MERCHANDISING AND CHARACTER LICENSING Jed Ferdinand Grimes & Battersby, LLP Fairfield County, CT/New York City © 2009 Grimes & Battersby Franklin Pierce

MERCHANDISING AND MERCHANDISING AND CHARACTER LICENSINGCHARACTER LICENSING

Jed FerdinandJed Ferdinand

Grimes & Battersby, LLPGrimes & Battersby, LLP

Fairfield County, CT/New York CityFairfield County, CT/New York City

© 2009 Grimes & Battersby © 2009 Grimes & Battersby

Franklin Pierce Law CenterAdvanced Licensing Institute 2009

OverviewOverview

• The History of MerchandisingThe History of Merchandising• Protecting Merchandising Properties Under Protecting Merchandising Properties Under

the Intellectual Property Lawsthe Intellectual Property Laws• The Art of NegotiationThe Art of Negotiation• The Merchandising License AgreementThe Merchandising License Agreement

• An OverviewAn Overview• Important Provisions in the AgreementImportant Provisions in the Agreement

• Implications of down economy on draftingImplications of down economy on drafting• The Future of LicensingThe Future of Licensing

Introduction to MerchandisingIntroduction to Merchandising

““Merchandising” DefinedMerchandising” Defined• ““The licensing of a recognizable trademark or The licensing of a recognizable trademark or

copyright for use on ancillary or collateral copyright for use on ancillary or collateral products or services”products or services”

Introduction to Merchandising - HistoryIntroduction to Merchandising - History

• Middle Ages—Popes granted Middle Ages—Popes granted licenses to local tax collectors who licenses to local tax collectors who paid “royalties” to the Vaticanpaid “royalties” to the Vatican

• 1770’s—2 British ladies of nobility permitted their 1770’s—2 British ladies of nobility permitted their names to be used on a line of cosmetics in exchange for names to be used on a line of cosmetics in exchange for a royaltya royalty

• 1876—Adolphus Busch begins distributing a “wine key” 1876—Adolphus Busch begins distributing a “wine key” as a tool containing a small blade, a foil cutter and a as a tool containing a small blade, a foil cutter and a basic cork screwbasic cork screw


• 1903—Helen Beatrix Potter 1903—Helen Beatrix Potter designs a PETER RABBIT dolldesigns a PETER RABBIT doll

• 1904—BUSTER BROWN comic 1904—BUSTER BROWN comic strip character licensed for line of strip character licensed for line of productsproducts

• 1913—President TEDDY 1913—President TEDDY ROOSEVELT permitted his name ROOSEVELT permitted his name to be used on a “teddy bear” for a to be used on a “teddy bear” for a royalty that was used to establish a royalty that was used to establish a network of National Parksnetwork of National Parks


• 1918—RAGGEDY ANN and 1918—RAGGEDY ANN and RAGGEDY ANDY introducedRAGGEDY ANDY introduced

• 1924—LITTLE ORPHAN ANNIE 1924—LITTLE ORPHAN ANNIE comic strip becomes radio show “by comic strip becomes radio show “by Ovaltine”Ovaltine”

• 1928—Walt Disney introduces 1928—Walt Disney introduces MICKEY MOUSE. First license MICKEY MOUSE. First license agreement signed with Waldburger, agreement signed with Waldburger, Tanner in Switzerland for Mickey & Tanner in Switzerland for Mickey & Minnie handkerchiefsMinnie handkerchiefs


• 1929—GIRL SCOUTS of 1929—GIRL SCOUTS of AMERICA license AMERICA license suppliers of “Official” suppliers of “Official” GSA Products, ultimately GSA Products, ultimately producing more than 1800 producing more than 1800 different productsdifferent products

• 1929—BUCK ROGERS 1929—BUCK ROGERS introduced and becomes introduced and becomes immediate hit (Macy’s immediate hit (Macy’s sold out first 20,000 Buck sold out first 20,000 Buck Rogers rocket pistols in Rogers rocket pistols in less than 3 hours)less than 3 hours)


• 1929—Disney creates 1929—Disney creates “STEAMBOAT WILLIE” and “STEAMBOAT WILLIE” and licenses rightslicenses rights

• 1932—Disney hires Kay Kamen (the 1932—Disney hires Kay Kamen (the “Father of Modern Licensing”) and “Father of Modern Licensing”) and establishes licensing program with establishes licensing program with MICKEY MOUSEMICKEY MOUSE


• 1932—child star 1932—child star Shirley Temple Shirley Temple licenses SHIRLEY licenses SHIRLEY TEMPLE dollsTEMPLE dolls

• 1936—First RED 1936—First RED RYDER BB Gun RYDER BB Gun LicensedLicensed

• 1935—First 1935—First HOPALONG HOPALONG CASSIDY movie; he CASSIDY movie; he and TOM MIX and TOM MIX licensed for toys and licensed for toys and premiumspremiums


• 1941—First ARCHIE 1941—First ARCHIE comic book published by comic book published by MLJ Magazine’s Pep MLJ Magazine’s Pep Comics—Archie, Jughead, Comics—Archie, Jughead, Betty & Veronica are bornBetty & Veronica are born

• 1947—The HOWDY 1947—The HOWDY DOODY show becomes hot DOODY show becomes hot property on the new media, property on the new media, televisiontelevision

• 1950—First PEANUTS 1950—First PEANUTS comic strip published; comic strip published; United Features Syndicate United Features Syndicate develops licensing develops licensing programs for it and programs for it and GARFIELDGARFIELD


• 1955—LOS ANGELES RAMS, under Pete Rozelle, “market” 1955—LOS ANGELES RAMS, under Pete Rozelle, “market” their image (8 years later, NFL Properties is created)their image (8 years later, NFL Properties is created)

• 1950s—Warner Bros. actively pursues licensing opportunities 1950s—Warner Bros. actively pursues licensing opportunities with its LOONEY TUNES characterswith its LOONEY TUNES characters

• 1955—ELVIS PRESLEY storms onto the music scene & a 1955—ELVIS PRESLEY storms onto the music scene & a licensing legend is bornlicensing legend is born

• 1959—Original BARBIE doll introduced by Mattel at Toy 1959—Original BARBIE doll introduced by Mattel at Toy Fair and a licensing legend is bornFair and a licensing legend is born

Introduction to Merchandising - HistoryIntroduction to Merchandising - History• 1960—Hanna Barbara creates the FLINTSTONES1960—Hanna Barbara creates the FLINTSTONES

• 1961—Disney acquires rights to WINNIE THE POOH and a licensing 1961—Disney acquires rights to WINNIE THE POOH and a licensing legend is bornlegend is born

• 1962—JAMES BOND 007 Movie spawns licensing programs. Warner 1962—JAMES BOND 007 Movie spawns licensing programs. Warner Bros. creates Licensing Corporation of America (“LCA”) Bros. creates Licensing Corporation of America (“LCA”)

• 1963—NFL Properties formed to license team logos1963—NFL Properties formed to license team logos

• 1964—The BEATLES arrive in the US; Beatlemania craze begins1964—The BEATLES arrive in the US; Beatlemania craze begins

• 1966—KERMIT THE FROG is born—Jim Henson the proud father1966—KERMIT THE FROG is born—Jim Henson the proud father

• 1969—Sesame Street airs and makes OSCAR, BIG BIRD and ERNIE 1969—Sesame Street airs and makes OSCAR, BIG BIRD and ERNIE household nameshousehold names


• 1970—Pierre Cardin develops 1970—Pierre Cardin develops fashion licensing program. fashion licensing program. Cherokee (1973), Calvin Klein Cherokee (1973), Calvin Klein (1976), and Ralph Lauren (1985) (1976), and Ralph Lauren (1985) follow suitfollow suit

• 1972—American Greetings creates 1972—American Greetings creates HOLLY HOBBY Character and HOLLY HOBBY Character and commences licensing programcommences licensing program

• Mid-1970’s—Paramount Pictures Mid-1970’s—Paramount Pictures aggressively pursues licensing aggressively pursues licensing opportunitiesopportunities

• 1977—MARY ENGELBREIT 1977—MARY ENGELBREIT grants first license for her artworkgrants first license for her artwork—creates art licensing category—creates art licensing category


• 1977—STAR WARS motion picture released—Master 1977—STAR WARS motion picture released—Master Toy License granted to Kenner Toys. A new day in Toy License granted to Kenner Toys. A new day in licensing begins.licensing begins.


• 1981—First Licensing Show Staged at New York 1981—First Licensing Show Staged at New York Coliseum in New York with 1000 people in attendance Coliseum in New York with 1000 people in attendance (current attendance is >20,000)(current attendance is >20,000)

• 1982—Licensing Industry Association (“LIA” formed)1982—Licensing Industry Association (“LIA” formed)

• 1985—LIA merges with Licensed Manufacturers 1985—LIA merges with Licensed Manufacturers Association (“LMA”) to form Licensing Industry Association (“LMA”) to form Licensing Industry Merchandisers’ Association (“LIMA”) Merchandisers’ Association (“LIMA”)

Introduction to Merchandising – Recent TrendsIntroduction to Merchandising – Recent Trends

• Corporations wake up to Licensing as revenue source, Corporations wake up to Licensing as revenue source, paid advertising and way to broaden trademark paid advertising and way to broaden trademark protectionprotection

• Celebrities become a dominant force in licensingCelebrities become a dominant force in licensing


• The Source of Merchandising Properties:The Source of Merchandising Properties:• Character & EntertainmentCharacter & Entertainment


• The Source of Merchandising Properties:The Source of Merchandising Properties:• Sports & CollegiateSports & Collegiate


• The Source of Merchandising Properties:The Source of Merchandising Properties:• Celebrity & DesignerCelebrity & Designer


• The Source of Merchandising Properties:The Source of Merchandising Properties:• Corporate & EventsCorporate & Events


• Types of Licensed ProductsTypes of Licensed Products• State of the Industry 25 Years AgoState of the Industry 25 Years Ago

• DisneyDisney• Warner BrosWarner Bros• Paramount PicturesParamount Pictures• Few OthersFew Others

• LIMA’s Harvard/Yale Survey LIMA’s Harvard/Yale Survey


• Total domestic licensing revenues of $5.8 billionTotal domestic licensing revenues of $5.8 billion• Character & EntertainmentCharacter & Entertainment $ 2.5 billion$ 2.5 billion• Corporate Marks & BrandsCorporate Marks & Brands $ 1.1 billion$ 1.1 billion• FashionFashion $ 848 million$ 848 million• SportsSports $ 807 million$ 807 million• CollegiateCollegiate $ 203 million$ 203 million• ArtArt $ 167 million$ 167 million• MusicMusic $ 113 million$ 113 million• PublishingPublishing $ 43 million$ 43 million• Non-ProfitNon-Profit $ 40 million$ 40 million• OthersOthers $ 22 million$ 22 million


• Licensing Revenue by Product CategoryLicensing Revenue by Product Category• ApparelApparel $ 1.02 billion$ 1.02 billion• Toys/GamesToys/Games $ 975 million$ 975 million• Software/VideogamesSoftware/Videogames $ 553 million$ 553 million• Gifts/NoveltiesGifts/Novelties $ 491 million$ 491 million• Food/BeverageFood/Beverage $ 441 million$ 441 million• AccessoriesAccessories $ 479 million$ 479 million• Home DecorHome Decor $ 292 million$ 292 million


Top Ten LicensorsTop Ten Licensors** 1.1. Disney Consumer Products ($21 Billion)Disney Consumer Products ($21 Billion)2.2. Warner Bros. Consumer Products ($6 Billion)Warner Bros. Consumer Products ($6 Billion)3.3. Nickelodeon & Viacom Consumer Products ($5.2 Billion)Nickelodeon & Viacom Consumer Products ($5.2 Billion)4.4. Marvel Entertainment ($5 billion)Marvel Entertainment ($5 billion)5.5. Major League Baseball ($4.7 billion)Major League Baseball ($4.7 billion)6.6. Sanrio ($4.2 billion)Sanrio ($4.2 billion)7.7. Cherokee Group ($4.1 Billion)Cherokee Group ($4.1 Billion)8.8. National Football League ($3.5 billion)National Football League ($3.5 billion)9.9. General Motors ($3 billion)General Motors ($3 billion)10.10. Lucas Licensing ($3 billion)Lucas Licensing ($3 billion)__________________________* According to License! magazine 2006* According to License! magazine 2006

Protection of PropertiesProtection of Properties

• Copyright ProtectionCopyright Protection• Applicable for Art and Character LikenessesApplicable for Art and Character Likenesses• Inexpensive and ImmediateInexpensive and Immediate• Finite Duration Irrespective of UseFinite Duration Irrespective of Use

• Trademark ProtectionTrademark Protection• Applicable for Names and CharactersApplicable for Names and Characters• Immediate and Relatively InexpensiveImmediate and Relatively Inexpensive• Infinite Duration with UseInfinite Duration with Use

• Right of PublicityRight of Publicity• State by StateState by State

Protection of PropertiesProtection of Properties

• Search ConsiderationsSearch Considerations• All-Class Merchandising SearchesAll-Class Merchandising Searches• Consider Other Established UsesConsider Other Established Uses

• Yale for locksYale for locks• Harvard for softwareHarvard for software

• Intent to Use Trademark ApplicationsIntent to Use Trademark Applications• Merchandising Classes, e.g. 9, 16, 25, 28Merchandising Classes, e.g. 9, 16, 25, 28• Protect Before You Publicize, especially Protect Before You Publicize, especially

internationallyinternationally

The Art of NegotiationThe Art of Negotiation

• Know Your PropertyKnow Your Property• Be Aware of Its Strengths & WeaknessesBe Aware of Its Strengths & Weaknesses• Know the CompetitionKnow the Competition

• Know Your AdversaryKnow Your Adversary• Investigate, Investigate, InvestigateInvestigate, Investigate, Investigate

• Be HumbleBe Humble• Beware of assuming obligations that you cannot keepBeware of assuming obligations that you cannot keep

-Licensor: marketing obligations-Licensor: marketing obligations

-Licensee: product introduction-Licensee: product introduction

The Merchandising AgreementThe Merchandising Agreement

• TypeType• License vs. AssignmentLicense vs. Assignment• Exclusive vs. Non-ExclusiveExclusive vs. Non-Exclusive

• Basic TermsBasic Terms• Compensation (Royalty Rates, FOB, Split)Compensation (Royalty Rates, FOB, Split)• Net Sales Net Sales • AdvancesAdvances• Guaranteed vs. Non-Guaranteed MinimumGuaranteed vs. Non-Guaranteed Minimum• Royalty Periods (quarterly, yearly, monthly)Royalty Periods (quarterly, yearly, monthly)• Term of Agreement/renewalsTerm of Agreement/renewals• Licensed TerritoryLicensed Territory

Current Royalty RatesCurrent Royalty Rates

Range Range Median Median

• Entertainment/Character: 8-20%Entertainment/Character: 8-20% 10%10%• Corporate Brands:Corporate Brands: 4-12%4-12% 7-8%7-8%• Art Art 3-15%3-15% 6-8%6-8%• Designer & FashionDesigner & Fashion 4-10%4-10% 6%6%• Colleges & EventsColleges & Events 7-9%7-9% 8%8%• Professional SportsProfessional Sports 7-12%7-12% 9-10%9-10%• Non-Profit Non-Profit 4-12%4-12% 6-7%6-7%

The Merchandising The Merchandising AgreementAgreement

Definition of Net Sales:Definition of Net Sales:Model Provision: Model Provision: “ “Net Sales" shall mean LICENSEE's gross sales (the Net Sales" shall mean LICENSEE's gross sales (the

gross invoice amount billed customers) of Licensed gross invoice amount billed customers) of Licensed Products, less discounts and allowances actually Products, less discounts and allowances actually shown on the invoice up to a maximum of seven shown on the invoice up to a maximum of seven percent (7%) and, further, less any percent (7%) and, further, less any bona fidebona fide returns returns (net of all returns actually made or allowed as (net of all returns actually made or allowed as supported by credit memoranda actually issued to supported by credit memoranda actually issued to the customers). No other costs incurred in the the customers). No other costs incurred in the manufacturing, selling, advertising, and distribution manufacturing, selling, advertising, and distribution of the Licensed Products shall be deducted nor shall of the Licensed Products shall be deducted nor shall any deduction be allowed for any uncollectible any deduction be allowed for any uncollectible accounts or allowances. accounts or allowances.


““Best Efforts Clauses”Best Efforts Clauses”

-Example of a ambiguous clause:-Example of a ambiguous clause:

LICENSEE will use its best efforts to LICENSEE will use its best efforts to make Licensed Products continuously make Licensed Products continuously available through normal channels of available through normal channels of trade. trade.


Best Efforts (cont.)Best Efforts (cont.)-Two considerations:-Two considerations:

a. What level of effort – best efforts vs. a. What level of effort – best efforts vs. commercially reasonable is actually a commercially reasonable is actually a distinction with little legal differencedistinction with little legal difference

b. Best efforts to do what ….b. Best efforts to do what ….-Better Clause: LICENSEE shall use its best -Better Clause: LICENSEE shall use its best

efforts to promote, market, sell and efforts to promote, market, sell and distribute the Licensed Products in the distribute the Licensed Products in the Territory during the Term of the Territory during the Term of the Agreement. Agreement.


Licensor Marketing Obligations: Problematic ClauseLicensor Marketing Obligations: Problematic ClauseLicensor’s Assistance in Marketing Efforts.Licensor’s Assistance in Marketing Efforts. Licensor shall provide Licensor shall provide reasonable assistance to Licensee in marketing the Licensed reasonable assistance to Licensee in marketing the Licensed Products, at Licensee’s request, but shall not be required to Products, at Licensee’s request, but shall not be required to expend material amounts of time or money in doing so. expend material amounts of time or money in doing so. Celebrity shall be actively involved in promoting the Celebrity shall be actively involved in promoting the Licensed Products and Sub-Licensed Products, (whether Licensed Products and Sub-Licensed Products, (whether requested or not by Licensee) and wherever reasonably requested or not by Licensee) and wherever reasonably practicable and appropriate, shall publicly wear or use the practicable and appropriate, shall publicly wear or use the Licensed Products and Sub-Licensed Products, particularly Licensed Products and Sub-Licensed Products, particularly at public events, shows and appearances.at public events, shows and appearances. Moreover, during Moreover, during the Term of this Agreement, Celebrity shall not: (a) enter into any the Term of this Agreement, Celebrity shall not: (a) enter into any endorsement agreement or otherwise obligate or require Celebrity endorsement agreement or otherwise obligate or require Celebrity to endorse any product or service for products that are then to endorse any product or service for products that are then included under this Agreement; or (b) renew or extend any included under this Agreement; or (b) renew or extend any endorsement agreement obligating or otherwise requiring endorsement agreement obligating or otherwise requiring Celebrity to endorse any product or service for products that are Celebrity to endorse any product or service for products that are the subject of this Agreement, which agreement was in existence the subject of this Agreement, which agreement was in existence before the Effective Date of this Agreement.before the Effective Date of this Agreement.

● ● Better to define every obligation (commercial, print, appearance)Better to define every obligation (commercial, print, appearance)


• Identification of Licensed PropertyIdentification of Licensed Property• Trademarks & Character NamesTrademarks & Character Names

- likeness for celebrities - likeness for celebrities Straight trademark license – reference the mark and Straight trademark license – reference the mark and registrations (and other considerations for trade dress) registrations (and other considerations for trade dress)

Character license grant: The “Property” comprises: the Character license grant: The “Property” comprises: the approved names, logos, symbols, depictions, characters, approved names, logos, symbols, depictions, characters, characterizations, likenesses, designs, visual characterizations, likenesses, designs, visual representations, trademark and copyrights of the ARCHIE representations, trademark and copyrights of the ARCHIE series of characters as they appear in comic books series of characters as they appear in comic books published by Archie Comics, inclduing without limitation, published by Archie Comics, inclduing without limitation, the characters, “Archie,” “Betty,” “Veronica,” and the characters, “Archie,” “Betty,” “Veronica,” and “Jughead.” “Jughead.”


Identification of Licensed Property Trade Dress--Example


Definition of Licensed “Mark”: Definition of Licensed “Mark”:

““MarksMarks” means the following marks ” means the following marks along with all registrations, applications along with all registrations, applications for registration and common law rights for registration and common law rights with respect to the following, whether with respect to the following, whether presently owned or hereafter acquired by presently owned or hereafter acquired by PCA: (a) “MAGNA DOODLE” and (b) any PCA: (a) “MAGNA DOODLE” and (b) any other marks that PCA agrees in writing other marks that PCA agrees in writing that Ohio Art may use in connection with that Ohio Art may use in connection with the Products.the Products.


Better Clause:Better Clause: [A]ny and all trade names, trademarks and [A]ny and all trade names, trademarks and

logos, and the designs, trade dress, logos, and the designs, trade dress, copyrights, symbols, rights of publicity and copyrights, symbols, rights of publicity and visual representations, and other visual representations, and other intellectual property and proprietary rights intellectual property and proprietary rights associated with the “MAGNA DOODLE” associated with the “MAGNA DOODLE” marks presently owned or hereafter marks presently owned or hereafter acquired by PCA anywhere in the Territory acquired by PCA anywhere in the Territory and any common law rights presently and any common law rights presently owned or hereafter acquired by PCA with owned or hereafter acquired by PCA with respect thereto anywhere in the Territory. respect thereto anywhere in the Territory.


• Disputes and Governing LawDisputes and Governing Law• Arbitration vs. LitigationArbitration vs. Litigation• Venue – forum selection clauseVenue – forum selection clause

-consider “home and home” provision-consider “home and home” provision• Applicable State Law Applicable State Law


• Audit and Document Retention ProvisionsAudit and Document Retention Provisions• Time, Location, Cooperation & PaymentTime, Location, Cooperation & Payment• Records-Type, Location, PeriodRecords-Type, Location, Period


• Insurance ProvisionsInsurance Provisions• Product LiabilityProduct Liability

• Indemnification ProvisionsIndemnification Provisions• Product Liability by LicenseeProduct Liability by Licensee• Infringement by LicensorInfringement by Licensor

• WarrantiesWarranties• Power to Enter Into AgreementPower to Enter Into Agreement• Non-Infringement/Best of Knowledge & BeliefNon-Infringement/Best of Knowledge & Belief


Quality Control ProvisionsQuality Control Provisions• Multiple Approvals of Products/Packaging/ Multiple Approvals of Products/Packaging/

AdvertisingAdvertising• Recourse for Failure to Comply Recourse for Failure to Comply


• Termination ProvisionsTermination Provisions• Termination on Notice for Breach with Right to Termination on Notice for Breach with Right to

CureCure• Immediate Right to TerminateImmediate Right to Terminate

• Repeated Failure to Pay RoyaltiesRepeated Failure to Pay Royalties• Failure to Maintain InsuranceFailure to Maintain Insurance• Failure to Meet Product Introduction & First Shipment Failure to Meet Product Introduction & First Shipment

DatesDates

The Merchandising AgreementThe Merchandising Agreement• Licensor Wish List:Licensor Wish List:

• Retain all rights or agree upon equitable sharingRetain all rights or agree upon equitable sharing• Get licensee to commit to a guaranteed minimum royaltyGet licensee to commit to a guaranteed minimum royalty• Get highest royalty rate and advance as possibleGet highest royalty rate and advance as possible• Protect against domestic sublicensingProtect against domestic sublicensing• Protect against FOB salesProtect against FOB sales• Limit reps and warranties to “best of knowledge & belief”Limit reps and warranties to “best of knowledge & belief”• Cap liabilityCap liability

• Tie indemnity to reps and warrantiesTie indemnity to reps and warranties• Must be final judgmentMust be final judgment• Cap on income receivedCap on income received

• Build milestones to trigger termination (i.e. Product Build milestones to trigger termination (i.e. Product Introduction Date, First Shipment Date or ceased sales)Introduction Date, First Shipment Date or ceased sales)

• Deal only with a reputable companyDeal only with a reputable company• Licensee estoppel clauseLicensee estoppel clause


Licensee Wish List Licensee Wish List

-exclusive rights-exclusive rights

-broadest possible territory-broadest possible territory

-narrow “best efforts” clause-narrow “best efforts” clause

-obligate licensor to protect licensed -obligate licensor to protect licensed markmark

Implications of Bad EconomyImplications of Bad Economy Escrow moniesEscrow monies Personal guaranteesPersonal guarantees Financing mandatesFinancing mandates:: Product Financing and ProductionProduct Financing and Production.. Supplier shall, throughout the term of this Agreement, have Supplier shall, throughout the term of this Agreement, have

immediately available inventory ready for shipment to Retail Customers in an amount not less than immediately available inventory ready for shipment to Retail Customers in an amount not less than five thousand (5,000) Product units (the “Base Inventory Amount”). Should a Retail Customer(s) five thousand (5,000) Product units (the “Base Inventory Amount”). Should a Retail Customer(s) indicate in writing an intention and or desire (the “Purchase Intent Notification”) to purchase an indicate in writing an intention and or desire (the “Purchase Intent Notification”) to purchase an amount of Product that shall exceed the Base Inventory Amount, Supplier shall, within fifteen (15) amount of Product that shall exceed the Base Inventory Amount, Supplier shall, within fifteen (15) days of such notice, provide the necessary factory and production financing to begin production of days of such notice, provide the necessary factory and production financing to begin production of the number of units that are reasonably required to meet the expected current and projected the number of units that are reasonably required to meet the expected current and projected ongoing demand from such Retail Customers based upon its Purchase Intent Notification. In the ongoing demand from such Retail Customers based upon its Purchase Intent Notification. In the event that Supplier is unable to provide such production financing, 4DGP shall have the option, at its event that Supplier is unable to provide such production financing, 4DGP shall have the option, at its sole discretion, of providing or arranging for such production financing. For the purposes of this sole discretion, of providing or arranging for such production financing. For the purposes of this section, the Purchase Intent Notification of a Retail Customer(s) shall specifically not require the section, the Purchase Intent Notification of a Retail Customer(s) shall specifically not require the procurement of a Purchase Order from such Retail Customer(s), but rather shall be an indication of procurement of a Purchase Order from such Retail Customer(s), but rather shall be an indication of interest by a Retail Customer that reasonably indicates its intent to purchase the number of units interest by a Retail Customer that reasonably indicates its intent to purchase the number of units detailed in its Purchase Intent Notification in the event that such a number of units were to be in detailed in its Purchase Intent Notification in the event that such a number of units were to be in production and capable of delivery with a firm commitment date. In such instances where 4DGP production and capable of delivery with a firm commitment date. In such instances where 4DGP elects to provide for such financing, Supplier shall be obligated to accept such financing, so long as elects to provide for such financing, Supplier shall be obligated to accept such financing, so long as the costs of such financing does not result in the Supplier’s total variable Product costs for the costs of such financing does not result in the Supplier’s total variable Product costs for manufacturing and delivering the Product to Retail Customer(s) (including all product production manufacturing and delivering the Product to Retail Customer(s) (including all product production costs, financing and factoring costs, transportation costs, sales commission and costs and Royalty costs, financing and factoring costs, transportation costs, sales commission and costs and Royalty payments due 4DGP, and other costs reasonably and typically incurred in the production and payments due 4DGP, and other costs reasonably and typically incurred in the production and delivery of goods to Retail Customers) (the “Total Product Cost”) being greater than the Wholesale delivery of goods to Retail Customers) (the “Total Product Cost”) being greater than the Wholesale Price of the Products to be sold to the Retail Customer(s). For any instance in which 4DGP shall Price of the Products to be sold to the Retail Customer(s). For any instance in which 4DGP shall provide Production Financing in which the Wholesale Price exceeds the Total Product Cost and any provide Production Financing in which the Wholesale Price exceeds the Total Product Cost and any and all costs of Production Financing provided by 4DGP, Supplier shall retain the difference between and all costs of Production Financing provided by 4DGP, Supplier shall retain the difference between the Total Product Cost and the Wholesale Price.the Total Product Cost and the Wholesale Price.

The Future of LicensingThe Future of Licensing

• Disturbing Trends:Disturbing Trends:• Transfer feesTransfer fees• Royalty Rates Approaching 20%Royalty Rates Approaching 20%• Licensees Offering Equity plus RoyaltiesLicensees Offering Equity plus Royalties• Increased use of transfer feesIncreased use of transfer fees• Refusal to grant options to renewRefusal to grant options to renew• Ownership issues for licensee developed materialOwnership issues for licensee developed material• Inflexibility in product submissionsInflexibility in product submissions• Extraordinarily high guarantees paid as advancesExtraordinarily high guarantees paid as advances

Documents

MERCHANDISING AND CHARACTER LICENSING Jed Ferdinand Grimes & Battersby, LLP Fairfield County, CT/New York City © 2009 Grimes & Battersby Franklin Pierce