Licensing

- Licensing is a contractual agreement between two business entities where one company leases its
intellectual property (IP) to another company under specific terms and conditions.
- Intellectual property is intangible assets and ideas created by human mind, including copyrights for
written and visual media, patents, trademarks, brand names, and trade secrets.

Purposes of Licensing
1. Control – Licensing deals grant the IP owner more control over the use of their intellectual property.
This business arrangement protects brands and allows product creators and designers to profit from
their licensed product without worrying about unauthorized use.
2. Exploration – Licensing IP gives owners access to new markets with little upfront risk. They can
expand their brand into new territories or geographical regions without investing in building and
maintaining a base operations there.
3. Extension – For established brands, entrepreneurs, and small business start ups alike, licensing can
extend their product into new areas. Companies trying out new products, especially in new markets,
maintain control over their product while also reaping the benefit of revenues and extended exposure
for their brand.
4. Support – A licensing agreement supports established brands by opening up new revenue and
promotional streams. For example, sports teams that license their logos for use on clothing,
collectible items, or other retail goods, generate licensing fees for the team and promote their brand
whenever a consumer uses or wears that items.

Types of Licensing
1. Brand Licensing– A brand license or trademark grants the licensee the rights to distribute products
that carry the brand owner’s name or trademark, including an organization or designer’s name, logo,
or slogan associated with the brand. The license fee may be independent of the revenue generated by
the licensee or may increase or decrease based on revenue. Licensed production is a license
agreement that allows the licensee to both distribute and manufacture brand products.
2. Copyright Licensing– Copyright licensing grants the licensee the intellectual property rights to use a
copyrighted item. These item my include books, movies, musical recordings, artwork (including
characters or images from animation or illustration), dance choreography, computer programs and
even buildings.
3. International Licensing– International licensing gives a foreign business entity the right to
manufacture or use a company’s product for its market. While there are many benefits to
international licensing for IP owners, there may also obstacles exclusive to foreign territories, such as
quotas or tariffs.
4. Patent Licensing– A patent license gives a patent owner or holder control over their patent while
granting the licensor access to the patent, typically for manufacturing or distribution purposes. The
licensing requirements which usually include all the documentation required to acquire patent –
make patent licensing complicated.

Advantages of Licensing
1. Income without overhead - Often, licensing allows you to generate income without taking on heavy
overhead and production costs. Normally, you need to invest considerable resources into generating
income from your intellectual property. However, allowing someone else to use it essentially passes
the burden on to them while allowing you to collect royalties.
2. Potentially better marketing - Another benefit is the fact that licensing can help improve the way your
IP is marketed. For instance, a local business will likely have a better sense of how to reach their
market than a national chain will. By licensing your IP to smaller businesses, you’ll benefit from more
targeted marketing without having to conduct individualized market research.
 3. Enter foreign markets more easily - IP has an easier time crossing national borders than physical
products do, making licensing a great way to enter foreign markets. You don’t need to worry about
tariffs or other barriers since you’re not shipping products overseas. You’re just letting foreign
entities use your IP.
4. Diffuse conflicts - One oft overlooked benefit of licensing is its use in diffusing conflicts between
businesses. If, for instance, someone uses your IP, it’s often advantageous to create a licensing
agreement with them instead of suing them outright. Both parties profit, and an expensive conflict is
avoided.

Drawbacks of Licensing
1. Risk of IP theft - One risk of licensing stems from the fact that you’ll have little control over the way
the licensee conducts their operations. That means your intellectual property may be more exposed
to theft.
2. No guarantee of revenue - You also have no guarantee of revenue from the agreement since royalties
are typically based on a percentage of the profits. If the licensee fails to generate any profit from your
IP, then you’ll get no revenue.
3. Unintended competition - It’s also possible to unintentionally create competition within your own
market. Your licensee could become a competitor without really meaning to, particularly in this age of
e-commerce.
4. Risk of diminished reputation - If your licensee doesn’t conduct business in an ethical manner, you
may take a hit to your reputation, even though you aren’t technically liable for their actions.
5. Potential conflicts - Finally, licensing also exposes you to potential conflicts with your licensees,
particularly if they try withholding revenue from you. You’d likely be entitled to take legal action in
these cases, but that can get expensive.