One of the essential words in licensing is flexibility, especially regarding licensing agreements.
Even after the agreement is signed, things happen, and it will require modifying the contract to fit the market or licensee situation.
A successful partnership must work for both you and your licensing partners. If it’s one-sided, you wind up bleeding in ways, from unrealistic sales milestones, burdensome approval process, poor communication, lack of support materials, etc. And that means one of you won’t survive the deal.
Flexibility is even more critical for unforeseen circumstances, such as a global pandemic shutting down the world economy. Just look what happened to retail. Some of the biggest retailers, such as JC Penny, Neiman Marcus, and others, filed for bankruptcy. The same thing impacted the entertainment business. Movie theaters closed, and licensees of kids’ movies were stuck, unable to sell their licensed products. They lost the movie promotional support and some of their biggest retail customers.
Remember, a licensing agreement isn’t meant to be “set in stone.” Markets, companies, and people change. The best deals are marketing-oriented and designed to keep the spirit of the partnership intact when these expected and unexpected events occur.
That’s why there are many ways to change or modify a licensing deal. You can always find a solution that works for you and your licensing partner. If it takes longer to get a product to market than expected, you can extend the deal duration. Adjust the minimum guarantee payment date if sales are slower than anticipated. In the event of an economic crisis causing a currency devaluation, create a “royalty payment exchange rate” to prevent partners from defaulting on the agreement.
And that’s what happened while I was at the studios. I was managing the territory of Mexico, and all the agreements required royalty payments in dollars. Then, overnight the Mexico peso devalued, and the equivalent royalty payment in dollars skyrocketed. The licensees were’ panicked. We spent months reworking the agreements with a new royalty formula calculation. In essence, we created an agreed-upon exchange rate for dollars and pesos.
Technology licensing requires a lot of flexibility. Many technologies are changing quickly and are obsolete sooner than anticipated. Software gets upgraded, computer operating systems become outdated, communication protocols and many other things constantly change in the technology market. And when it happens, you’ve got to work with your partners to adjust your deal terms.
Remember, licensing is a flexible strategy, and the best licensing agreements reflect this. To succeed in licensing, you must be flexible. Whether it’s’ changing the product categories, royalty payments, performance milestones, or any number of deal terms, being flexible is the only way to keep your licensing deal profitable for both you and your licensing partner.
Rand Brenner is an IP professional whose passion is helping inventors, startups, and businesses of all sizes use licensing to turn their IP into income-producing products, services, and technologies. His decades of experience run the gamut from medical devices to food technology to consumer products. He’s licensed some of the biggest Hollywood entertainment blockbusters including the Batman Movies (1 and 2), and the number one kid’s action TV show, the Mighty Morphin Power Rangers. Rand speaks about licensing and is a featured speaker at investment conferences, trade shows, colleges, and startup events. His first book, Hidden Wealth: The Money Making Power of Licensing was released in 2019 and is available on Amazon.com. He’s also a published writer with articles appearing in several prestigious trade magazine including The Licensing Journal, Intellectual Property Magazine, and License India. Rand also mentors at the Cal State Fullerton School of Business and Economics and is a judge for their startup business plan competitions.