Royalty agreement, lose modelrights?

I have a question regarding the model (design) rights: :slight_smile:
A furniture label offers me 3% royalties in return for the manufacturing, market and model (design) rights. Which means that I lose the rights for the design.
I always thought that there where two scenario’s:

  1. I get paid royalties in return for the manufacturing and market rights but I stay owner of the design.
  2. I get paid one big amount of money, and lose all my rights.

The interesting part is that this furniture label tells me, that if he only gets the manufacturing and market rights and not the rights of the design, he will pay me less royalties then the mentioned 3%.
On the other hand he says that it is not interesting for me to have the only the model rights, because they are worthless without the manufacturing and market rights.
If this is true, why will he pay me less royalties if he does not get the model rights? This doesn’t feel okay. :frowning:

I prefer to stay the owner of the design. What is your advice?

Terms in years?:
Is it possible to set up in the contract a term for example two or three years that the manufacturer gets the rights to manufacture and market my products? Because, what if he has the rights but doesn’t sell enough of them?

And what if he decides that after a view years he doesn’t want to manufacture and market my products any more. Then I like to go to another company with my designs. Is this possible?

Terms in countries?:
This manufacturer likes to market this product in our home country in Europe. Can I put in the contract that he only have the manufacturing and market rights for this particular country? This gives me the opportunity to look for other manufacturers in other countries who can market my products over there.

Well, I have a lot off questions. Hopefully someone can give me some answers.

Regards,
Yvonne :smiley:

There are many ways to strike a royalty agreement, but usually manufacturers have a strong preference on what they prefer. How much you can negotiate does depend a bit on what they will or won’t do or what you will accept. I think your suggestion is possible to limit in terms of years (probably around 3 years so they also have enough time to get some traction) and/or to limit markets. I know of cases where both have been done. Be aware that your ability to get value later will be diminished if things don’t work out, so it’s not a for-sure safety net. For example, an international firm may not want to sell to ‘other major markets minus one’ so you’ll be stuck trying to convince smaller individual distributors in each market. If the manufacturer isn’t successful after 3 years, then it will be hard to convince someone else that they’ll be successful with the same product. In some countries, the distributor can do with the product as they please so limiting markets may not be easy to enforce. Best bet, work with manufacturers you feel good about.

Regarding model, manufacturing, marketing rights: Logically, it doesn’t make sense to break up rights to the design as long as they are all limited together and can be retrieved or used together (such as after 3 yr term or limited by markets.) Legally, you’ll need to make sure that in your area, this type of assignment of rights doesn’t cause you to lose future remedy in case thing go badly.

Disclaimer: don’t take anything I say as legal advice.

I would sell the design outright to them for a large chunk plus royalties. We’re in a field that is supposed to make you money from your designs, not keep your designs in a sketchbook or full scale models in your living room.

Let them “have it all”… However, let them know you will be using it in your portfolio, listing yourself as the designer. That’s all legit. Make sure they OK it in writing. You can still state your claim as the designer of the product in your portfolio, while letting them have the design rights, etc.

Most important is that you get it in writing.

Best of luck.

The two replies above both contain good information. A few of things I would add:

  1. Ask if the manufacturer would consider an upfront advance of some of the royalties. For example €20,000 to you as a lump sum, then when €20,000 has accrued in royalties they start paying at 3%. If they refuse it may be a sign that any estimated sales figures they may be telling you are ‘optimistic’.

  2. A term limit is absolutely possible, and done quite often. It’s not just that your product might not sell enough, it may be that it sells extremely well and another manufacturer will offer you better terms.

  3. Make sure you (and they) understand the difference between design right and copyright. Design right does not allow the manufacturer to slightly change what you have done and sell a new design, nor does it prevent you changing the design and selling it to a different manufacturer.* If that’s what they want to do they need to buy the copyright, which usually costs more, since it gives the owner greater rights than design right alone.

  4. If it’s in any way affordable for you, consider getting an agent or legal expertise. Not only will they understand all the finer details, they won’t be embarrassed or intimidated when arguing for the best deal.

  • This can be a bit of a grey area, but for example if you have designed a chair you should be clear whether the manufacturer thinks they can prevent you removing the back and selling the design of a stool.

Thanks everyone, for all the advice! :smiley:

Best regards,
Yvonne

Matt___

  1. Ask if the manufacturer would consider an upfront advance of some of the royalties. For example €20,000 to you as a lump sum, then when €20,000 has accrued in royalties they start paying at 3%. If they refuse it may be a sign that any estimated sales figures they may be telling you are ‘optimistic’.

This suggestion is a good one – one thing to add to this is to have manufacturer begin paying royalties as soon as there are sales, withholding 50% of the royalty payments to repay the advance against royalties, this way you get more money sooner. The advance is two things, a good faith payment and money to help cover your the cost of development. Without the advance you may be waiting forever to get a royalty payment.

Remember that you can negotiate anything in these agreements – I would never give up rights to the design. Too many designers are so eager to sell something that they give away everything. If one manufacturer is interested there will also be others.

Is this a volume product? 3% is a very good royalty for high-volume furniture, and the rights arrangement you’re being asked for is not unusual. I don’t see a lot of time-limited contracts in my part of the industry. The only exception would be if you have come up with a very unique or patented invention, in which case a limited license would be expected. Most furniture has a pretty limited lifecycle anyway, except for big hit products. And if you find a big hit, the manufacturer doesn’t want you coming back and renegotiating your rate in a couple years.

An advance on royalties would be very unusual where I come from, unless maybe you’re willing to take a hit on the rate. You’re asking for an interest-free loan in effect. Businesses are all about cash flow, and the nice thing about royalty arrangements from a manufacturer’s point of view is that they don’t require upfront expense.

If they refuse it may be a sign that any estimated sales figures they may be telling you are ‘optimistic’.

That’s not necessarily true. Manufacturers I work for would never estimate sales volumes upfront in the first place. You never know how something is going to do until you show it. I’ve done great stuff that has fizzled and not made production, or sold poorly and been dropped after the first cutting. Should someone have paid me a $30k royalty advance for those? If they had, I would have felt pretty guilty for keeping it.

If you want guaranteed upfront money and security, you should be looking for a job. Otherwise you have to accept some potential downside with the upside. And 3% of $5,000,000 is a lot of upside.

I have to agree with Scott on many of his points. There can be a number of reasons for a manufacturer to go with a royalty agreement rather than hiring a designer or paying for it outright. Cash flow, share the risk, or you have a really compelling design might be some of the reasons. No manufacturing company wants to worsen their cash flow position and it’s usually one of the main reasons to go with a royalty situation. It’s not realistic as a designer to assume that you are going to be able to get paid as if there is no risk, and get the upside as well.

I don’t know if the 3% royalties are enough, I’ve heard of companies that offer as high as 10%, perhaps you should check them out?
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