Licensing: Meaning, Types
Licensing is an agreement where one party pays for permission to use patented, trademarked, or copyrighted materials. It is a valuable marketing strategy for businesses and entrepreneurs, allowing them to expand and profit without heavy investments.
What is Licensing?
Licensing is an arrangement between two parties where one party has proprietary rights over some information, process, or technology protected by a patent, trademark, or copyright.
This arrangement requires the licensee to pay a royalty or some other specified sum to the holder of the proprietary rights (licensor) in return for permission to copy the patent, trademark, or copyright.
Thus, licensing has significant value as a marketing strategy for holders of patents, trademarks, or copyrights to grow their business in new markets when they lack resources or experience.
It is also an important marketing strategy for entrepreneurs who wish to start a new venture but need permission to copy or incorporate the patent, trademark, or copyright with their ideas.
A patent license agreement specifies how the licensee would have access to the patent. This agreement must be carefully worded and involve a lawyer to ensure the protection of all parties.
Licensing a trademark generally involves a franchising agreement. The entrepreneur operates a business using the trademark and agrees to pay a fixed sum for the use of the trademark, pay a royalty based on sales volume, buy supplies from the franchisor, or some combination of these.
Licensing copyrights involves the rights to use or copy books, software, music, photographs, plays, etc.
Licensing is also popular around special sporting events such as the Olympics, marathons, bowl games, and tournaments. Licenses to sell T-shirts, clothing, and other accessories require written permission in a license agreement before sales are allowed.
Licensing can be particularly valuable for a high-technology firm lacking the resources to conduct Research and Development (R&D) to develop a product.
Technology licensing usually entails a contractual agreement by which a firm (licensee) acquires the rights to a product, process, and/or management technology from another firm (licensor) for a lump sum payment and/or royalties.
The entrepreneur should settle the following questions before embarking on a license agreement:
- Will the customer recognize the licensed property?
- How well does the licensed property complement my products or services?
- How many experiences do I have with the licensed property?
- What is the long-term outlook for the licensed property?
- What kind of protection does the licensing agreement provide?
- What commitment do I have to pay royalties, sales quotas, and so on?
- Are renewal options possible, and under what terms?
Licensing is an excellent option for entrepreneurs to increase revenues without the risk and costly start-up investment.
To be able to license requires the entrepreneur to have something to license, which is why it is so important to seek protection for any product, information, name, and so on with a patent, trademark, or copyright. On the other hand,
licensing can also be a way to start a new venture when the idea may infringe on someone else’s patent, trademark, or copyright.
In this instance, the entrepreneur has nothing to lose by seeking a license agreement from the property holder. With the advice of a lawyer, entrepreneurs may find that licensing opportunities are a way to minimize risk, expand a business, or complement an existing product line.
Intellectual property includes patents, trademarks, copyrights, and trade secrets and represents important assets to entrepreneurs and should be understood even before engaging the services of a lawyer.