As licensors and licensees scramble to restructure contracts in the wake of COVID-19, there are many options for softening the financial blow.

Some strategies to be considered were laid out Wednesday during Licensing International’s webinar, “Creative Solutions to Licensing Issues Caused by the Coronavirus,” led by Brand Liaison Founder and President Steven Heller.

Communication
The key, even before diving into the specific clauses, is to communicate as openly and regularly as possible about issues, business details and potential solutions to find ways for both sides to get through this tumultuous period and resume healthy relationships once business gains a steadier footing.

“Things will be different going forward and we are going to have to work together to find solutions,” Heller said. “We are past managing everything on a case by case basis, because that could become unmanageable. It’s time to adopt plans or [at least sets of] guidelines that can be applied to” either all or a limited number of groups of licensing cohorts.

Avoid court
During the hour-long webinar, Heller reviewed a variety of approaches to overcoming contractual challenges well before anybody thinks of heading to court. Legal battles, said Heller, are expensive, distracting, carry uncertain results for both sides and damage relationships.

It’s better, he said, to try to work through the issues that envelop virtually everyone in today’s environment. Among his ideas:

• Adopting an 18-month licensing year, or “2020 and 1/2”. In other words, spread everything – guarantees, payments and any other time-dependent terms — over six quarters instead of four. This provides payment to the licensor and enables licensees to recoup their investment.
• Reducing or waiving MGs for Q2 or the remainder of the year and re-start with the standard contract after. While this will likely result in a dent in a licensor’s revenue, it will buy licensees time to rebuild their business and foster a tighter partnership for the long term.
• Combining 2020 and 2021 and cross-collateralizing guaranteed minimum revenue or guaranteed minimum sales requirements to allow licensees to recoup lost business in 2021.
• Considering non-financial concessions to provide relief for non-performance, whether by brand owners or licensees. The brand owner might consider extending the agreement to additional geographic markets, or additional tiers of distribution that weren’t included in the original agreement. A licensee might cede some merchandise categories, letting it concentrate on core competencies.

Members of Licensing International can access the full webinar in our archive.

The next Licensing International webinar will be Wednesday, April 22, when Bryan Bergman and David Schnider – partners at  the law firm Nolan Heimann – will offer A Status Report on Cannabis and Branding in the U.S.