In order to grant a merchandise license, there must be a property that is protected or capable of being protected, and the licensor must hold or control the right to license that property for the products covered by the license. Typical licensed properties include artwork and designs, trademarks, and celebrity images.

Protected or Protectible Property

If the property that is intended to be the subject of the licensing program is not protected or capable of being protected, a potential licensee will not need to obtain a license from the licensor, and can simply proceed on its own. Similarly, if the property cannot be protected, the merchandise produced by a licensee under a purported license agreement will not be portected, and any other party will be free to produce and sell knock-offs without any fear of being sued for infringement by the licensor or the licensee.

Sources of Protection

Merchandising properties are normally protected under copyright, trademark, or right of publicity laws. In some cases, a property may be eligible for protection under more than one law. For example, a character may be protectible under both copyright and trademark law. Other sources of protection, including trade dress or patent protection, may also apply in certain situations.

Rights in the Property

Before a licensor can grant a merchandise license, the licensor must own or control the merchandising rights in the property to be licensed. Issues of ownership and control can arise in a variety of situations, including the following:

• If a writer creates the text and an artist creates the illustrations for a children's book, who owns the merchandising rights in the book or the characters depicted in the book? (The answer may lie in whether or not the book is considered to be a joint work under the joint work provisions of the U.S. Copyright Act.)

• If a publisher has a license to publish a book, or a recording studio has a license to produce and distribute an album, does that license include the right to produce and distribute or license others to produce and distribute merchandise based on the bood, the album, or other related elements (e.g., the band's name)?

• If a movie is based on a play, who holds the merchandising rights in the work? Are there two sets of merchandising rights - one for the play and one for the movie?

• If an artist is a shareholder of a corporation, is the artwork that she creates a work made for hire, with the copyright owned by the corporation, or is the copyright in that artwork held by her individually

• If the licensor has previously entered into other license agreements for the property, do those agreements restrict or prohibit other possible licensing deals?

In some cases, ownership and control issues can be resolved by reviewing the other contracts (e.g. publishing or production agreement) for the creation and initial use of the property. In other cases, it may also be necessary to trace the chain of title back to the origination of the property. In any event, the licensor and licensee should always confirm that the licensor owns or controls the property and the merchandising rights to be licensed, and the licensee should secure representations and warranties to that effect in the license agreement.