{"id":5000,"date":"2016-04-04T10:47:50","date_gmt":"2016-04-04T15:47:50","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/smallbusiness\/intellectual-property\/licensing-artwork-key-issues.html"},"modified":"2024-05-22T02:59:40","modified_gmt":"2024-05-22T07:59:40","slug":"licensing-artwork-key-issues","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/intellectual-property\/licensing-artwork-key-issues.html","title":{"rendered":"Licensing Artwork: Key Issues"},"content":{"rendered":"\n
\n \n
\n

Licensing Artwork: Key Issues<\/h1>\n
\n
\n By Taylar-Simone McCants, J.D.<\/a> | Legally reviewed by Amber Sheppard, Esq.<\/a>\n | Last updated\n
\n

Editorial Note: We earn a commission from affiliate partner links on FindLaw. Commissions do not affect the editorial integrity of our legal content.<\/p>\n\n <\/div>\n \n

\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
\n

This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
\n

The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n

As a small business owner, you may wonder how to expand your company and get other streams of income. This is especially true when it comes to owning an art business and wanting to showcase your artwork. If you have an art business that demands others use your work, you must know the legal concerns in licensing artwork. There are many things to consider as a full-time artist pursuing a lucrative art career.<\/p>\r\n

Art licensing gets your work seen. It also gets you paid. Art licensing involves permitting others to use your artwork in exchange for royalties or licensing fees. This article addresses the key issues to consider when licensing artwork.<\/p>\r\n

Intellectual Property Rights<\/h2>\r\n

As a new business, you must ensure that you have the intellectual property rights to license the artwork. This may include copyright<\/a> or trademark<\/a> rights.<\/p>\r\n

Licensing Agreement<\/h2>\r\n

A licensing agreement is a legally binding contract outlining the terms and conditions for another person or company’s use of your artwork. A license is similar to a rental agreement. The rights of your artwork remain yours and yours alone, but someone else gets to use it because they paid you for it.<\/p>\r\n

The licensing agreement should include the specific rights granted and the territory, duration, and limitations of the use. The agreement should also define how the licensee can use your artwork. The scope of use should specify the intended purpose, such as editorial use and use in commercial products, advertising, and merchandise.<\/p>\r\n

Selling Artwork Yourself<\/h2>\r\n

If you are selling artwork yourself, you should have a business license<\/a>. You can operate under a business name or your own name. You will obtain a business license from your state’s Secretary of State. You may also need an occupational license from your city or county in addition to your business license. Some online retailers like Amazon and Etsy do not require a business license<\/a>, but that does not mean you should not get one.<\/p>\r\n

A business license allows you to operate under a DBA (Doing Business As). Artists who sell their artwork are generally considered self-employed. You can pay yourself a salary or take member draws or distributions. The IRS may require the artist to pay self-employment taxes. To determine if your art activities qualify as a business, the IRS considers factors such as time and effort devoted to the art activity, profit motive, and whether you have made a profit in similar art activities. You may need additional licensing, like a seller’s permit. Consult with a local accountant in your state to understand what tax issues and licenses you may need.<\/p>\r\n

Royalties and Licensing Fees<\/h2>\r\n

The royalties derived from licensing artwork<\/a> can be substantial, especially over a long period. This depends on the \u201creasonable royalty rate" you negotiated and assumes the product has a steady demand. But what is a reasonable royalty rate? How can you make a deal that favors you but is still comfortable for manufacturers, publishers, and producers? There’s no mystery to royalties\u2014you’ve created a piece of art (writing<\/a>, painting<\/a>, music<\/a>) that someone else wants to sell. So, you should naturally get a share of the profits. But make sure the rate you receive isn’t less than favorable, or you could be giving up more rights than you think.<\/p>\r\n

Calculating Royalties<\/h3>\r\n

Industries like music, manufacturing, and publishing calculate royalties differently, but they all must honor your negotiated royalty rate. Negotiating a good royalty rate is key to the entire process. For example, if you negotiated a rate of 5% and the sales equal $10,000, you will receive $500 in royalties. Sounds simple, but is the 5% based on gross<\/a> or net sales<\/a>? And if there are expenses in marketing or selling the products, do they get subtracted from the sale amount?<\/p>\r\n

Negotiating a Good Deal<\/h3>\r\n

Your relative bargaining strength, like how in-demand your work is, will determine how hard you can push for your terms. Gross vs. net sales will likely be a contention between you and the licensee. Gross sales are the total dollar amount of customer purchases. Net sales are the total amount minus certain deductions, such as taxes<\/a> and shipping costs. The licensee will want the royalty rate based on the net sales. At the same time, it’s most beneficial to you to establish the royalties on the gross amount.<\/p>\r\n

Assuming you’ve agreed to base your royalty rate on net sales, you should limit the deductions the licensee can take when calculating the net sales amount. Deducting sales tax, discounts, and even shipping costs from the gross amount is customary. But keep the licensee from deducting things that are out of your control and have nothing to do with your art. Other deductions you should avoid are:<\/p>\r\n