TOTAL LICENSING
License agreements
reflect changing times
Pro-active
The current economic crisis is far a lender would ask for
reaching, and the licensing industry prior to making a loan.
ways for the
has certainly felt the sting of the down In terms of drafting the
licensing
turn. Deal activity is down, and the agreement, the first line
deals that are being made are often of protection is to bol-
industry to
subject to increasingly strict terms ster provisions for the
protect iself
from wary licensors and licensees. licensor in the event the
This article outlines some of the licensee-manufacturer
in the current
changes that we have encountered becomes insolvent or
climate
during licensing negotiations in recent files for bankruptcy
months as licensors and licensees protection. Generally
grapple with this economic downturn speaking, virtually all li-
of unprecedented size and scale. censes are executory
by Edmund J. For years licensors had the lever- in bankruptcy proceed-
Ferdinand, III,
age in licensing negotiations, and this ings. This means that a of financial difficulty, short of an actual
translated into a number of licensor- property owner will find it extremely bankruptcy filing, that signal that the
Grimes &
friendly terms ultimately appearing in difficult, if not impossible, to extricate licensee may be in serious trouble.
Battersby, LLP license agreements. the contract from the bankruptcy In addition to bankruptcy and insol-
The glory days are unfortunately over proceeding absent the consent of the vency, it is now more common for li-
for many property owners. Even when licensee. If the license was granted on censors to demand a letter of credit
deals can be made, royalty rates are an exclusive basis, that can have seri- from a financial institution to stand
down and advances and guaranteed ous consequences for the licensing behind the guaranteed minimum
royalty payments are much harder program. For this reason, it is now royalties owed during the life of the
to achieve. Nevertheless, there are becoming more common for the agreement.
ways for property owners to protect property owner to seek a security We have also encountered one novel
themselves in interest in the licensee’s inventory of approach by a licensor that sought to
these difficult licensed goods. As a secured creditor, put itself in the position as a “lender
e c o n o m i c the licensor will move to the head of of last resort” in the event the licens-
times and the line in any bankruptcy proceeding. ee-manufacturer could not meet its
particular care There are also ways for the licensor manufacturing obligations due to a
must be taken to make the contract less palatable to lack of financing. The provision shows
when draft- the licensee in any bankruptcy pro- the lengths that some property own-
ing license ceeding. One commonly used tech- ers are taking in order to ensure that
agreements. nique is to have an anti-assignment licensed products remain viable in
Proper due provision barring the licensee from these difficult economic times.
diligence by transferring the contract to a third- As the economy continues to struggle,
licensors prior party. licensors and licensees will continue
to entering into Aside from bankruptcy, it is also im- to look for new and creative ways to
agreements has nev- portant for the licensor to have strong address issues of financial security in
er been more impor- termination rights in the event the drafting license agreements. We will
tant. These days, even licensee begins to experience finan- continue to monitor this important
with established licensees, bankruptcy cial difficulty. The licensor can look issue and will supplement this article
is no longer a remote possibility – it to include the right to terminate the in the future.
is unfortunately becoming an all too contract immediately if the licensee is Edmund J. Ferdinand, III is a Partner
common sign of the times. As a result, deemed insolvent, or cannot meet its with Grimes & Battersby, LLP in Fairfield
licensors must think and act like bank- debts when they are due and owing, County, Connecticut and New York City.
ers, asking for the same types of finan- or even if they laid off a certain num- He can be reached at <Ferdinand@
cial information and documents that ber of employees. These are all signs gandb.com>.
98
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