Tip Sheet
From pigs to pictures, you can rent intellectual property. But beware the details
Don’t trip over licensing
IN 1994, BEVERLY HILLS TEDDY BEAR, in Los Angeles, was an underthe-radar plush-toy manufacturer. Then Babe, porcine star of the eponymous film released the following year, brought home the proverbial bacon. David Socha, the company’s co-founder and CEO, who had previously worked for a licensing firm, knew that a Babe plush toy could generate huge sales. The three-year license he secured with Universal Studios allowed his company to make a “character correct” piggie and use the movie’s logo on the product’s hang tag. Socha’s instincts were on the money. Retailers pounced. “Getting that license put us on the industry map instantly and in a big way,” he says. Beverly Hills Teddy Bear sold 500,000 Babes in 40 countries that first year, about $2 million worth. Not a bad ROI on royalty payments of $200,000. Not surprisingly, the company became a licensee avidly pursued by licensers. Today, more than 60 percent of its more than 500 products, sold globally, are licensedriven. In early 2017, it launched a line of mermaid-buddy plush toys, the result of a licensing agreement with Enchantails, known for its mermaid-shaped slumber bags and books for girls. “A license that’s a natural fit with your product can be a fast track to growth,” says Socha. “When sales skyrocket, associated expenses are worth every penny.” Keep this in mind if you want to start licensing. —COELI CARR
COST
Surprise is often the reaction from first-time licensees when they see the fees, says Jack Morrow, president of Out of the Box, an agency in Los Angeles that represents both licensees and IP owners. Royalties typically range from 3 to 14 percent for every license-emblazoned item you sell, and a minimum annual royalty payment, part of which is due upon signing, often must be guaranteed. In other words, you’d better be confident you’ve got customers lined up.
BRAND ALIGNMENT
Just because you’ve licensed a popular image or logo and slapped it onto a hat, consumers won’t necessarily play along. “There’s a good chance they might consider the pairing mismatched and irrelevant,” says David A. Owens, professor of management and innovation at Vanderbilt University and author of Creative People Must Be Stopped: 6 Ways We Kill Innovation (Without Even Trying). Another misconception is that anything iconic—be it a name or an image—is certain to be a brand enhancer. The most important question you should ask is whether the license makes sense for your brand or service.
A LICENSE AS A BRAND
Sometimes, the licensed item pretty much is the brand. Dee and Mark Wanger are cofounders and co-owners of Ridekick International, in Fort Collins, Colorado, which makes a power trailer that adds a 20 mph boost to bicycles and adult trikes. Ridekick is the exclusive licensee, paying a royalty to the inventor, who didn’t want to create a business himself. “This licensing opportunity was the conduit that helped us launch our own company,” says Mark Wanger. Ajmal “AJ” Saleem, owner and