Licensing is a common and effective strategy to commercialise IP. It simply means that permission is given via a licensing agreement by the owner of an IP right to another person or business to use the IP on agreed terms and conditions. Consideration should always be given to licensing IP if you or your company does not have the resources or experience to develop/manufacture or and market your product or service.
Licensing arrangements commonly involve copyright, patents, design and trade marks, but any type of intellectual property can be licensed.
Typically, two types of licence may be categorised:
(i) Licence for certain intellectual property rights - e.g. licence to reproduce and distribute a copyrighted work;
(ii) Licence for all the IP rights necessary to reproduce, make, use, sell products based on a type of technology (technology or product licence).
Usually, under a licensing agreement, the licensor (IP owner) will require the licensee to pay a percentage of the revenue from sales to the licensor at regular intervals. Such payments are called royalties.
If a product is manufactured using licensed IP then it is appropriate that a royalty be paid for the use of that process.
A licensing agreement allows the licensor (IP owner) to avoid the risks and costs involved in investing and setting up a manufacturing line and a marketing strategy and the risk of the product not reaching the market or being successful. On the other hand, the licensee avoids risks around the cost of R&D and developing the product or process and will be the sole recipient of profits after payment of royalties
IP may be “licensed-out” or “licensed-in”. For example, you may “license-out” to another company or organisation in return for a reward, financial or other “in-kind” benefits or a combination of both. You may wish to “license-in” if you want to use another company’s IP to develop your own business and products.
Legal advice should be sought before entering into or negotiating a licensing agreement. For more information on licensing and franchising please consult the following: