What should I include in a licensing agreement?

A licensing agreement should include, at a minimum:

  • the name(s) of the specific works of art you're licensing;
  • what specific type(s) of product(s) the art will be reproduced on;
  • the producer's or publisher's written agreement to put your copyright notice on every product sold and on every advertisement or brochure for any such product which bears your art;
  • the countries in which the products will be sold;
  • a period of time during which time the company has to bring to market (produce and sell) products with your art, or else give up their right to use your art;
  • a termination date for the agreement, generally two or three years after signature but sometimes much more or less. Think carefully how long you want this company to have rights over the reproduction of your artwork;
  • an "indemnification clause" which says that the company will protect you from any lawsuits that might arise from any of their business activities which in any way relate to products carrying your art (so that you're protected if, say, a child swallows a product with your art on it and the parents sue).
  • a statement saying you can cancel the agreement if they don't abide by its terms or if they go bankrupt;
  • a specific statement of any non-refundable advance payment to be made to you against future royalties, the specific royalty percentage to be paid to you on a quarterly basis, and the requirement that each royalty cheque be accompanied by a clear statement of how they came up with the royalty amount;
  • your right to have their books audited at your own expense to make certain they have paid you what is due to you.

Remember that companies seek art because they must have it to sell their products, make money, and keep their companies alive. While there are many disreputable companies that will try to take advantage of your lack of knowledge and pay you as little as possible for as much as they can get, most companies will try to give you a fair deal because that's the way they do business and because they may want more art from you down the road if they're successful with the art covered by your license.

It is important to distinguish between (physical) property and intellectual property (IP) for the purposes of insurance. Insuring artwork, recordings and film falls under the heading property, not IP. They should be covered under your general business or personal policy. This is about protecting your creation from physical damage or loss such as theft or fire.

As opposed to property (your creation), IP exists outside of the tangible medium. It is a collection of rights such as trademarks, copyrights, design rights, database rights and moral rights (the original owner's rights to protect the work's integrity and ensure acknowledgement for the author).