How to end the abuse of litigation in SEP licensing
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Successfully maintaining the licensee-licensor relationship through a crisis means both sides making concessions, Aislinn Burton explains.
“The long-term relationship between a licensee and a licensor is a lot like a marriage,” according to Adina Avery-Grossman, Partner at Brandgenuity LLC (US).
“Marriages have to be able to sustain good times and bad times, and what has been really heartening is how much licensees and licensors have approached this time of the COVID-19 pandemic with that spirit: we’re in this together,” she said.
Ms. Avery-Grossman shared this insight into the licensee-licensor relationship yesterday, during Licensing in Crisis: What Are Brands Doing Now with Existing and Future License Relationships.
In her experience, a relationship sits at the center of each licensing agreement, so, particularly during tough times, it is important to be more collaborative and less antagonistic.
This is especially relevant during the COVID-19 pandemic because many licensees and licensors are facing the same challenges, including changing consumer behaviors.
“‘Where is the consumer?’ ‘What is she up to?’ ‘What has changed?’ ‘How do we pivot online?’” These are just some of the questions facing both licensees and licensors, Ms. Avery-Grossman said, and by maintaining open channels of communication with one another, mutual support can occur.
“With brands, it’s important not to take your eye off the long game.” - Adina Avery-Grossman, Brandgenuity LLC
Moderating the session, Marc Lieberstein, Partner at Kilpatrick Townsend & Stockton LLP (US), suggested that this desire for communication and understanding is prevalent not only between licensees and licensors, but also between the lawyers who represent each side.
He has recently been involved in “self-mediation,” in which the lawyers for the parties to a licensing agreement get together to try and help their respective clients reach a satisfying resolution.
“Nobody wins if everybody goes to war,” he said, referring to the commencement of proceedings. “The best thing is often for lawyers to try and solve the problem, rather than filing a complaint.”
“Nobody wins if everybody goes to war. The best thing is often for lawyers to try and solve the problem, rather than filing a complaint.” - Marc Lieberstein, Kilpatrick Townsend & Stockton LLP
Reasonable Accommodations Louis Drogin, also a Partner at Brandgenuity LLC (US), said that, during the course of this year, many business partners—including licensors and licensees—have stuck to the long-held philosophy that they value each other’s business and hope to continue their working relationship. Part of this includes making reasonable accommodations, where possible.
For example, in some instances licensors have agreed to renegotiate the contract provisions regarding the licensee’s royalty rates. They have temporarily lowered rates for the immediate future in response to the current situation. As reflected in the contract, royalties will increase again in future years to make up for this short-term loss.
“This works for long-term agreements, because there is time to make up any loss,” Mr. Drogin commented.
In situations such as this, brands should consider each licensing agreement separately, as an individual, stand-alone partnership, and work out what unique accommodations might be best in the context of that partnership.
Joseph Conklin, Senior Vice President, Global Deputy General Counsel at Coty, Inc. (US), said he is seeing more discussions between licensees and licensors around their advertising spending obligations.
“Consumer behavior is shifting before our eyes,” said Mr. Conklin, noting that the increasing amount of time consumers are spending online has risen even more during the pandemic.
Under some agreements, licensees may be obliged to spend a certain amount of money on a particular type of advertising. For example, if an advertising commitment centers on retail or print, this may need to be revisited if stores are closed or people are reluctant to do onsite shopping.
Mr. Conklin warned that, despite this shift, renegotiations of this sort will not always be successful. “The licensor may want to see advertising in retail or print anyway,” he said.
“There might be short-term opportunities, but you always need to be true to the DNA of the brand.” - Joseph Conklin, Coty, Inc.
Playing the Long Game
Despite the hurdles this year and the uncertainty brought by COVID-19, the panellists agreed that brands must consider their sustainability in the longer term, rather than focusing on the current situation.
“With brands, it’s important not to take your eye off the long game,” Ms. Avery-Grossman urged. “Never take your eye off that ball.”
While the pandemic may bring about immediate opportunities, such as the surge in consumer demand for face masks, licensors should consider whether their brand should be used in such opportunistic ways. They must contemplate whether that space is really an area that they should be in and how it may impact the brand in the long term, Ms. Avery-Grossman said.
Mr. Conklin agreed, saying: “There might be short-term opportunities, but you always need to be true to the DNA of the brand. You shouldn’t do something that will come back to bite the brand in the long run.”
Ms. Avery-Grossman suggested that brands should be considering how the world will look differently post-COVID-19: “How will consumers be behaving differently?” she asked. “What products will be necessary to make this new world work for consumers?”
Mr. Drogin noted that consumers have already adapted to this “new normal,” especially in relation to online shopping—and that this is here to stay.
But, he predicted, the pandemic would lead to further changes in consumer behavior.
“There is a pent-up consumer demand to shed the sweatpants, wear lipstick, go to the movies, and travel again,” he suggested. “Some things will continue, some will go back to normal, but we will never be the same.”
Mr. Conklin agreed that while consumer behavior has changed, the nature of the licensee-licensor relationship will “absolutely” continue to be complementary and commercially beneficial.
“It’s a beneficial relationship, and that will continue to be an opportunity during or after the pandemic,” he said.
INTA 2020, licensing agreement, COVID-19, brands, royalties, pandemic, Kilpatrick Townsend & Stockton, Coty