, publishing, sports or other areas.

Wholesale sales. Sales of merchandise, as measured by the invoice amount to retailers. The same as the manufacturer’s selling price if sold directly, but different of wholesalers or distributors are involved.

Excerpted from "The Licensing Business Handbook," by Karen Raugust, © 2007 EPM Communications