by Stephanie Pottick, Esq., Pottick Law PC & Protect for Success
A lot of people think the toy industry is like the movie Big starring Tom Hanks, and while there are many fun-filled days playing, brainstorming, and trying to come up with the next big thing, most days are focused on more mundane (but still important) things — which includes legal.
Many think legal is intimidating and overwhelming, but it doesn’t have to be. Having a basic understanding of the legal aspects can give you the edge and the confidence you need to succeed. So you don’t have to learn the hard way, here are three common mistakes that toy creators make:
MISTAKE NO. 1: NOT KNOWING HOW TO PROTECT IDEAS PROPERLY
Whether you’re making a prototype or character illustrations, or you’ve come up with a cool brand name, you’re creating something that’s worth protecting. Once you create something, what’s going to help stop people from copying you? What’s going to allow you to make money from your creations? It’s intellectual property (IP). For product creators, the three main types of IP for consideration are trademarks, copyrights, and patents.
Knowing the basic differences between these three types of IP is key to being able to identify what you can protect for your creation. I’ve seen this over and over again: Someone files a copyright thinking the name will be protected when what they really meant to protect was the trademark. By the time they figure out they protected the wrong thing, someone else has already taken the name. Understanding how to protect your creation properly helps to set you up for success.
MISTAKE NO. 2: SIGNING CONTRACTS WITHOUT KNOWING WHAT THEY REALLY SAY
I’ve seen people sign a contract thinking it says one thing only to learn it says something completely different. For example, someone unfortunately signed away their IP rights when they thought they were actually keeping their rights because the document was called a “Licensing Agreement,” and they thought that automatically meant the IP owner keeps their rights. But it doesn’t matter what a contract is called, what matters is what it says.
“I recently read one of those big company NDAs that recommended inventors protect their IP before submission — and that’s exactly right! Remember: A contract is legally binding, so you should know what you’re signing.”
– Stephanie Pottick, Esq.
Similarly, when you hear “NDA” you probably think the contract is going to protect you and prevent someone else from using your ideas without your permission, but that’s not necessarily true. For example, most big toy companies make you sign an NDA before they allow you to submit anything because they want to protect themselves. Those NDAs usually say that they may be working on a similar product to yours and that you agree you have no claim against them if they wind up selling something similar to what you presented. So, protect yourself by protecting your IP. I recently read one of those big company NDAs that recommended inventors protect their IP before submission — and that’s exactly right! Remember: A contract is legally binding, so you should know what you’re signing.
MISTAKE NO. 3: NOT KNOWING THE BEST WAY TO MAKE MONEY
Your creation is ready for primetime, so what’s next? There are three main ways to make money from your ideas: licensing, manufacturing, and selling the IP outright. There’s a big difference between the three, and each has its own legal (and business) risks and rewards.
Here are the basics:
- Licensing: This option usually involves less risk overall because you’re not manufacturing and selling the product yourself, but also less reward because you’ll be making a small percentage of sales (royalty).
- Manufacturing: This option usually involves more risk overall because you have to do everything from sourcing to production, compliance, etc., but you should make more money than if you licensed your creation.
- Selling: With this option, you are giving away your IP, but the question then lies in whether you will get paid upfront and/or continue to get paid when products are sold.
Understanding the details of each can really help you figure out how you want to make money from your ideas, and more importantly what you need to plan for along the way. Avoiding these three common mistakes can save you time, money, and possibly your ideas.
*Disclaimer: This article is for informational purposes only and not intended as legal advice.
A version of this feature was originally published in the 2023 Toy Fair issue of The Toy Book. Click here to read the full issue! Want to receive The Toy Book in print? Click here for subscription options!
