By Jon Lee Andersen, Esq.

adcounselor@justice.com

Many characters created by ad agencies have become famous trademarks. Many of these trademarks have developed a life of their own, providing their owners with a handsome revenue stream from licensing activities. In some instances, these character marks virtually become a product themselves, sometimes with what seems to be only marginal association with the owner's actual products or services. Many companies have created an extensive licensing and merchandising department, devoted exclusively to the exploitation of a company's trademarks.

The trademark licensing business is a relatively new activity. For many years, the trademark of a company was used exclusively by the company to identify its products or services. Little thought was given to putting a trademark on a product other than that sold by the trademark owner. Then came the era of fascination with logos, particularly on clothing. The haute couture designers began expanding their business and sales by putting their distinctive trademarks on garments and accessories which they did not manufacture. Even though they often did have a hand in designing these items, they exercised much less control than they did before. Then colleges, universities and professional sports teams began to learn the value of their trademarks and whole new industry was born. The business has exploded to the point where people have become walking billboards for designers, universities and sports teams.

In the traditional relationship between an agency and a client, the creative products of the agency, once paid for by the client, become the exclusive property of the client and the agency loses any opportunity to reap benefits which might accrue from additional marketing of a character trademark. To be sure, the agency is usually well paid for its creation of a successful advertising icon, and frequently reaps additional benefits through awards and the knowledge of its contribution to the successful campaign (which inevitably leads to additional business), but it does not participate in the residual value of the character.

So if an agency were to want to participate in this marketing opportunity, how would it go about setting it up? What would any agreement for participation cover?

Here are some thoughts and considerations on how to set up an arrangement for an agency to participate with a client in a trademark exploitation program.

This type of a program might be well suited to a situation where a client has difficulty paying the full price for the creation of an advertising campaign. Here the client would essentially "trade" some of the upside potential for a portion of its costs of the development of the character and the advertising campaign. However, an arrangement can also be made where the client is quite capable of funding its advertising expenses. The agency should be ready for the client to negotiate fees a bit in this circumstance

Once the character is created, the agency should insist upon a commitment from the client to devote a certain amount of financial resources to the identification and marketing of the character. If the character does not become relatively well known, its licensing value is minimal. A certain level of marketing support is required to achieve this recognition.

Ownership of the character is also an issue. Generally, the client would own the character, but it is possible that the agency could license the character to the client. Registration and registration maintenance of the character as a trademark for the client's products or services (and for secondary licensing products) must also be determined, as well as enforcement of infringement situations.

Marketing of the licensing effort must be assigned and the costs allocated. In addition, issues of products acceptable to the client and products which the client would not permit must also be determined and agreed upon, or at least a system for approval must be set up. Quality control and other typical licensing issues must be covered and settled upon.

Finally, the money. Profit participation levels, allocations, contributions towards licensing expenses, basic accounting, and the usual steps of verification of income, expenses and profits must be established.

All of these issues are important and each arrangement will vary with the parties, their circumstances, wishes and desires. But for an agency that wishes to reach for the brass ring, a program of this sort could pay big dividends. Get good advice and go for it!!

Put another way

An Agency's bee character was quite funny

And helped their client sell all kinds of honey

But when the bee also sold shirts

Then ball caps and skirts

The Agency got in on the money

© August, 2002 Jon Lee Andersen. All Rights Reserved.