Licensing has its own vocabulary, partly English and partly legal. Here are the terms that come up most often in a negotiation and in a license agreement, explained in a few lines each and grouped by topic: who the parties are, what is granted, how payment works, how products are approved and what happens at the end. To go deeper, read our guides on how brand licensing works and on royalties and minimum guarantees.
The parties
Licensor
The owner of the rights to the brand, character or work, who grants the license. It can be a company, an animation studio, a team, a publisher or an artist. It decides categories, territories and usage rules, and approves the products.
Licensee
The company that obtains the license and designs, makes and sells the branded products. It pays royalties to the licensor and commits to following its rules.
Licensing agent or agency
The party that represents the licensor (less often the licensee): it builds the program, finds the companies, handles the negotiations and checks the products. An agency can also take care of the creative side, meaning the artwork and the materials used to present the brand.
What is granted
Property
The brand, character, series, event or work being licensed. People speak of character licensing for characters, sports licensing for teams, leagues and venues, and brand or corporate licensing for company brands.
License agreement
The written agreement that sets what can be done with the property: on which products, in which countries, for how long, on which financial terms and with which controls. It should be drafted, or at least reviewed, by a lawyer who specializes in intellectual property.
Product category
The type of product on which the licensee may use the property: for example confectionery, toys, apparel, stationery, publishing. The agreement lists them precisely, because anything not written down stays excluded.
Territory
The countries where the licensee may sell the products. It can be a single country, an area such as Europe or the whole world, and it should be stated together with the permitted sales channels (stores, mass retail, online).
Term
The period during which the license is valid. It usually covers a few years, because design, approvals and production come between signing and the product reaching the store. The agreement can provide for renewal if targets are met.
Exclusivity
The licensor’s commitment not to grant the same property to other companies for the same category and territory. It is worth a lot to the licensee and is usually paid for with a higher minimum guarantee.
How payment works
Royalty
The percentage of the sales of licensed products that the licensee pays the licensor. Rates vary widely from one property and one category to another: we cover them in the guide to royalties and minimum guarantees.
Royalty base
The amount the royalty is applied to, usually the licensee’s net sales of licensed products. The agreement must say what is deducted (returns, discounts, taxes, shipping), because the same percentage on different bases gives very different amounts.
Minimum guarantee (MG)
The amount the licensee commits to paying in any case, even if the royalties earned fall below it. It protects the licensor and pushes it to choose licensees who really believe in the product.
Advance
The part of the minimum guarantee paid on signing or at the start of the agreement. It is usually deducted from the royalties earned afterwards.
Royalty report
The periodic statement (often quarterly) in which the licensee declares units sold, sales and royalties due. Payments are based on this document.
Audit
The licensor’s right to examine the licensee’s accounts to check that the reports are correct. The agreement sets how often it can happen and who pays for it.
Products and approvals
Style guide
The manual the licensor gives its licensees: logos, characters, colors, typefaces, ready-made artwork and usage rules. It makes products from different companies look like part of the same world.
Approvals
The steps at which the licensor checks and approves the product before it goes into production: concept, artwork, prototype, final sample and often packaging and marketing materials too. The clearer the steps, the less time is lost.
Merchandising
Products that carry a brand or a character: T-shirts, gadgets, accessories, collectibles. Merchandise made by third parties with someone else’s brand is one of the main fields of licensing.
Brand extension
Using an established brand on products other than the ones it was created for. Licensing is one way to do it without manufacturing in-house: the brand enters a new category through a company that already knows it.
Co-branding
A product that carries two brands together, for example a food company and a cartoon character. It is often governed by a license agreement in which one of the two brands is the property.
Trademarks and the end of the agreement
Registered trademark
To license a brand it should be registered. In Italy registration is done with the UIBM, in the European Union with the EUIPO. Without registration it is harder to prove your rights and defend them against copies.
Nice classes
The international classification used to register trademarks: 45 classes, 34 for goods and 11 for services. A trademark is protected only in the classes it is registered in, so anyone planning to license it on different products should consider the right classes early.
Sell-off period
The period after the contract ends during which the licensee may still sell inventory already produced. Its length, conditions and any royalties due are set in the contract.
Renewal
Extending the agreement when it expires. It is often tied to reaching the minimum guarantee or agreed sales targets.
This glossary is a general guide and is not legal advice: for a real agreement, always have the text reviewed by a lawyer who specializes in intellectual property.
