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Nicholas Cravotta and Rebecca Bleau - Contracts Are Your Friend

Contracts Are Your Friend

There’s a lot of anxiety that comes up around contracts, especially if you’re new to the toy and game business. There are lots of stories about companies trying to get the most they can for themselves at the expense of inventors.

Certainly, there are companies who still take such a “power” approach to contracts. However, there is a growing trend of using contracts to help build the relationship between company and inventor.

Rather than focusing on maximizing short-term gains (i.e., squeezing all you can from the concept currently being licensed), more and more companies are recognizing that the greatest gains arise from a long and fruitful relationship. One of the ways they do this is by stepping away from the game of inserting clauses into contracts that you are expected to ask them to remove.

If you’re new to this business, you’ll figure out what these clauses are eventually (i.e., indemnification, defining net sales, end-of-life, worldwide rights, and others). And you’ll learn to negotiate for them. It’s all part of growing up, so to speak.

But there’s a long-term element at play here worth considering. How do you feel about a company that took advantage of you when you didn’t know any better? Now let’s flip the question: How do you feel about a company that treated you with respect and fairness when were you new to the industry?

Yes, contracts are about money. But they also play a key role in defining the relationship between company and inventor. Consider: two companies want to license your concept. One likes the pressure of complex contract negotiations and has pushed for clauses that have cost you in the past. The other company plays straight, and when they say, “We want to have good relationships with inventors”, these words are reflected in their contract, their timeliness in paying royalties, how long they take to review your concepts, and so on. Yes, inventors remember these things.

And we share them with each other.

Want to have solid long-term relationships with your inventors? Put the “fair” or standard clauses in your contracts to begin with. At the very least, as an industry, let’s stop wasting months “negotiating” over the same issues.

Next, recognize the benefits of working with reliable people. What is it worth to your company to work with someone is a known quantity who delivers on time and provides a consistent level of innovation and quality?

I am familiar with several companies who begin to offer higher royalty rates the more business they do with an inventor. Their first contract with you is at their lowest rate. But as you work together and they discover what you bring to the table, they bump up the royalty rate without even asking.

It’s a clever tactic, really. Because who are you going to show your best concepts to first?

In closing, inventors: don’t take a bad contract personally. Companies: understand that your contracts provide a clear and definitive indication of how you do business.

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