By Alan E. Katz, Esq.

Licensing your art is an excellent way to develop a supplemental income stream. According to the Graphic Artists Guild, licensing is a $70 billion industry, and art licensing accounts for 10 percent of the licensing market. You can license your artwork to be reproduced on a wide range of products such as T-shirts, posters, jewelry, prints, household items, and fabrics. The following tips will not help you market you art but will help you determine how your license can protect your rights once you find the right deal.

The United States Copyright Act of 1976 recognized the principle of divisibility, which allows artists to use narrowly defined licenses to divide the rights to their copyrighted artworks. For example, artists can grant one company the right to reproduce a work of art on a T-shirt, grant another company the right to reproduce the artwork on a coffee mug, grant a third company the right to distribute it, and grant a museum the right to display the artwork. Each of these licensees would become the owner of a limited copyright in the artwork, and the artist would retain all other rights that he or she had not otherwise parceled out.

An exclusive license stipulates that the artist agrees not to convey to another party a right it has granted to one party; these exclusive licenses may have time-period limits. To be effective under the Copyright Act of 1976, an exclusive license must be in writing, and the writing must clearly define the key terms of the grant of license, including duration, royalty payments, and the name on the copyright notice.

The license agreement goes from the artist who holds the copyright (the licensor) to the user (licensee). The license grants the licensee the right to use the artwork on a product or for a specific purpose and for a set time period in exchange for some form of compensation and subject to such other terms and conditions upon which the parties agree. The compensation can be a flat fee, a percentage of the sales of the product (a royalty), a combination of a flat fee and a royalty, or a guaranteed minimum amount against the royalty.

The license agreement should include the exact names and addresses of the licensor and the licensee; describe the licensed artwork; include an attached image of the artwork, when available; and clearly describe the use that the licensee can make of the artwork. For example, the license should clearly state whether the licensee plans to reproduce the artwork on a T-shirt, a coffee mug, or another product.

The license may entitle the licensor to a specified number of free samples of the product using the artwork and specify that the samples are subject to the licensor’s approval before production begins. The licensee must agree to seek permission from the artist to make any additional use of the artwork that the license agreement does not cover, and the licensor and licensee must agree upon payments for such use at that time.

The license should stipulate the time period that the license will remain in effect, the date upon which the artist must deliver the artwork, and the manner of delivery. The licensor should stipulate whether it is granting an exclusive or a nonexclusive right to reproduce the artwork on the product. The license should state where the licensee can use or distribute the product containing the licensed artwork. The artist should reserve all rights that the license does not expressly grant to the licensee.

If the licensee is paying royalties, the license should specify whether there is a guaranteed minimum payment and how the percentage is calculated—on gross sales or net sales, for example. It should also state whether the licensor has a right to audit the books of the licensee and what procedures will take place if the licensor finds a discrepancy in the books and how often the licensee must render statements of account to the artist and how detailed those statements must be.

The license should stipulate whether the licensee has the right to change the artwork or combine it with other artworks and, if so, whether the licensee can do so without the approval of the licensor; specify whether the name of the artist will appear on the artwork when it is reproduced; and state whether a copyright notice in the name of the artist will accompany the artwork when it is reproduced.

If the artist is licensing electronic rights to the artwork, the license should specify the form of final use, such as a website or a compact disc, and indicate whether the consumer or end user can print a copy of the artwork or is limited to only viewing a display of the artwork.

The license should provide for indemnification of the licensor by the licensee against any and all claims, costs, and expenses, including attorneys’ fees, that arise in connection with any use of the artwork that differs from those that the license allows and from any claims relating to the product upon which the artwork has been reproduced, even if in full compliance with the terms of the license agreement. The licensee should agree to assume liability for loss, theft, or damage to the artwork.

Finally, the license should specify the manner in which disputes will be resolved—for example, whether the parties will submit to binding arbitration or are free to litigate. If the parties do not agree to binding arbitration, then the license should specify that the law of a particular state shall govern and the court that will have exclusive jurisdiction over the dispute.

While putting together a comprehensive license agreement with all these terms can be daunting, don’t let it deter you from licensing your art. Doing so offers you the opportunity to earn income multiple times from the same work of art, which is not the case if you sell the artwork outright.

Alan E. Katz is a partner in the New York City law firm Greenfield Stein & Senior, LLP, where he specializes in art law, real estate law, and software licensing. 

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By Alan Katz, Esq.

You may have bought a work of art, but are you sure you own it? How do you know whether the IRS or creditors of any prior owner have filed claims on your artwork?

Art-title insurance entered the art-market scene in 2006. Only one company, ARIS Title Insurance Company, offers art-title protection insurance (ATPI). The ATPI policy insures that the policyholder has legal ownership of the insured artwork. The insurance policy addresses the following principal risks:

• the insured artwork’s record of ownership, or provenance;
• whether liens or claims exist against the artwork; and
• whether the owner has authority to sell the artwork.

An art buyer usually orders art-title insurance before purchasing the work from a dealer or a gallery. The insurance becomes effective once the seller transfers the title to the buyer. Buyers can also obtain the insurance months or years after the purchase. However, any defects in the art’s title history and other claims that the insurance company discovers during its investigation would then appear as exceptions to the title and would not be insured.

HOW IT WORKS

The ATPI policy breaks the risks into two categories: “art-provenance and chain-of-title risks” address theft and illegal import or export before the date the policy was issued. “Classic title risks” include creditor claims and the owner’s authority to sell.

Unlike the transfer of real-estate deeds, no public system exists in the U.S. for the recording of art transfers. ARIS conducts a search on the artwork’s history through documentary evidence about the art that previous owners, galleries and museums provide. This evidence includes ownership affidavits, bills of sale, gallery catalogs or citations in a catalogue raisonné, a comprehensive, annotated listing of all the known artworks by an artist either in a particular medium or all media. ARIS searches the few public records that do exist, which are limited to lost- or stolen-art reports, as opposed to actual title transfers. These sources include the Art Loss Registry; Interpol; the National Stolen Art File, which the Federal Bureau of Information maintains; and the International Foundation for Art Research. ARIS ascertains classic title risks by searching public records in the states and counties in which the owner and previous owners resided or conducted business.

The ATPI policy does not cover the art’s authenticity but merely the artwork’s ownership. The ARIS title insurance policy excludes two general categories from coverage. The first is affirmative misrepresentations, such as forged documents or false or misleading statements made by the seller of the artwork to ARIS. The second is defects, liens, encumbrances, adverse claims or other matters created, assumed or agreed to by the insured or known to the insured and not disclosed in writing to the insurance company—for example, if the buyer of the artwork knows of a lien or claim of ownership by a third party and does not disclose this fact to ARIS.

The policy holder pays a one-time premium ranging from 1 to 3 percent of the purchase price for most artwork. However, the premium can be substantially higher for works of art with gaps in ownership that occurred around World War II, when many works were seized from collectors, stolen or sold under duress. The art owner pays the premium when the policy is issued, and it covers the insured for the period of ownership. The coverage also automatically extends to the insured’s heirs.

IS IT WORTH IT?

Many art owners obtain art-title insurance, regardless of the piece’s dollar value. According to Judith Pearson, the president of ARIS, policyholders purchase a substantial amount of art-title insurance for art having a value of less than $100,000.

Historically, collectors and museums have expected reputable dealers to know the artwork’s record of ownership and either explicitly or implicitly warrant the art. Likewise, major auction houses obtain a warranty of title from their consignors and often conduct their own searches of the art’s history.

Auction houses and others can also use art-title insurance as a marketing tool. When Christie’s held a sale of art from the bankrupt Salander-O’Reilly Galleries in 2011, it recommended that the buyer purchase title insurance from ARIS. Although the bankruptcy court had approved the sale and the work was legally free of any claims or encumbrances, Christie’s thought that a buyer would feel more comfortable with title insurance.

A buyer who purchases art-title insurance transfers the financial risk of a potential claim to the insurance company, which has likely conducted a more extensive investigation of the art’s history and, presumably, has deeper pockets.

As with other types of insurance, the collector is buying protection against a specific risk. Perhaps more important, collectors are buying peace of mind that the work of art proudly displayed on the living room wall actually belongs to them.

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