Following the U.S. government’s most recent announcement regarding tariffs, and with governments around the world announcing retaliatory tariffs of their own, licensing executives across the globe are re-examining their strategies to mitigate the impact of these policies.

To support brand owners, manufacturers, and retailers as they adjust their business plans, Licensing International sat down with Jed Ferdinand, Partner and Chair of the IP Group at Meister Seelig & Fein, and Steven Heller, President and Founder of The Brand Liaison, to discuss how the global brand licensing industry can best address the issue of tariffs.

When considering the current tariff policy in the U.S., what is the biggest concern for brand owners?

Jed Ferdinand: A major concern for brand owners is the impact of the tariffs on pending licensing deals and the interference with prospective deals. The tariffs, particularly the 145% rate for China, are making it financially difficult or even impossible to continue to import certain goods into the U.S. Profitable licensing deals rely on a stable supply chain. When there is a disruption like this and licensee partners begin to suffer financially, the result is likely to be a slowdown in wholesale sales to retailers. There appears to be an even greater impact on pending or prospective deals, as we are currently experiencing a pause across the board as licensee partners seem unwilling to take financial risks until the tariff situation stabilizes.

Steven Heller: For brand owners, licensing is designed to accomplish multiple goals simultaneously. Obviously, royalties based on the sale of licensed products is a tremendous source of revenue, but licensing also brings expanded brand presence and increased touch points with consumers, driving sales of other products or even promoting movies and other releases. These new and excessive tariffs are leading to a sudden and significant decrease in the volume of products on the shelves, which threatens the entire licensing program of a brand. Brand owners do have some protection based on provisions for minimum guaranteed royalties, but the successful licensing programs are not about collecting guaranteed minimum royalties. Most brand owners are looking for revenue streams significantly above the minimums. Plus, if the licensee doesn’t stay in business or doesn’t renew the licenses, the brand owner won’t even have those minimums at all. I’m not trying to be alarmist, but the effects can be devastating.

What is the biggest concern for manufacturers?

SH: From the manufacturer side, the importers are going to see a significant increase in their cost of goods, which is going to lead to significant increases in the wholesale sales price and exponentially higher retail prices. And if the retailers are not willing to pay that additional wholesale price, then the manufacturers will lose sales and lose profits. And if their sales volume is less, there will be less product on the shelves and whatever products are there will be scarce and more expensive. I don’t see any winners here.

JF: Steven is 100% correct. I always like to talk about “winners and losers” in every situation, but there are no winners here. I have clients across most areas of fashion, accessories, and consumer products, and every day I hear about order cancellations and pauses on goods coming from China. This directly impacts the manufacturers and then has a ripple effect downstream through the entire supply chain.

What is the biggest concern for retailers?

SH:  Lower sales, lost customers, less product available, and all at higher prices. There is a reverberation of adding costs that continues to increase throughout the supply chain, and the result is exponential increases in prices. The markups move throughout the supply chain, from first cost to landed duty paid cost, plus the importer adding its profit margin to the now increased cost of goods to get to a wholesale price, and then that wholesale price again being marked up to get the retail price. You can see how each pass-through and mark-up exponentially increases the effect of the tariff. We talked about brand owners, manufacturers, and retailers, but the real loser is the American consumer.  Whatever product is on the shelves will be more expensive and ultimately there may be shortages of products.

JF:  Again, this is lose-lose all around. Prices are going up at retail, but they can’t go up 145%, so retailers are having to work with wholesalers and manufacturers to allocate the cost burden, which means lower margins for everyone. And then there is the issue of goods availability. Clients are telling me, for the most part, that they pre-bought inventory months ago anticipating a tariff increase and that they have current stock that will last for several more months. This means that wholesalers are currently still able to fulfill orders to retailers. But if the tariff burden is not reduced by this summer, we will very likely see fewer goods on store shelves.

What short-term strategies are these parties using to address these concerns?

JF: All members of the supply chain are discussing how to allocate and share the burden of the tariffs, especially for the non-China tariffs. For goods from China, we hear about pauses and cancellations, or companies trying to figure out how to source goods from other countries as quickly as possible, which is difficult because it becomes an issue of quality and capacity.

Can you explain the concept of a Force Majeure clause in a licensing agreement, and how it is being applied in this situation?

JF: This is a really interesting and important topic. A Force Majeure clause excuses a party’s contractual performance obligations because of an event beyond its control that renders performance to be impossible, such as an Act of God (hurricane), war, or pandemic. Most well-drafted license agreements contain a Force Majeure clause. They are particularly important for licensee-manufacturers who are on the hook for substantial annual guaranteed minimum royalty payments at a time when they may be unable to make sales.  The clause allows the licensee-manufacturer to avoid substantial business losses.

A typical force majeure clause defines the set of events giving rise to non-performance and provides a period of time for performance to be excused. Some clauses even allow for contract termination if the event continues for a long period.

The question now becomes, can a licensee-manufacturer rely on a Force Majeure clause by claiming that a 145% tariff from China renders business impossible? The analogous situation is the 2008 financial crisis, which was catastrophic for many. It was a liquidity crisis as most companies had no access, or limited access, to credit at that time. Some creative companies, including then real-estate developer Donald Trump, tried to rely on Force Majeure clauses to excuse performance or terminate contracts entirely. For the most part, they were unsuccessful, as courts ruled that a business downturn was not an act of Force Majeure.

Even though Force Majeure clauses were not successful in 2008, we still expect some smart lawyers may try to make the argument that the current tariff situation is an act of Force Majeure, especially because when President Trump announced the new tariffs on April 2, 2025, he declared that foreign trade and economic practices have created a “national emergency.”  The use of that phrase as the legal basis for the tariffs is exactly what Force Majeure clauses are meant to protect against.

For long-term planning, how are existing licensing agreements evolving in response to the current tariff policies?

SH: I don’t know if the phrase ‘evolving’ is actually the right term. There is definitely a response required, but it’s not uniformly applied, as different products from different countries with differing tariff rates all require different treatment. These are unprecedented times and, although there are parallels to 2008 financial crisis and the COVID pandemic, the responses and effects are very different.

There is a need for flexibility in connection with the terms of existing licensing agreements where both sides need to come together to find winning solutions. We have been negotiating amendments to license agreements under various scenarios that could include revised definition of Net Sales, reducing royalty rates, relaxing GMR and GMs requirements, removing marketing spend requirements, and other solutions. And even within those subcategories, there is a large range of potential solutions depending on the specific circumstances at hand. So, while there is no uniform solution, we do see a very strong willingness on the part of both licensors and licensees to come to the table to find mutually agreeable terms that fit the situation.

What do brand owners and manufacturers need to include in future agreements to help alleviate the increased costs associated with these tariffs?

SH: Whether it’s making an amendment to an existing agreement or negotiating a new agreement, provisions need to be made to account for vastly different treatment of different types of goods from countries around the world. There is no one-size-fits all solution, but some good starting points would be revising the definition of net sales, reducing royalty rates (permanently, temporarily, or using a tiered structure based on applicable tariffs), collateralizing annual requirements, deferring or adding time to achieve thresholds, and adding new channels of distribution. If there are no other viable options, the parties could also consider mutual, amicable termination because this too shall pass and, at some point in the future, the parties can resume their positive business relationship.