Under copyright law, authors of original works have a bundle of rights, including the following; the six economic rights or reproduction, preparation of derivative works, the right of distribution, public performance, public display, and digitally transmitting sound recordings. Under the first sale doctrine, an individual who purchases a copy of an original work can dispose of such a copy by selling it, irrespective of the exclusive rights of the copyright owner. However, it is important to note that the first sale doctrine does NOT protect an individual who makes copies that are unauthorized and distributed those copies. Overall, the copies need to be legitimate under the law for them to be distributed. The one exception to this is if the work is considered fair use. That said, let’s take a look at copyright licensing and what you need to know if you’re looking to get one.

Copyright Licensing Rules

A copyright license will dictate all the terms of the transfer of rights. Specifically, it mentions things like; which rights are being licensed, the number of uses, to what extent the work can be used in the public, and the length of time the license will exist. Licenses also usually talk about any obligations on the part of the licensee. A good example of this is an owner that licenses their work to be distributed only in a particular geographic region. If the licensee does not stick by this requirement, the copyright holder can sue the licensee for infringement.

Also, under s.205 of the Copyright Act, authors are permitted to terminate grants of copyright licenses if certain conditions are met. For example, when an author dies, the people who own more than half of the author’s interest can terminate the license.

Crafting The Licensing Agreement

First of all, it is important to remember that the complexity of these agreements varies widely. However, there are some basic issues that are consistent. One issue that is particularly important to the artist involves the advance against royalties. This is essentially a lump sum fee that the licensee pays to the artist upon finalization of the agreement. The agreement itself will likely state that the artist is to refund the advance if the terms are breached. Some agreements contain this part and others do not. It really depends on the parties’ context and the negotiating strength of the lawyer.

Calculating Royalty Fees

In these kinds of payment structures, the royalty percentage will vary (depending on the terms of the agreement), however, the usual amount is less than 10%. The common formula for calculating royalty fees involves looking at the net sales of the product, but it is important to remember that this is not always the case. In fact, sometimes royalties are calculated based on the total number of products sold (not the net amount).

Another very important consideration when calculating royalty fees is the bargaining strength of the parties before the negotiations start. For example, if the artist starts the bargaining process with a strong position, they may want to negotiate a minimum royal annual payment (regardless of sales).

This essentially means that the licensee will pay the artist a fixed amount at the start of the year, or at some agreed-upon date during the year. In this arrangement, if the royalties fall short of the guaranteed payment, the artist will not suffer any losses. The only exception to this is if the agreement states that a shortfall will be applied to future payments. Therefore, it is important to remember that these situations are not always so cut and dry. At the end of the day, it really depends on the mutual understanding both parties reach after the negotiation process.

It is also important to remember that before the artist finalizes their agreement, they should feel confident that the licensee will behave ethically and in good faith. In this regard, it is prudent to continuously monitor the sales targets under the agreement and whether they are being reached. Most agreements also contain a provision that requires the licensee to pay the artists’ legal fees if there is an audit dispute and the artists win.

International License Agreements

Before the artist signs a license agreement from a company that is not based in the US, meaning one that is international in nature, it is imperative to make sure that the foreign company is reputable. This is because the artist will need to trust such a company to bring the legal actions needed to enforce their rights if necessary. This is especially important, bearing in mind that there is no international consensus on how to deal with copyrights, trademarks, and patents. Note that the company may provide references to the artist, however, a prudent move for such a creator would be to contact other content creators in order to get their first-hand experience with the company.

Copyright License Disputes Within The US

Most domestic license agreements provide that the licensee consents to jurisdiction in the United States. However, it is important to note that jurisdiction does not equate to which specific court will be handling the dispute. This essentially means that slightly different laws might apply to the case, depending on which court hears the resolution. Hence, a choice of law provision should also be included in the agreement.

It is important to remember that the courts are not the only way to resolve disputes. This is especially true when it comes to licensing agreement disputes. Instead, the parties can choose to use an arbitrator. This arbitrator will make a decision based on the merits of the dispute. Therefore, the process is similar to a trial, the main difference being the level of formality (which by extension means that the procedures are different as well). 

Final Remarks: Copyright Licensing

In conclusion, if an artist wants to license one of the rights they have as the owner and creator of content, they can do so via a licensing agreement. Drafting this agreement can be complex, and there are many issues that new artists may not be aware of. Therefore, it is prudent to hire the appropriate attorney, who can assist an artist in licensing their work to prospective clients.