THE
KESSLER REPORT Continued
A Publication of Michael G. Kessler & Associates, Ltd.
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Volume
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A
New York Court Makes it Easier To Collect Minimum Royalties
(Continued
from page 3)
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In the fall of 1999,
the licensee asked for a reduction in the Minimum Royalties applicable
to the ABC shirts licensee had chosen not to make. The licensor denied
that request. Faced with large minimum royalties and little sales to
pay them, the licensee looked for some excuse not to pay the royalties.
In January, 2000, the licensee letter accused the licensor of "selling
XYZ sweaters at prices competitive with ABC sweaters. This was the first
time the licensee ever claimed the licensor breached the agreement.
However, rather than surrendering the ABC license, the licensee sent
a letter to the licensor which affirmed the License Agreement; the license
stated it would no longer pay Minimum Royalties because of the alleged
breach of the price competition clause, but would instead pay royalties
only on its actual sales. In February, 2000, licensor sent licensee
a letter demanding that it pay the Minimum Royalty of $109,687.50 due
licensor as of January 30, 2000 for the fourth quarter of 1999. When
the licensor did not pay such royalties, licensor accelerated the entire
year 2000 Minimum Royalties totaling $511,875, and demanded the payment
of such sum and the unpaid Fourth quarter 1999 Minimum Royalty, for
a total of $621,562.50. The licensee paid none of this amount.
For the licensor
A licensor who cannot obtain an acceptable settlement from a nonpaying
licensee, should, as we did in the above case, take prompt legal action.
If the licensee did not relinquish the license, but instead kept it
in place while refusing to pay minimum royalties, summary judgment
in favor of the licensor should be available to recover unpaid minimum
royalties. And the Court may also find that the licensee waived its
defenses and counterclaims if the licensee holds on to the license
without paying its minimum royalties. The License Agreement in question
here contained a helpful clause not typically found in other agreements.
The licensor was permitted to accelerate the minimum royalties without
terminating the Agreement, following the licensee's failure to cure
a timely nonpayment. Typically, a license agreement permits such acceleration
only after termination. Since the licensee here was permitted to utilize
the licensed trademark for the duration of the term, it could not argue
that the accelerated royalties were payable for a period after termination
and thus constituted a penalty that should not be enforced by the
Court.
For the licensee
The above decision should make licensees especially cautious about
the minimum royalties they agree to pay. To the extent this decision
is followed, the licensee will be required to pay the agreed minimum
royalties unless the licensee gives back the License Agreement and
the Court determines that
the licensor's breach justified
such termination.
Charles Klein,
a 1977 graduate of NYU Law School, heads up the fashion law practice
at Davidoff & Malito LLP, a 40-lawyer general practice, midtown
Manhattan law firm. At D&M Klein has represented both licensors
and licensees in domestic and international licensing transactions,
covering apparel, accessory and fragrance products. His licensing clients
have included leading Seventh Avenue designers, America's leading luxury
retailer as well as the nation's leading urban apparel brand. D&M
services all the legal needs of fashion companies, including forming
new companies; sales and purchases of businesses; licensing agreements;
real estate matters; employment contracts, bankruptcy matters and litigation."
Prior to joining Davidoff & Malito LLP, Klein was an associate at
the Wall Street law firm Stroock & Stroock & Lavan and General
Counsel of Sergio Valente.
Charles Klein's
interest in fashion has extended beyond his legal practice. He was
the founding President of The Fashion Roundtable, a business networking
organization that for five years ran panel discussions which featured
business leaders from every sector of the industry. He published Fashion
& The Law, a large format, witty take on legal issues facing the
fashion industry. He writes the monthly column "Klein's Korner"
in The Fashion Manuscript. Klein has also run programs on fashion
design at New York's National Art Club: "The Influence of Art
on Fashion", which featured designers Geoffrey Beene and Robert
Lee Morris, and "The Art of the Tie" which included presentations
from Nicole Miller and Alexander Julian.
Charles Klein,
Esq.
Davidoff & Malito LLP
605 Third Avenue
New York, New York 10158
Tel: 212-557-7200 - Ext. 240
Fax: 212-286-1884
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Copyright © Michael G. Kessler & Associates, Ltd. 2001. All
rights reserved.
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