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Foreign Licensing Deal

by Ben McLane, Esq.

Foreign licensing deals are becoming quite common today as the appetite for American acts grows internationally. Further, they are an excellent avenue for an artist to sell product worldwide without having an actual record contract. Although such an agreement is similar to a domestic recording contract, the essence of the foreign licensing deal is that the artist is licensing the master to a foreign company ("company") to manufacture and distribute the CD. This article will briefly discuss some of the main deal points which are incorporated into a foreign licensing agreement.

Territory. The territory is defined to be only specific continents or countries. It is important that the territory not be stated as being for the "entire world". It is best to limit the territory to the areas that the artist feels the company can sell CDs. The licensed territory should be spelled out (e.g., Japan, China, etc.)

Product. The licensed CD should be defined by title(s) so that the company does not infer that it is being granted the right to release the artist's entire catalogue.

Rights. The artist will normally grant to the company the right to (1) manufacture and sell the CD; (2) use of the name and likeness of the artist in connection with advertising and sales; and (3) the right to publicly perform and broadcast.

Money. The company will make payments to the artist in the form of royalties and advances. The royalty will usually be a percentage of the suggested retail list price in the licensed territory on records sold, or, if there is no such list price, the equivalent in that territory. Sometimes, the royalty will simply be a certain number of the company's country's currency for each CD sold (e.g., three German marks for each copy sold). The artist could request that royalties be paid in U.S. dollars. The artist should also expect an advance against royalties (i.e., recoupable). Here, unlike domestic recording agreements, the company generally will absorb the costs to manufacture and sell the CDs and not charge these costs back to the artist.

Guaranteed Release. The artist should insist that the company commence manufacturing and selling the CD within a few months after the deal is signed, or else the rights granted will terminate and revert back to the artist. Logically, the company wants to release the CD because it bears all the costs of manufacturing and selling; each record sold results in a payment to the company.

Payments. Royalty payments are generally due to the artist semiannually within 30-90 days following June and December of each year. Such payment will be accompanied by a statement setting forth the amount of CDs sold, if any, and the royalty computation.

Copyright. The copyright to the master(s) remains with the artist. The artist is only granting to the company the right to make reproductions of the master. The artist should make sure that the company puts the proper "notice of copyright" on the CDs manufactured (i.e., and _ 1997 [name of artist]).

Termination. Once the term ends, the company is usually allowed a sell-off period of six months for the CDs already manufactured (with royalties still payable).

Copyright 1998, Ben McLane
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