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You can't do it all. Licensing is a way of aligning with
others to get what you need. It's common for:
Small Companies to 'LICENSE OUT' -
Use licensing to get to market through big company distribution
channels.
Big Companies to 'LICENSE IN' -
Use licensing to bring in technologies or creative innovations
to enhance their products or services.
Examples of successful licensing are all around you - from
Beanie Babies and Sesame Street characters to computer chips
and software models for Internet companies.
Licensing is a key business strategy. It's not just about
defending your rights (see eNews re Protecting Against Copy
Cats); it's about maximizing the earnings from what you've
created.
Large and small companies license both 'in' and 'out' to
strategically meet their needs. Whether it's extending
the brand name by allowing trademark (e.g., sports teams,
Coca-Cola) to be used on clothing, or allowing designs to
be used for new applications (e.g., defense industry plane
designs used for toys), it's all about generating more revenue
from what's been created.
Licensing is everywhere:
Apparel
Furniture
Eyewear
Characters
Software
Technology
Design
The License is the agreement.
The Licensor owns the intellectual property rights.
The Licensee is granted rights for a fee called a royalty.
Key provisions of the agreement include Scope, Performance
Requirements, Payment (Royalty), Support, Term & Renewal.
SCOPE:
- What's included? (This is called the 'field of use'
- defines what is authorized.)
- What's excluded?
- Is it exclusive or non-exclusive?
- What media (print, TV, catalogue, Internet, CD, 'all
media now known or hereafter created')?
- What geography (US, Pacific Rim, worldwide)?
PERFORMANCE REQUIREMENTS:
- Minimum volume and $$ payments required to maintain
license
- Restrictions on use of child labor
- Quality control requirements
- Marketing plans
PAYMENT:
- Upfront payments? Minimums? Milestone payments?
- Royalty = Percent of Sales
- Rule of thumb (25% pre-tax profitability to licensor)
- With incentive provisions (lower per unit royalty at
higher volumes)
- Consulting payments for support services.
SUPPORT:
- How will Licensee & Licensor
work together?
- What is expected re know-how transfer? Or promotion?
- Will there be quality control reviews?
TERM & RENEWAL:
- Usually at least a three-year term
- Renewable if licensee performs
OTHER KEY PROVISIONS include:
- Audit rights and how you'll handle enhancements.
WHAT DO YOU HAVE?
The first question is what intellectual
property ('IP') do you have? Patents,
trademarks, copyrights, product designs,
customer lists, or proprietary methods & tools for how you
do business?
Could your IP be used in other applications and markets?
Frequently, there are applications in different markets
for the same technology. For example, a patented chemical
process may apply in multiple industries.
WHAT DO YOU NEED?
Instead of trying to do everything yourself, is there 'IP'
that you could use?
Why re-invent the wheel? License it.
Many universities have licensing programs and actively support
the commercialization of their technologies.
Want to add music or logos to spruce up your web site? Be
sure to get permission before you use someone else's creations.
Licensing is a complex subject. This is intended to give
you food for thought. Intellectual Property really drives
many businesses today.
Add licensing to your business toolkit. Licensing OUT is
a way to leverage what you've created. Licensing IN is a
way to enhance your current business offerings.
Jean D. Sifleet
Attorney & CPA
P.S. Collaboration between Licensor and Licensee is critical
for a successful licensing deal. Hard ball tactics in negotiations
can derail or seriously damage the working relationship that
is necessary for success. Don't let the lawyers become adversarial.
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