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Licensing 101: A Paradox of Piracy for Licensing Business Part 2

27 Feb 2015

In the first section I highlighted the paradox of piracy.  Beyond that, however, and notwithstanding that the overall problem is being alleviated rather than getting worse (at least in Asia, for reasons mentioned in the last post), piracy is a problem for us in the licensing business for many reasons.

For starters, the licensor has no control over the quality of the product and the designs (which are often ridiculously off-brand and sometimes off-colour, i.e., inappropriate) and is effectively ceding the brand positioning & messaging of its property to the counterfeiters.  In this respect, if your plan for your brand/character is to be department store or a mid-tier program, the counterfeiters are out before you conveying the message to the market & consumers that your brand is a very mass market/low quality property. If this goes on for too long, your brand reputation can literally be destroyed before you even have the chance to cultivate it. Also, if counterfeiters are using your IP, and they are producing a product which is not safe/tested and there is a some scandal or injury as a result, whilst you’ll be able to distance company legally from liability due to some 3rd party’s unapproved usage of your IP, again, the damage may have been done in terms of reputation and consumers may associate the incident with your brand/company for a long time to come.

Another important reason to make fighting piracy a priority is that the parties that are usually involved in it are very often organized crime syndicates and obviously this is not a segment of society that licensors will want to deal with or have their brands used by.  Often a licensor will say “if we find a company who is illegally using our brand, let’s first see if we can ‘convert’ them to being an official licensee – thereby avoiding legal costs, conflict and the like.”  This is a logical sentiment and sometimes – a very few times – it can work.  But generally the companies or groups that are producing and distributing the pirated product have no interest in legalizing their activities and in any event would not be at all suited for the standardized licensing process, which includes product approvals, reporting royalties, etc.  So, generally speaking, these are just companies that you want to root out and prohibit from using your IP.

Third installment on piracy coming soon.