Savvy Marketing: Merchandising of Intellectual Property Rights
Lien Verbauwhede, Consultant, SMEs Division, WIPO1
|“Good merchandising will always take the consumer from deciding whether they are going to buy to which are they going to buy,” said Stewart Goldsmith, Vice-President of Sales for Todson.2|
Have you ever noticed that on a shelf crowded with look-alike products, it is the products that bear images of well-known characters and artistic creations that catch the eye? Strip cartoons (Astérix), actors (Charlie Chaplin), pop stars (Britney Spears), sports celebrities (Tiger Woods), famous paintings (Mona Lisa), buildings (Eiffel Tower) and statutes (Manneken Pis), and many other images appear on a whole range of products, such as t–shirts, toys, stationary items, coffee mugs, posters, cereals, canned foods, soft drinks, children’s ready meals, dairy products, confectionery, key chains, etc. This is known in legal jargon as merchandising of intellectual property (IP) rights. Note that in common business parlance, “merchandising” refers to a whole range of allied activities that improve access to and visibility of products, such as designing of shop layout, proper window displays, product groupings, etc. However, this article deals only with the merchandising of IP rights.
The merchandising of IP rights can be a lucrative addition to a business strategy. It is an important way to improve the visibility and appeal of products on display in retail outlets. However, successful merchandising attracts copiers and imitators, who produce counterfeit products. Skillful use of the tools of the IP system helps businesses relying on merchandising to prevent or deal effectively with such violations of IP rights.
Why consider merchandising?
Merchandising of IP rights can be a flourishing business for many enterprises, either to enter new domains of use of their existing IP assets (through licensing out); or to market and/or advertise their products and services by exploiting the popularity of other’s IP (through licensing in).
For enterprises that own IP assets, licensing out3 to potential merchandisers may provide them the following benefits:
- First of all, licensing out IP rights (such as brands, designs, or artworks) to other companies can generate lucrative license fees and royalties. It also allows a business to enter new product categories in a relatively risk-free and cost-effective way. Cadillac cars, for example, licensed its name for use on leather goods. Different companies paid 5 to 10% of wholesale selling price. Similarly, an artist could license the copyright in an artistic work to others to reproduce, sell and distribute his work on merchandised products.
- Merchandising is also an invaluable marketing tool, as it increases the merchandiser’s brand exposure, enhances the brand’s image, and leads it to new markets. For sport teams, for example, merchandising helps foster a sense of belonging amongst their fans, who feel proud to wear their team’s merchandised goods, such as t-shirts and caps.
- Merchandising may also be an effective tool to attract sponsorship for special events, as it strengthens the association between the sponsor’s brand and the event. It is common for organizers of football matches, art exhibitions, music concerts, benefit dinners, etc. to authorize sponsors to manufacture and sell merchandise that bears the event’s trademark or symbol.
A comprehensive range of over 350 Official Licensed Products (OLP) will be on offer at the European football championship. The OLPs has been produced by a number of Portuguese and international licensees appointed by Warner Bros. Consumer Products (WBCP), UEFA's EURO 2004™ merchandise licensing agent for the tournament. Products developed include a watch produced by Swatch, an official sticker album and stickers by Panini, ceramics and porcelain from Vista Alegre, and a diverse range of footballs, fan articles, apparel and footwear, as well as stationery, player CD cards and bags. 4
Advantages for the licensee, on the other hand, include:
- Companies that manufacture low-priced mass goods, such as coffee mugs, candies or t-shirts, may make their products more eye-catching, glamorous, fun and attractive by using a well-known brand, famous character, artistic work, or other appealing element on them. Truly, breakfast cereals that feature Harry Potter have more purchasing power than those without any image.
- Companies that launch a new product on the market may advertise their product by associating it with a personality or fictional character in whose reflected light it will appear more attractive. Who wouldn’t be tempted to buy Nike tennis shoes if André Agassi praises them?
What is character and personality merchandising?
Character merchandising is the use of fictional characters to promote the sale of various products and/or services. Personality merchandising is the term used when real persons or characters are involved. Character and personality merchandising is one of the most modern means of increasing the appeal of products or services to potential customers who have an affinity with that character or personality. In fact, character and personality merchandisers believe that the main reason for a consumer to buy low-priced mass goods is not because of the product itself but because of the name or image of the celebrity or fictional character that is reproduced on the product.
Examples of character or personality merchandising include:
- gummy candies in the shape of the fictional character Pink Panther;
- t-shirts bearing the name and image of the fictional clownfish character Nemo;
- perfume bottles bearing the name of singer Jennifer Lopez;
- advertising campaigns for Omega watches with the tennis star Anna Kournikova.
Fictional characters typically derive from film cartoons (Mickey Mouse, Bugs Bunny, Nemo); toy creations (Barbie, Action Man); television series (Teletubbies, The Simpsons, Sesame Street); live action feature films (Star Wars); comic books (Smurfs, Tintin); fiction books (Harry Potter, Winnie the Pooh, Peter Rabbit); newspaper strip cartoons (Rupert the Bear, Peanuts); and computer games (Lara Croft).
Created by Georges Remi, the Belgian artist better known as Hergé, Tintin has become one of the best-knows cartoon strip characters around the world. The hero is a young reporter, who lands in fascinating adventures while traveling the world. The first strip appeared in 1929 in a Belgian newspaper. Tintin went on to feature in a number of animated films for television and cinema, and had an influence on the art world through the work of Andy Warhol and Roy Lichtenstein.
Real persons or characters used for merchandising are usually famous actors, musicians and singers (Rolling Stones, Britney Spears), sports celebrities (David Beckham, Tiger Woods), and potentially any person with a marketing potential. It is estimated, for example, that David Beckham earns as much as US$18 million a year from his endorsements5 for Vodafone, Adidas and Pepsi, among others. He is so popular in Japan that his name is on Meiji candies and a line of health and beauty salons. 6
Enterprises planning to undertake character or personality merchandising for promoting their products or services, need to obtain preliminary authorization to use the various property, personality7 or other rights (such as copyright and trademark rights), vested in the character. This is generally established through transfer agreements, license agreements or product/service endorsement agreements.
If it comes to merchandising personalities, a distinction should be made between the use of the celebrity image to merchandise a product, and the use of it to endorse a product. Personality merchandising involves merely the use of the name or image of the person to adorn a product (e.g. the image of the face of Princess Diana on a porcelain plate). Personality endorsement refers to a person informing the public that he/she approves of the product or the service or is happy to be associated with it. It is quite common for celebrities to allow their names to be associated with specific products – tennis star André Agassi for Nike shoes, for example. In some countries, the courts have been unwilling to grant celebrities monopolies over the use of their "character rights", and have refused to uphold anyone’s exclusive rights to merchandise their celebrity status. They will only intervene when a personality’s right to endorse products has been infringed (i.e. when there is a suggestion that the celebrity is to be associated with the endorsed product). However, it is good practice to act with caution before using celebrities’ images for merchandising! A photographer who takes a snap of a famous musician, for example, should obtain prior explicit permission from the musician to sell products bearing the musician’s photograph.
A company wishing to earn additional income by making its IP assets available to manufacturers for the merchandising of their products should develop a proper merchandising strategy. Here follow some basic rules:
- Protect your IP rights. Make sure that you own property rights in the trademarks, logos, designs or characters that you want to license out for merchandising. More information is given below, under ‘Protecting IP rights’.
- Search for potential licensees. Look actively for potential users of your IP assets (e.g. your trademark or an artwork), and convince them of the commercial potential. The Internet is a good source to find possible licensees. Information can also be obtained from licensing associations, such as the International Licensing Industry Merchandisers’ Association (LIMA).8
- Select the right licensee. The licensee who will manufacture and sell the merchandise goods should be a trustworthy and diligent partner. This may be a specialized merchandising company, a professional designer, or a simple student of an arts college.
- Assess foreign markets. Merchandising may be used to gain access to new markets. Usually, the licensee will be fully responsible for local manufacture, localization, logistics and distribution.
- Choose the right way to represent your company. Think long and hard about this because it’s the most important thing in the whole merchandising process. Do some market research, check out how competitors are representing themselves, and study the tastes of their consumers.
- Choose the right type of products. Common products are: t-shirts, polos, baseball caps, badges, photos, mugs, table mats, pens, posters, screensavers, cookie jars, calendars, and umbrellas. It’s important to offer a range of goods which corresponds to the image of your business and to the profile of your consumers. While Chanel may merchandise its brand on an exclusive leather design key holder, a bike store may be better off with cheap t-shirts and hats, and a sports team may distribute binoculars with the sponsor’s name to help fans get a closer look at the athletes.
- Jointly promote the business and the merchandise. For example, print your company website on the merchandised products, promote the merchandised products on your website, enclose mail order forms with the merchandised products and with your company newsletters, etc. Consider also merchandising online.
- Clearly define the right relationship and terms for the licensing of your IP in a licensing agreement. The license agreement that covers the merchandising activity should include at least the following:
- a detailed description of the specific IP rights and other elements which the licensee is authorized to merchandise;
- the specific types of products/services the licensed IP rights will be used for, and the information on whether the agreement extends to the manufacture and/or distribution and sale of those products and to the corresponding packaging and advertising materials;
- the countries in which the products or services will be sold or provided;
- the indication of the period during which the agreement applies, and the information on whether the agreement can be prolonged after that period or, on the contrary, terminated before that period under certain conditions (such as failure to manufacture and/or distribute, defaults in payments and, in general, any breach of the conditions of the agreement), including the consequences of such early termination;
- a requirement for the licensee to keep the licensor informed of any third party infringements of the IP rights of which he/she becomes aware;
- an indemnification clause which states that the licensee will protect the licensor from any lawsuits that might arise from the merchandising activities;
- the financial terms (advance payment against future royalties, royalty percentage, basis of calculation of the royalty amount, etc);
- the indication that the license is exclusive or non-exclusive;
- the indication whether or not the licensee may grant sub-licenses;
- the indication that the licensee should obtain the licensor’s prior approval with respect to the manner in which the IP is used on or in connection with the products or services.
Protecting IP rights
The following key points will help you protect your IP rights for merchandising purposes.
- Protect your trademarks. Registration of a trademark gives the owner an exclusive right to use the mark for certain goods and services. Be sure that you have adequately protected your trademark for the relevant goods or services. For example, a bike store may have registered its trademark for bikes and other vehicles, but if it wants to merchandise its brand on t-shirts and hats, then it is well advised to register the trademark also for clothing and headgear in the countries where it plans to sell the merchandise. Note that the essential personality features of a fictional character may, under certain conditions, also be regarded as trademarks.9
- Protect your original designs. Industrial designs are relevant to protect the ornamental or aesthetic aspect of useful merchandising articles. For example, a cartoon character may be represented in the form of aesthetic designs for toys, jewelry, dolls, brooches, pins, etc. The relevance of design protection will be important notably when copyright protection is excluded or reduced (mainly when an artistic work has been created with the intention of being industrially exploited).
- Protect your copyright. Copyright itself does not depend on official procedures. Nevertheless, it is strongly advisable to deposit and register works with the copyright office, in countries where such office exists, and to place a copyright notice on the works. If a copyrighted work is licensed out for merchandising purposes, the license agreement should clearly indicate that the licensee must place a copyright notice each time the work is reproduced on the merchandising goods.10
- Protect your IP in all relevant markets. IP rights are territorial, so it is necessary to obtain protection in all potential export markets in due time.
- Choose the type of IP that provides you with the best protection. Some elements used in merchandising may be protectable through different types of IP. For example, a cartoon character may be considered an artistic creation and therefore be protected under copyright, but it may also be protectable as a trademark. In some countries, certain types of IP may not apply to merchandising. Thus, for example, a fictional character used in merchandising may be barred from copyright protection when it is used as an industrial design or as a trademark, or in advertising. You will need to verify carefully which type(s) of IP qualify(ies) for your merchandising purposes.
- Preserve control over the commercial use of your IP. Require that the licensee furnishes preliminary samples of the products on which the IP will be used. Monitor also the use of your trademark, so that licensees do not utilize the mark in a manner that goes beyond the terms of the license agreement. They may create a different consumer opinion of your mark that can have a devastating effect on its overall reputation.
- Limit, as much as possible, the scope of the license. When granting a license, you give the licensee permission to do things that it otherwise would not be allowed to do. It is important to construe that permission as narrowly as possible. Generally, it is better to grant non-exclusive licenses, limited in their scope to the specific needs and interests of the licensee. The licensee should not be allowed to get the ownership of your IP rights used for the merchandising. The advantage is that in this case you can grant further licenses to other interested users. For example, a photographer could grant a license to merchandise a specific photograph on a specific product only; or for a specific event only; or in a specific country only. Still, some persons may have a real need to be in complete control of your IP, and demand for an exclusive license or an assignment of all your rights for merchandising purposes. You should consider such negotiations carefully and make sure you are well paid if you choose to do so. Remember that once you assign your IP rights you lose all its future income earning potential.
- Register the license agreement, if needed. Many countries require that a license be recorded with the national IP office or other government agency.
- Take action against infringement. It is up to you, as the IP right holder, to identify any infringement or counterfeiting on your IP rights and to decide what measures should be taken. Depending on the form of protection and the legal tradition of each country, appropriate measures may be available to bar unlawful merchandising of IP through laws of unfair competition, ‘passing off’11, trademark, copyright, industrial design, personality, publicity12 and/or privacy, or similar laws.
Businesses, universities, sport teams, artists, and non-profit organizations should be aware of the commercial value of their IP, and generate revenues from the secondary exploitation of their brands, designs, artworks or any other merchandisable element. Equally, businesses that sell low-priced mass products should consider making use – with legal authorization - of other’s designs, copyright material, characters and the like, to make their products more popular and attractive. For successful merchandising, businesses will need a mix of IP-related legal knowledge, commercial contract drafting and negotiation skills, and plain good sense.
1 The views expressed in this article are those of the author and do not necessarily represent those of WIPO. Comments, suggestions or any other feedback concerning this article may be sent to firstname.lastname@example.org
3 A license agreement is a contractual agreement under which a licensor (owner of the IP) permits another (licensee) to use the IP right in an agreed way, and in exchange for an agreed payment (fee or royalty).
4 Source: “EURO 2004™ superstore opens”, 4 June 2004, http://www.euro2004.com/portugal2004/ organisation/Kind=1/newsId=187302.html.
5 Endorsement refers to a person informing the public that he/she approves of the product or the service or is happy to be associated with it.
6 Source: USA TODAY, 5/08/2003.
7 “Property rights” are the rights attached to a fictional character. They include the right to use a fictional character (or more precisely his name, image, appearance, etc.), the right to receive the benefits resulting from its use and the right to dispose of it. “Personality rights” or “publicity rights” are the rights attached to, inter alia, the name, voice, signature, image or appearance of a real person. Those rights include the right to control the commercial use of the essential personality features and to receive the benefits resulting from such use.
9 The question whether the essential personality features of a real person may be registered as marks is more debatable, mainly with respect to the image (portrait). In some countries, however, the person may obtain the registration of his name or appearance as a mark. A solution may also be to adopt stage names, nicknames and personalized logos which may be easier registrable (for example, the ‘Rolling Stones’ with their ‘Tongue and Lip’ logo).
10 A proper copyright notice may deter potential copiers and, in case of an infringement, the copier will not be able to argue that he or she acted innocently. Generally, a valid notice should contain: the copyright symbol ‘©’ or the word ‘copyright’; the year in which the work was reproduced or distributed; and the name of the copyright owner. It is also advisable to include the phrase ‘All rights reserved’.