Should You License or Assign Your Art?
Whether or not your rights will revert to you is the main difference between licenses and assignments.
In a contract for the production or sale of your artwork, you can do one of two things: license your artwork or assign your work. An assignment is like selling your home -- you usually give up all ownership rights to your art. A license is akin to renting your home -- you temporarily transfer your rights but you retain ownership of the art.
Nowadays, companies who acquire rights from artists and designers have blurred the line between assignments and licenses. In fact, some assignment agreements are mistakenly titled "licenses" or "exclusive licenses." The challenge is to sort out what the agreement is trying to do and then decide if it's right for you.
If you get the rights back to your artwork, you are most likely dealing with a license. This return of ownership is usually referred to as a "reversion" or "reversionary rights" and is found in most license agreements.
Reversion terms. Look for provisions entitled "Termination," "Term," "Reversion," "Grant of Rights," "Exploitation," or "Commercialization" to find reversionary rules.
Assignment terms. Be careful if a license agreement says it is "perpetual" or lasts "for the life of the copyright" or has similar language. This type of agreement would probably amount to an assignment of your rights.
Find Out When Your Work Reverts
In a license agreement with a reversion, you need to determine the circumstances in which your rights would revert to you -- in other words, what has to happen in order for you to get the rights back? Ideally, you want the rights to revert in the event that:
- the agreement terminates
- the company stops selling your work for a fixed period of time
- the company doesn't start selling your product by a certain date, or
- the company materially breaches the agreement.
There's no sense asking for reversion in the event that the company goes bankrupt -- federal laws usually prevent that from happening.
Assignments That Revert
Although assignments are presumed to be permanent transfers of ownership, many companies now include reversionary rights provisions in agreements with artists. To continue the house analogy -- it's as if the buyer of a house agrees to transfer ownership back at a fixed time (or when the buyer is done using the house).
This is a different kind of reversion than a license because you have to reacquire ownership and there may be fees involved. For example, the artist may have to pay for plates, molds, or other methods of reproducing the work, or the artist may have to pay the fees for reassigning the copyright, trademark, or patent rights.
Why some companies like an assignment with reversion. Many companies prefer an assignment with a reversion of rights to a license agreement because an assignment gives the company unfettered control over the art. It has the freedom to create variations or derivatives of the artwork and can enjoy the other legal benefits of ownership (like suing an infringer, dealing with a bankruptcy, or sublicensing rights).
Negotiate reversionary rights in an assignment. If you'd like to get the rights back some day, but you're offered an assignment and the company refuses to license, ask the company for a reversion of rights after the agreement terminates or if the company fails to exploit the work.
Do You Want the Rights Back?
If a company refuses to grant reversionary rights, you must decide whether to sign the contract or not.
Reasons to forgo reversionary rights. An artist may decide not to insist on reversionary rights because the artist:
- is happy with the money -- the advance and royalty payments
- is happy with the company who is selling the work -- an agreement with no reversionary rights with a reliable manufacturer may be preferable to suing a scoundrel who has promised to return your rights, or
- believes that the artwork or design has a short shelf life, anyway, so it doesn't matter whether he or she gets the rights back.
Licensing income is ordinary business income. Another factor in deciding if getting the rights back is important to you may be tax treatment. Generally income from licensing is taxed as ordinary business income. You may claim deductions or credits where applicable, but you must pay taxes on the income you receive in each year.
Income from selling all substantial rights is capital gains. Capital gains treatment -- which offers some tax benefits, including lower tax rates -- is available only when you sell "all substantial rights" to your work. So if there are no reversionary rights, you could qualify for capital gains treatment. If you are concerned about how your income will be treated, consult a tax professional before entering into the agreement.
For information about licensing fine and graphic arts, see Getting Permission: How to License and Clear Copyrighted Materials Online and Off or the eFormKit, License and Merchandise Creative Art, both written by Richard Stim and published by Nolo .