By Joseph A. Farco, Esq. of Farco ToyCo LLC and Norris McLaughlin P.A
As a toy inventor himself, Joe has an extensive experience in advising clients on intellectual property in the toy and gaming space. Joe advises clients on different IP protection methods, such as obtaining the right type of patent on your toy, copyrights and trademarks for different types of toy branding, and licensing and manufacturing deals involving the same. Joe also provides guidance to clients seeking to enter the toy space or produce a particular toy but want to be respectful of the IP rights of others.
The toy business is tough without the right help. However, no matter the intentions of the folks you choose to engage, always ALWAYS get the terms of that engagement in writing so it is clear what to expect from them and you. To do otherwise is like playing a video game without knowing which buttons do what things.
While these days people grab service agreements from various places (or ask certain artificial life forms to make them), it is critical you understand the various “must haves” that will keep you from being the proverbial sucker and let your potential partners that you mean business. The last thing you would want in pushing your fun ideas is the daunting task of having to fix a problem that could have been avoided right from the inception.
Provision 1: The Purpose and Scope of the Agreement
Your contract with your helper should make the purpose of the engagement clear. For example, “The purpose of this agreement is to outline the terms under which [Name/Company] will collaborate with [Name/Company] in the development, design, and production of a toy product or concept, referred to as ‘[Toy Name/Concept]’ and/or is depicted in Attachment A hereto, which is supplied by and originated with [NAME/Company].” This kind of provision makes it abundantly clear that you and your helper are there to do something developing, designing, and producing a particular toy. I would strongly advise including attachments of any incarnation or ideas of yours so that it is abundantly clear who is supplying what on day one of the agreement
Provision 2: Roles and Responsibilities
I have seen countless agreements with lofty language such as “assist with development,” “sponsor the product,” “help to launch,” or “provide creative input.” Ask three strangers (I would choose three librarians at a local library) to read the line in question and explain what they think that language means. If you get more than one answer, then you know that this contract language you intend to use is not specific enough.
If you wish to be lofty in the desires of your helper, then set forth their responsibilities in terms of the end goals you wish to achieve. For example, instead of stating “help to launch,” you might say, “ensure that 100,000 products are sold above cost over a three-month time period regardless of current marketing and promotion channels.” While your helper may object to that language, at least that level of specificity will help you and the helper know what you want so that no one enters the relationship with the wrong/unrealistic expectations. Don’t forget that the helper may ask the same level of specificity of your role and responsibilities, so be prepared to bring something to the table to keep things fair.
Provision 3: Ownership of Intellectual Property
One of the most critical aspects of any agreement with third parties in the toy business is the intellectual property (“IP”) provision. Besides, the whole point is that you are engaging with someone to help your ideas become (a) more fuller toy ideas; (b) real toys; and/or (c) valuable consumer products.
To achieve these three unique items, you must make certain that regardless of how you decide to compensate your helpers, that they know who will end up owning their creative contributions and industrial labor. For example, you might consider the following as language to ensure all IP created while bringing your toy to life is owned by one person/entity: “All intellectual property created in connection with the development of the toy, including but not limited to patents, trademarks, designs, and copyrights, shall be owned by [Party Name] unless otherwise agreed in writing. Furthermore, any inventions, designs, or ideas developed during the collaboration will be considered ‘work for hire’ and shall be the exclusive property of [Party Name].”
However, some contracts include this type of language to incentivize helpers in contributing to your project and plans: “If any new IP is created jointly, it will be jointly owned, and both parties shall have equal rights to it, subject to further negotiation.”
Keep in mind that ownership of IP is critical to its enforcement since only owners can sue for infringement. Therefore, be careful about how you split ownership of IP with others who may only be with your company for a short time.
Provision 4: Termination of the Contract
Many times, parties fail to consider how to terminate the contract with a helper and so omit a termination clause. For example, you may opt to use language such as the following: “Either party may terminate this agreement with [number] days’ written notice if there is a material breach or if the project is no longer viable.” Whether something is a “breach” is governed by whether you or your helper follow the roles and responsibilities set forth in such provisions. Many times, simply not doing what you agreed to do does not mean the contract is over. Some states will require a “cure” period for a party to correct any mistakes or omissions. For that reason, be sure that if you want the power of an early exit, you will need to make that clear from the language in a termination provision.
Harkening back to Provision 3, you should always make clear in the event of termination that “all rights to IP, products, and work completed up to that point shall be handled as follows: [specify terms of ownership, payment, etc.].” Unless you want to leave anything to chance, make sure you can tie up your contract with your helper so that it can be considered done when it is done.
Provision 5: Dispute Resolution and Choice of Law
Assuming something were to go wrong with your contract or your helper, you can control where the dispute gets resolved and what law should apply. Many toy business people forget that you can force contract participants to arbitrate their disputes and avoid costly court filings. Arbitration is particularly attractive because it is faster than your standard court contract dispute and the proceedings in arbitration can be done virtually, kept confidential so the entire ordeal is not out in the open for the public to stick its nose into it. If time, cost, and confidentiality are of importance to you, then you should consider having such clauses in your agreement.
Regardless of your decision to include arbitration language, you should definitely make sure you define the choice of law that applies to issues involving you and the other party. So for example, if you are doing business with a party located in a different state, you should consider the effects of having your contract interpreted by the laws of your state versus the other party’s state. Additionally, if the other party is in a foreign country, you should be aware that the other party would prefer their own law to the one of the United States. This is all the more reason why this provision is very critical to every agreement you decide to write with another person involving your toy and toy business.
CONCLUSION
While there are numerous other contract provisions that you should consider in drafting any toy business contract, the above are some of the critical ones that are typically at the root of problems between parties and/or critical ones that are omitted or not fully understood. If you have (or do not have) these critical clauses in your toy contracts, try to ask a licensed attorney if there are concerns.
