A merchandising agreement is a legal contract between two parties in which the first party agrees to sell specific goods or services to the second party. In this case, "merchandise" refers not only to physical items but also intangible products such as intellectual property.
The term "agreement" can be used interchangeably with "contract.” Both parties must understand their rights and responsibilities before signing on the dotted line. For example, in a merchandising agreement, each party must define what they are selling to avoid confusion. This includes explaining how much of an item will be sold, whether there will be exclusivity (meaning one company can't sell another company's products), and if there will be royalties.
Below is a list of common sections included in Merchandising Agreements. These sections are linked to the below sample agreement for you to explore.
This Merchandise License Agreement (the “Agreement”) is entered into as of December 1, 2000 (the “Effective Date”) by and between MGM Consumer Products, a division of Metro-Goldwyn-Mayer Home Entertainment Inc., a Delaware corporation, and Metro-Goldwyn-Mayer Lion Corp., a Delaware corporation (collectively, “Licensor”), on the one hand, and MGM MIRAGE Retail, a Nevada corporation (“Licensee”), on the other hand.
WHEREAS, the parties to this Agreement acknowledge that they enjoy a unique historical relationship to each other; and
WHEREAS, Licensor is the owner of all right, title and interest throughout the world to the “Metro-Goldwyn-Mayer,” “MGM” and the MGM Lion Logo trademarks and service marks, and variants thereof as represented on Exhibit A attached hereto and incorporated herein by reference (the “Marks”); and
WHEREAS, Licensee is an indirect wholly owned subsidiary of MGM MIRAGE, a Delaware corporation, which, through other subsidiaries, owns and operates hotels, casinos and resorts throughout the world; and
WHEREAS, Licensor desires to license the use of the Marks to Licensee solely in connection with the retail sale of merchandise by Licensee and its Affiliates (as hereinafter defined) pursuant to the terms of this Agreement, and Licensee desires to accept such license from Licensor.
NOW, THEREFORE, in consideration of the foregoing and of the mutual promises hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged by the parties, the parties agree as follows:
1. Incorporation of Recitals . The parties acknowledge and agree that the recitals to this Agreement are true and correct and are incorporated in and made a part of this Agreement.
2. Definitions . For purposes of this Agreement, the following terms shall have the respective meanings set forth below:
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(b) “Affiliate” means any person or entity that directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with the person or entity specified. Notwithstanding the foregoing, neither Licensor nor Metro-Goldwyn-Mayer Inc. or any of its subsidiaries shall be deemed “Affiliates” of Licensee or MGM MIRAGE.
(c) “Annual Period” shall mean each period of one year beginning on the Effective Date and on each anniversary of the Effective Date.
(d) “Effective Date” shall have the meaning set forth in the first paragraph of this Agreement.
(e) “License” shall have the meaning set forth in Section 3.
(f) “Licensed Locations” means all retail outlets located within hotels, casinos or resorts which are at least majority-owned or are operated by Licensee or an Affiliate of Licensee anywhere in the world, and any retail outlet which is at least majority-owned or is operated by Licensee or an Affiliate of Licensee located in the same metropolitan area as any such hotel, casino or resort. Notwithstanding the foregoing, Licensee and its Affiliates may offer for sale and sell Merchandise by catalog or direct mail order or through Internet sites which are owned and operated by Licensee or an Affiliate of Licensee.
(g) “Licensee” shall have the meaning set forth in the first paragraph of this Agreement.
(h) “Licensor” shall have the meaning set forth in the first paragraph of this Agreement.
(i) “Marks” shall have the meaning set forth in the second Recital to this Agreement.
(j) “Merchandise” means retail merchandise which bears any of the Marks, including without limitation wearing apparel, jewelry and personal accessories, housewares, stationery and backpacks, tote bags and duffel bags, in each case subject to the approval rights of Licensor as set forth in Section 4.
(k) “Net Revenues” means the gross revenues actually received by Licensee or any Affiliate of Licensee from retail sales of Merchandise pursuant to this Agreement, as determined in accordance with Licensee’s or such Affiliate’s invoice, less
| (i) | sales, value added, use and similar taxes that are separately itemized, billed by Licensee or its Affiliate to its customers and required to paid to the appropriate taxing authority by Licensee or its Affiliate; |
| (ii) | amounts paid by Licensee or its Affiliate and billed to its customers for insurance, shipping and similar charges; and |
| (iii) | credits for refunds and returns of Merchandise. |
(l) “Packaging Materials” shall have the meaning set forth in Section 11.2.
(m) “Royalties” means royalty payments by Licensee to Licensor as provided in Section 6.
(n) “Term” shall have the meaning set forth in Section 5.
3. Grant of License . Licensor grants to Licensee during the Term the right and license (the “License”) to use the Marks solely for the design, manufacture, production, marketing, advertising, promotion and sale of Merchandise by Licensee or its Affiliates at the Licensed Locations. The License shall be non-exclusive, except that Licensor will not directly or indirectly license the right to use the Marks for the production, promotion or sale of Merchandise, to other casinos or to other hotels or resorts with casinos contiguous thereto anywhere in the world.
4. Licensor’s Approval Rights .
| 4.1 | Licensee warrants that the Merchandise will be of good quality in design, materials and workmanship and suitable for its intended purpose, that no injurious or deleterious substances will be used in or on the Merchandise, that the Merchandise will not cause harm when used as intended and with ordinary care and that the Merchandise will be manufactured, marketed, advertised, promoted and sold or otherwise distributed in compliance with all applicable laws and regulations. |
| 4.2 | Prior to the proposed sale of any Merchandise which has not been previously approved by Licensor, or the proposed use of any advertising or promotional materials in connection with the Merchandise (“Advertising Materials”) which have not previously been approved by Licensor, Licensee shall submit the concepts for such Merchandise or Advertising Materials to Licensor for its review. Licensor shall have 10 business days from its receipt in which to approve or disapprove, by written notice to Licensee, such concepts for Merchandise or Advertising Materials. In the event that Licensor does not approve of such concepts for Merchandise or Advertising Materials within such 10-business-day period, they shall not be deemed to be approved for all purposes of this Agreement. |
| Licensor shall have the right to disapprove of any concepts for Merchandise or Advertising Materials if it determines, in the exercise of its reasonable good faith judgment, that the Merchandise or Advertising Materials would impair the value and goodwill associated with the Marks or Licensor’s associated copyrights or trademarks by reason of (i) their failure to satisfy the general quality standards set forth in Section 4.1, (ii) their use of artwork, designs or concepts which fail accurately to depict the Marks, (iii) their use of materials which are unethical, immoral or offensive to good taste, (iv) their failure to carry proper copyright or trademark notices or (v) any other reasonable cause. In the event that Licensor does not approve of any concepts for Merchandise or Advertising Materials as provided herein, it shall notify Licensee in writing of the specific reasons for disapproval and Licensee shall not sell such Merchandise or use such Advertising Materials until they have been revised as provided in Licensors notice to Licensee and resubmitted to Licensor for approval as provided in this Section 4.2. |
| 4.3 | Licensee agrees to maintain the quality of all Merchandise manufactured pursuant to this Agreement up to the specifications, quality and finish of the production sample of such Merchandise approved by Licensor under Section 4.2, and agrees not to change the Merchandise in any respect or to make any change in the Advertising Materials without first submitting to Licensor a sample showing such proposed changes and obtaining Licensors approval of such sample. Upon request of Licensor, Licensee shall furnish to Licensor the addresses of the production facilities used by Licensor for manufacturing the Merchandise, and shall make arrangements for Licensor to inspect such production facilities upon reasonable advance notice during normal business hours. |
| 4.4 | Licensee shall not, and shall not permit its Affiliates, to use any other name, trademark or logo an any Merchandise or on the packaging of any Merchandise which contains, reflects or otherwise uses the Marks. Notwithstanding the foregoing, Licensee and its Affiliates shall be entitled to use their own marks in association with the Marks for the purposes of identification and promotion of the Licensed Locations. |
5. Term . The term of this Agreement (the “Term”) shall commence on the Effective Date and terminate on the fifth anniversary of the Effective Date, unless terminated earlier by Licensee at its option upon 60 days’ notice to Licensor. Licensee shall have the right to extend the Term for one additional five-year period, provided that
(i) Licensee notifies Licensor of such extension at least 60 days prior to the end of the original Term and (ii) Licensee is not then in breach of this Agreement.
6. Royalty Payments . Licensee shall pay royalties (“Royalties”) to Licensor based on Net Revenues from sales of Merchandise during the Term or subsequent to the termination of this Agreement for any reason. The applicable Royalty percentage shall be calculated based on total Net Revenues from sales of all Merchandise during the Term of this Agreement. The Royalty percentages shall be as follows: (i) 5% of Net Revenues up to $2,000,000 accrued during the Term of this Agreement, plus (ii) 7.5% of Net Revenues between $2,000,001 and $5,000,000 accrued during the Term of this Agreement, plus (iii) 10% of Net Revenues in excess of $5,000,000 accrued during the Term of this Agreement.
7. Monthly Royalty Payments and Statements .
| 7.1 | All Royalties due to Licensor shall accrue upon the sale of the Merchandise. For purposes of this Agreement, Merchandise shall be considered “sold” as of the date on which such Merchandise is sold by Licensee or an Affiliate of Licensee to any customer or other third party. |
| 7.2 | Licensee shall pay all Royalties due to Licensor under this Agreement in respect of sales of Merchandise during any month within 15 days following the end of such month. All Royalty statements required to be submitted by Licensee shall be submitted within 15 days following the end of the month to which they relate and shall accompany the Royalty payment to Licensor. The first such Royalty payment and statement shall be due no later than February 15, 2001 and shall include any sales of Merchandise between the Effective Date and January 31, 2001. |
| 7.3 | In the event that Licensee or its Affiliates sell any Merchandise at a price less than 10% above Licensee’s manufactured cost of such Merchandise without the prior approval of Licensor, Net Revenues with respect to such sale shall be deemed to reflect a retail selling price of 10% above Licensee’s manufactured cost of such Merchandise. |
| 7.4 | Except as otherwise provided in this Agreement, there shall be no deduction from the Royalties payable to Licensor for taxes, fees, assessments or expenses of any kind which may be incurred or paid by Licensee in connection with (i) Royalty payments due to Licensor or (ii) the manufacture, sale, distribution or advertising of the Merchandise. Licensee shall have the sole responsibility at its |
| expense to obtain the approval of any governmental authorities, to take any required steps to effect the payment of funds to Licensor, to enable Licensee to commence or continue doing business in any jurisdiction and to comply in all respects with all applicable laws and regulations. Notwithstanding the foregoing, if (i) any country imposes a withholding tax against Licensor, as licensor, with respect to the Royalties payable to Licensor on sales of Merchandise in such country, (ii) such tax is paid by Licensee on behalf of Licensor and (iii) such tax is an income tax as to which a foreign tax credit is allowable to Licensor under Section 901 of the Internal Revenue Code of 1986, as amended, then Licensee may deduct the amount of such withholding tax from the Royalties payable to Licensor under this Agreement, on the condition that Licensee furnishes to Licensor all information and documentation required by Licensor to enable Licensor to obtain a foreign tax credit on its U.S. income tax return with respect to such withholding tax payment by Licensee. |
| 7.5 | Licensee shall furnish to Licensor, at the same time it makes payment of Royalties, a complete statement, certified by an officer of Licensee to be true and accurate, setting forth the basis upon which Royalty payments were accrued during the preceding calendar month, the amount of the Royalty payments payable with respect to such calendar month and such other information as Licensor may reasonably request. |
| 7.6 | The receipt or acceptance by Licensor of any Royalty statement furnished pursuant to this Agreement, or any Royalty payment made, shall not preclude Licensor from questioning their accuracy at any time for a period of three years from the receipt of the Royalty statement. If any mistakes are discovered in such statements or payments, appropriate adjustments shall be promptly made by the parties. Licensee shall pay Licensor interest on late Royalty payments at an annual rate of 2% above the prevailing prime interest rate of Bank of America, Los Angeles, California, in effect on the date on which such late Royalty payment should have been paid to Licensor, but in no event shall such interest rate exceed the maximum rate permitted by applicable law. |
8. Records and Audit Rights .