In recent times, the practice of licensing characters for merchandise advertisement and production – in short – ‘character merchandising’ has become ubiquitous. From Marvel superheroes and Barbie’s school supplies to an entire clothing line based on a sitcom or a web series, we can witness the palpable presence of ‘character merchandising’ almost everywhere.
However, besides being an effective and profitable business strategy, several legal complexities are also involved in it. Ergo, when looking through a legal lens, it is pertinent for us to learn about agreements governing such merchandising along with the relevant laws and the legal issues involved in it.
WHAT IS ‘CHARACTER MERCHANDISING’?
According to WIPO, “Character merchandising can be defined as the adaptation or secondary exploitation, by the creator of a fictional character or by a real person or by one or several authorized third parties, of the essential personality features (such as the name, image or appearance) of a character about various goods and/or to use those services because of the customers’ affinity with that character.”[1]
In simpler terms, character merchandising means affiliating eminent characters from movies or novels to everyday products, in a way that makes them appealing to the consumer. The gist of such a practice is to exploit the emotional sentiments of the consumer associated with such characters. The business entity exploits the ‘goodwill’ of the characters to expand its targeted consumer base.
Some of the major examples may include the sale of 3-D toys of Donald Duck, Barbie School goodies, Ben Ten Watches, T-shirts featuring your favourite F.R.I.E.N.D.S character, Parle-G.
Character merchandising can be broadly classified into three categories:
- Fictional characters: This may include commercial exploitation of fictional characters such as Barbie, Snowhite, Winnie the Pooh, Batman, Chota Bheem etc.
- Personality: Real persons, famous among the general populace and with popular personality features, come under this category. For example: Amitabh Bachan’s voice,
- Image: This category has a wide scope of ambiguity and hence, is an area of great bewilderment among the legal fraternity. It is an intersectional area of fictional and real persons. In other words, it includes the ‘fictional image’ portrayed by a real person. For example: Chandler from F.R.I.E.N.D.S, Harvey Specter etc.
MAJOR EXAMPLES
BARBIE:
The iconic Barbie was first introduced by Mattel in 1959, it has evolved into a global cultural phenomenon. Its societal impact began with the introduction of the first black Barbie in 1980, and over the years, strategic collaborations and media adaptations, including a recent movie featuring Margot Robbie, have propelled Barbie into everyday life.
Mattel cleverly leveraged the emotional appeal of the iconic toy, expanding its consumer base through profitable collaborations with various companies. From clothing lines to travel agencies, these partnerships, highlighted by the vibrant Barbie Movie of September 2023, showcased a spectrum of collaborations, turning the market pink.
The diverse collaborations, ranging from a fuchsia Xbox to luxury brands like Balmain, not only promoted the Barbie brand but also brought significant profits to associated companies. The introduction of real-life Barbie Dreamhouses bookable through Airbnb marked a pinnacle in Barbie’s market presence.
The success of these collaborations was not limited to movie and brand promotion but associated companies experienced substantial profits, reaching a wider consumer base. Mattel’s Chief Franchise Officer, Josh Silverman, emphasized the movie’s ability to generate fanfare, leading to various celebrations for Barbie fans globally.
DISNEY
Founded in 1923 by Walt and Roy Disney, Walt Disney Productions, later known as Disney Brothers Cartoon Studio, has left an indelible mark with its enchanting characters and innovative storytelling. The company has featured captivating and innovative characters throughout its business journey. Owing to this innovation, the company has managed to create an impressive consumer base comprising various age groups – kids, tweens, pre-teens, young adults and even adults.
The path of ‘Character Merchandising’ was first discovered by the company, when a man insisted the Disney brothers print Mickey Mouse on paper towels for school children. Over the past few years, it expanded its presence throughout the market by entering into new market spheres ranging from consumer products to theme parks and resorts. Moreover, it has become one of the largest worldwide licensors of character-based merchandising.
CHARACTER MERCHANDISING AGREEMENTS
The basic concept involved in ‘character merchandising agreements’ is that the entity holding property rights on the character will give authorization/license to the other party to commercially exploit the personality features of such characters in consideration of the prescribed fee. The prescribed fee, whether lump sum or on a pro-rata basis, is negotiated by the parties based on several parameters such as the popularity of the character, territorial scope etc.
Generally, the creator himself is the owner of the rights associated with the character, unless he was commissioned on hire to create it or he has voluntarily transferred such rights to some other party. However, it is to be noted that the agreement merely transfers and assigns certain property/ personality rights associated with the character to the other party to authorize commercial exploitation of the same and there is no transfer of ownership rights. Such agreements are mere ‘licensing agreements.’ The rights associated with the ‘fictional characters’ are known as property rights and those associated with the personality features of a real person are known as personality rights or publicity rights. These rights include the right to receive economic and commercial benefits from the use of the character’s features. Such use may include selling garments having the image of the character, associating food and beverages with the character etc.
MAJOR CLAUSES IN CHARACTER MERCHANDISING AGREEMENTS
TERRITORIAL SCOPE CLAUSE:
Under this clause, the parties decide the territorial scope of commercial exploitation of the character’s goodwill by the licensee. The licensee can sell the merchandised products only within the territorial scope as defined by the agreement. Usually, it is in the interest of the licensor to limit the scope of such a geographical area whereas the licensee desires to have an unrestricted scope.
ROYALTY:
By this clause, the parties decide the amount to be paid to the licensor in consideration of the licensed character. It may be lump sum, or based on the percentage of the sales made or the units sold. In most of the agreements, the parties agree to an initial payment of some amount along with subsequent payments on a pro-rata basis. As a licensor, it will be desirable for me to opt for this mode of payment.
OWNERSHIP AND LICENSING CLAUSE:
This clause is a very significant one as it expressly jots down the real intent of the parties. It determines whether the ownership has been transferred or is a mere lawful license to use the character. Here, it is explicitly stated that the ownership rights remain with the licensor and the party has merely licensed all or some of the personality features to the other party for commercial exploitation.
QUALITY OF MERCHANDISE:
Since the goodwill and the name of the licensor are attached to the merchandised products, it is pertinent for the party to make sure that the merchandised products are not of sub-standard quality else it can be detrimental to the licensor’s goodwill and reputation.
TERM OF THE AGREEMENT:
This clause provides for the duration for which the license is valid. If not provided, then the law presumes it to be valid for five years.
EXCLUSIVITY:
This clause states whether the license is for the exclusive or non-exclusive use of the character within the specified territory. If it is for exclusive use, then no other party except the licensee can benefit from it whereas a non-exclusive license means that other parties having a lawful license can use the character and reap profits from the sale of such merchandise.
INDIAN LAWS GOVERNING CHARACTER MERCHANDISING AGREEMENTS
Section 14 of the Copyright Act clearly defines the exclusive rights of a copyright holder which include the right to adapt a work in a cinematographic film, production of a two-dimensional artwork into a three-dimensional figure, a three-dimensional figure into a two-dimensional figure etc. However, the copyright holder need not exercise his rights on his own and he can authorize some other party to duly exercise those rights. Licensing and assignment of these rights are the most commonly sought ways through which the copyright holder can provide such authorization.
Although both terminologies seem to coincide in a layman’s lexicon, they differ in a legal practitioner’s dictionary.
In the Winnie-the-Pooh trademark dispute, between Stephen Slesinger, Inc. and Disney Enterprises, the court rightly pointed out that “an assignment is an outright sale of all rights whereas license ‘is a limited permit to another to use the mark.”[7]
Section 19 of the Copyright Act deals with the assignment of such rights whereas Section 30 caters to the licensing of such rights. In character merchandising agreements, the creator or the copyright holder generally licenses such property rights for secondary exploitation. Section 30 of the Act empowers the copyright holder to license the copyright provided a written agreement to that effect. Further, Section 30A provides for mutatis mutandis application of Section 19 in granting a license.
Ergo, character merchandising agreements are regulated by an interplay of S.19, S.30 and S.30A of the Copyright Act, of 1957.
By Section 37 of the Act, a proprietor is empowered to assign the trademark and the rights attached to it to any other party. Section 38 provides for the assignability and transferability of such trademarks irrespective of the goodwill it has.
It is to be observed that the word licensing is not defined in the entire act. However, Chapter V provides for the assignment and transmission of the trademark rights. Further, Sections 29 and 140 of the Act disguise the term in the cloak of ‘permitted use’ and ‘licensee’. Sections 48 and 49 of the act enable ‘Registered Users’ other than the Registered Proprietor to reap commercial benefits emerging from the trademark. Therefore, transfer of trademark in ways, other than assignment, is possible. Though ‘licensing’ is not defined per se, the act ‘indirectly’ regulates the same.
The act does not explicitly provide for ‘assignment’ and ‘licensing’ of the design. However, under Section 30 of the Act, the law speaks about the procedure through which one can register himself as the proprietor of such design. Clause (4) of the section enables the proprietor of such rights to assign, transfer, or license the design in question.
JUDICIAL DECISIONS
Chorion Rights Ltd. v. Ishan Apparel & Ors.[8], this case revolves around the question of whether an unlicensed user exploits the trademark about goods and services other than those provided by the trademark owner. The dilemma arises because the brands are recognized concerning the goods and services they provide and hence, they have to be looked at as complements. In this case, the plaintiff was seeking an injunction against the defendant to discourage them from using the plaintiff’s registered trademark ‘NODDY.’ The court, while placing reliance on the common law principle of passing off, observed that since the defendant was the established prior user of the trademark and registered the same in India earlier than the plaintiff. Hence, the contention of dilution under Section 29(4) was set aside and held that no such findings were sustained in the eye of the law.
Star India Pvt Ltd v. Leo Burnett (India) Private Limited, this case revolved around the popular TV serial “Kyun Ki Saas Bhi Kabhi Bahu Thi,” with the plaintiffs holding the copyright for the series through an agreement with Balaji Telefilms. The plaintiffs alleged that Tide Detergent’s advertisement, titled “Kyonki Bahu Bhi Kabhi Saas Banegi,” substantially copied the serial’s concept, claiming a connection to their company. The court noted that character merchandising involves licensing fictional characters or the fame of celebrities, requiring characters to have gained public recognition independently. The court determined that the plaintiff couldn’t establish unique qualities in the characters for independent recognition, concluding that the defendants were merely using a television advertisement to promote their consumer product, “Tide,” unrelated to the TV series. The court emphasized the need for character merchandising to involve characters with independent public recognition. In this instance, the court concluded that the characters lacked such recognition and couldn’t be considered commodities separate from the original series. The defendants’ use of a television advertisement to promote the consumer product “Tide” was deemed unrelated to character merchandising, leading the court to reject the plaintiffs’ claims.
In the case of D M Entertainment Pvt. Ltd v. Baby Gift House[9], singer Daler Mehendi sued a firm that sold dolls that mimicked his public persona after transferring his personality rights to it. Mehendi filed for an injunction, claiming she suffered harm from a fraudulent endorsement and a violation of her right to publicity. The plaintiff had to be identifiable in the unlawful use, the court said, and the evidence in this case proved so. Furthermore, the use must be adequate to show that the defendant appropriated the persona. The publicity right prevents unapproved use that results in unjustified financial benefits. The dolls were determined to be commercially exploiting Mehendi’s persona for sales, and as a result, the court granted a permanent injunction against passing off.
Disney Enterprises Inc. & Anr. Vs. Santosh Kumar &Anr.[10], here, the defendant was selling exam boards depicting Mickey Mouse, Mini Mouse, Goofy etc. However, the defendant did not take any prior consent from the plaintiff nor were they authorized to use Disney’s character. They were exploiting the goodwill of the company and enjoyed the profits reaped therein leading to passing off. The court in this case held that the “degree of association of the Disney Enterprises Inc. (DEI) materials, such as Character Names, Character Devices or Characters with the Plaintiffs is so intense that any reference to them leads a substantial part of the relevant public to recognize, acknowledge and associate the same exclusively with the Plaintiffs and the Plaintiffs alone.” Relying upon this observation, the court granted an injunction as well as punitive damages to Disney Enterprises on the grounds of infringement of copyright.
King Features Syndicate Inc. v. O And M Kleeman Ltd.[11], In this case, the creator of the character ‘Popeye: the Sailor Man’ sued the defendants, who had been selling 3-D toys of the character. However, the license had only been granted to the manufacturer of those toys. The court held that there indeed was a case of copyright infringement involved and hence, granted relief to the plaintiffs.
Diamond Comic Ltd. & another v. Raja Pocket Books & Others. [13], The case is in respect to a popular children’s character named ‘Shaktiman.’ Here, the exclusive right to illustrate and publish the character was assigned to the plaintiffs. However, in a later course of time, the defendants served a legal notice to the plaintiffs contending a breach of the assignment agreement. Subsequently, after several rounds of meetings, the defendant company started infringing the copyright of the plaintiffs in the comic character. Consequently, they filed a suit in the court praying for enforcement of their legal rights. The court decreed a restraint order, restricting the defendants from printing, publishing or circulating the character ‘Shaktimaan.’
CONCLUSION
Character merchandising agreements play a crucial role in the fields of intellectual property and business. The complexity of these agreements was brought to light by the analysis of important clauses, which also emphasized the necessity of cautious writing to strike a balance between commercial interests and artistic expression.
The article explored the legal environment surrounding character merchandising agreements. Further, The changing landscape of these agreements was shaped by judicial rulings that further underlined the significance of contract clarity and respect for good faith norms.
Licensors and licensees need to be on the lookout for changes in the law and the industry as well as advancements in technology. A fine mix of creativity, business sense, and legal knowledge is necessary for character merchandising to build long-lasting and mutually beneficial relationships.
[1] https://www.wipo.int/export/sites/www/copyright/en/docs/wo_inf_108.pdf
[2] WowEssays. (2021, June, 10) Presentation On Advantages Of Licensing: The Case Of Walt Disney Consumer Products, Dcp. Retrieved December 11, 2023, from https://www.wowessays.com/free-samples/presentation-on- advantages-of-licensing-the-case-of-walt-disney-consumer-products-dcp/
[3] WowEssays. (2021, June, 10) Presentation On Advantages Of Licensing: The Case Of Walt Disney Consumer Products, Dcp. Retrieved December 11, 2023, from https://www.wowessays.com/free-samples/presentation-on- advantages-of-licensing-the-case-of-walt-disney-consumer-products-dcp/
[4] Jalan, P. K. (2008). Industrial sector reforms in globalization era. London: Sarup & Sons
[5]https://www.forbes.com/sites/nikkibaird/2019/08/29/target-and-disney-two-great-brands-one-bad-idea/? sh=10a1a50c319d
[6]6https://www.thedrum.com/news/2017/04/17/walt-disney-company-worlds-leading-licensor-with-566bn-licensed- products-2016
[7]https://corporate.findlaw.com/litigation-disputes/license-v-assignment-the-winnie-the-pooh-trademark-dispute.html
[8] (2010)ILR 5 Delhi 481.
[9] MANU/DE/2043/2010
[10] CS(OS) 3032/2011
[11] 1941 AC 417, 1941 2 All ER 403
[12] 1997 (40) DRJ 791
[13] 125 (2005) DLT 35
[14] 654 F.2d 204 (2d Cir. 1981)
This article is written and submitted by Vani Singh during her course of internship at B&B Associates LLP. Vani is a 2nd year year B.A. L.L.B (Hons.) student at NLU, Visakhapatnam.
