Properly licensing intellectual property can be an important factor in the success of any business. A license is essentially permission to do something that, without the license, would be an infringement of intellectual property rights. The party granting the license is usually called the licensor, and the party receiving the license is usually called the licensee. (note that there may be more than one licensor or more than one licensee in a license agreement).
A license grants the licensee permission to use the licensor’s intellectual property subject to specific terms and conditions, which may include the purpose of use, a defined territory and a defined time period. In exchange for the granting of this permission to use, the licensor receives financial compensation, which can be in the form of a guaranteed fee or a royalty on a percentage of sales, or a combination of both.
Licenses are mutually beneficial to both licensees and licensors in that they allow businesses to work together to develop new products and services. Licensing provides a number of benefits to the licensor, including:
- increasing brand presence at the retail or distribution level
- creating further brand awareness to support its core products or services
- supporting and enhancing its reputation and goodwill by associations with the licensee
- increasing market penetration into markets (consumer or geographical) which were inaccessible with its own resources or capabilities
- generating new revenue streams, without the cost or risk of manufacturing, promoting and selling those products
Licensing is also beneficial to the licensee, as obtaining a license can:
- transfer the goodwill and reputation of the licensor’s brand to the licensed product or service
- provide added value and differentiate the product or service from competitive offerings
- provide additional marketing support or momentum from the ongoing activities of the licensor
- appeal to new target markets who have not historically been interested in a licensee’s product or service
- give credibility for moving into new market sectors through product extension
- reduce costs, but gaining the right to use the IP without the research and development costs and risks
- save time by allowing a licensee to get its products or services to market more quickly by acquiring a license to use existing IP, instead of re-inventing the wheel allow a licensee to tap into the expertise of the licensor that the licensee may not have in-house.
Whenever you think about taking or granting a license of any IP the first step should be to assess the needs and objectives of your business and how licensing might help meet them. If you have any questions regarding the drafting or negotiating of a license agreement, please do not hesitate to contact a lawyer in the Intellectual Property department at Devry Smith Frank LLP. We have been assisting our clients grow and prosper since 1964.