Who would have thought that a 17-year-old girl would spark a generation of Filipino stars on Broadway and the West End? That was what Lea Salonga did when she got the role of Kim in Miss Saigon 27 years ago.
Lately, we have Filipinos winning reality talent shows all over the world and bagging plum roles in rock bands and sensational roles through YouTube and other social media networks.
For Lea and the constellation of Filipino stars that followed, a valuable brand—or to use a much broader term, brand intellectual property (IP)—could arise through a successful audition, excellence in sports, creation of a new fictional character or concept, or a new television format.
Not only are literary and artistic and athletic achievements the subjects of IP, other commercial endeavors, like a successful restaurant business, are usually covered by IP.
We have several restaurants that have been around for years like Max’s, Jollibee and even the relatively new Mang Inasal. Their critical and commercial success meant that they are harboring hand-me-down trade secrets or patents that are subjects of IP. Restaurateurs and other business owners should be granted rights on their trademarks, secret recipes and related trade secrets the same way that Salonga and other Filipino artists are granted copyrights on their creations.
In all cases, the brand represents intangible value above and beyond a singular product or service.
Now, imagine this: you have an IP, or you are hot property, and licensees are beginning to knock on your door suggesting new ways to exploit your brand. Well, what do you do? Aside from registering your IP with the IP office, which is first and foremost on our list, here are our six tips to ensure new and growing brands are protected.
1. Nail down a license agreement
The backbone of your relationship with any licensee is the license agreement. Work with experienced advisers at the start of the process to ensure the agreement covers all matters that are important or may become important to you.
Pay extra attention to deal terms that may be open to interpretation. Any ambiguity can cause grief later on down the line. Prioritize issues that are important to you and use creative deal terms to ensure that these are fully covered in the agreement.
2. Get the experts in early
Engage lawyers and accountants who can bring their cumulative legal and forensic experience to your benefit. Advisers can help you consider and define your key terms early:
Specifying royalty rates for different income streams, reflecting the margin norms of the licensed product category (if the rate is too high, retailers must be willing to reduce their margins – if too low, you lose potential income), or tiered royalty rates based on sales volumes;
Distinguishing between sales based on invoicing and sales based on cash receipts;
Clearly identifying who bears the risk of bad debts and wrapping this up within the definition of ‘sales;’
Clarifying allowable deductions and perhaps giving some clear examples of what is not an allowable deduction;
Spelling out any overall caps on total deductions or any marketing commitments required from the licensee (to ensure sales are optimal) or your rights to factory approvals.
3. Make sure boundaries are clear
Specify if the licensee is allowed to hold back reserves for product returns, provide price increases without approval, or enter into transactions with related parties without your consent. Ensure the process for approving any special price increases are explicitly explained, and remember to consider that wording accounts for the rapid evolution of technology – you cann ot predict the future but you can predict that the future will look different: so utilize language that will protect you, whatever happens.
4. Know your audit rights
One of the most important license terms, of course, is your audit rights. All licensing is risky but a licensee monitoring program will help to reduce this risk significantly. Trust is not enough; include audit rights and spell out how long you have to ‘look-back’ – the period after which you are no longer allowed to audit a royalty statement.
5. Exercise your right to audit
Ensure you engage auditors that understand the industry and the ongoing nature of your relationship with your licensing partners—the delicate line you tread between trust and control. Audit results reflect more than just underpayment of royalties; it helps you identify contract languages that have unintended consequences and may help to identify any unauthorized or damaging use of your brand or IP early.
6. Maintain good relations with your constituents
Finally, don’t make your relationship with your licensees (or your advisers) purely transactional—communicate, communicate, communicate.
Goods and services today contain a high proportion of design, invention, creativity and identity that make them highly saleable and marketable. Thus, not just for entertainment stars like Lea Salonga or a successful restaurant chain like Max’s, any young brand should look after their exclusivity and put the necessary protections in place from the beginning.
Mai Sigue-Bisnar is a partner, Audit & Assurance, and head of the Markets Group of P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory and outsourcing firms in the Philippines, with 21 partners and more than 800 staff members. For your comments, please email firstname.lastname@example.org or PAGrantThornton.email@example.com. For more information about P&A Grant Thornton, visit our website www.grantthornton.com.ph.
As published in The Manila Times, dated 11 January 2017