Taking shortcuts to get a deal done quickly is tempting. While taking the easy way may seem like a good idea, you can wind up with a wrong licensing partner and an agreement riddled with potholes that can lead to disagreements, wasted time, effort, and money, and ultimately a damaged relationship with your licensee.
Don’t jump at the first offer that comes along. You must do your homework and ensure this potential partner has the money, experience, and resources to get your IP into the market successfully. When I was at the studios, they had a policy of not licensing startups. Startups often didn’t have the resources (primarily financial) to support the product, especially if the property took off at retail. If a licensee couldn’t fill the retail orders, it would hurt the brand and potentially cause the retailer to back away from the property.
One of the biggest mistakes in licensing is not doing some due diligence before signing the licensing deal. Jumping at the first licensing deal that comes along may seem like a good idea at the time. But don’t assume your licensing agreement will take care of any problems that “pop up.” If you sign the deal and later discover your partner isn’t who you thought they were, nothing is more draining in both time and money than having to litigate your way out of a licensing agreement.
The starting point for every licensing partnership begins with the due diligence process. This overlooked step is critical and essential when considering a licensing partner. It’s the process of getting as much information as needed about the potential partner. The more you and your potential licensing partner know about each other, better you can determine if the partnership makes sense.
One of the easiest and fastest ways to research a licensing partner is by asking them to complete a licensing application. You can get some good background information and quickly identify any potential issues. When I was licensing movies and TV shows, every potential licensee’s first requirement was the licensee application. It included references for retail buyers, distribution, and banking, which I always checked. Plus, they had to provide their marketing plan for the licensing products.
Finding ideal partners for your IP is not easy. But quickly jumping into the first deal that comes along can be a shortcut to a bad licensing partner. It doesn’t matter what you negotiate if the company you’re dealing with is not honest. Always do some research on a potential licensing partner. The more homework you do in advance, the more headaches you’ll save down the road.
This free Licensor Due Diligence Checklist will help you quickly research and qualify potential licensing partners. It covers the four critical areas of information you need to know before your sign a licensing deal.
Click here to get this free checklist.