Key Takeaways

  • Licensing rights allow you to legally use someone else's intellectual property while respecting ownership.
  • Types of licenses include voluntary, compulsory, exclusive, non-exclusive, and blanket licenses.
  • A licensing agreement should outline scope, territory, duration, royalties, and restrictions.
  • Performing due diligence on ownership, legal risks, and the licensing market is crucial before purchasing rights.
  • Having a clear negotiation strategy and written contract helps protect your interests.

To understand how to buy licensing rights, you need first to understand what product licenses are. Product licenses protect the seller's rights to sell their products and make a profit. These rights help to encourage innovation, invention, and the free market.

What Are Licensed Products?

Licensed products are different from promotional materials. People will pay for a licensed product; they aren't given away for free. Licensed products should target a particular demographic. If you target the right audience, they will pay top dollar for what you're selling. A product license can tie your product to a certain demographic.

Some licenses are tied to certain TV shows, sports teams, or brands, which will then tie the products with those licenses to the demographics targeted by those things. Licenses for unknown products are not very valuable when it comes to marketing.

There are different types of licenses, some of the most common are:

  • Voluntary licenses
  • Compulsory licenses
  • Exclusive licenses
  • Non-exclusive licenses
  • Blanket licenses

Advantages of Licensing

There are many reasons to license a product. Licensors benefit from granting a buyer a license to their product. They are able to eliminate the costs of marketing and manufacturing that can come with the launching process for a new product. The royalties gained from a product license translate into profits for the licensor, so it's a huge win for them. Taking full advantage of a licensing right can lead to added success for your company.

How to Obtain a Product License

You can purchase a product, or you can purchase the license or copyrights for a product. These are very different processes which provide you with very different rights. Purchasing a product outright gives you ownership of that one product, but doesn't necessarily give you the right to recreate it or profit from it.

The first part of the process when obtaining a product license is finding the copyright holder or the rights holder. This is the individual or company that owns the rights to a particular product. Depending on your plans for production and use, you may or may not require a license. Sometimes, it can be helpful to ask an experienced lawyer whether you'll need a license. You don't want to go to the trouble of buying licensing rights if you don't need them, but you also don't want to get in trouble for not having them when you should.

Most of the time, the owner of the copyright or product license can determine their own licensing fee. They can usually choose to refuse to sell a license to any buyer. These are called voluntary licenses. Sometimes you'll come across compulsory licenses or statutory licenses. These are types of licenses with set fees that are available to anyone who wants to make the purchase.

When you get in touch with a licensing agent, they'll help you determine exactly what kinds of rights you need. It's ideal to have everything figured out before contacting the rights holder for the license. This way, you can hopefully eliminate the need to go back for more licensing later.

Exclusive Versus Non-Exclusive Licenses

Exclusive license rights give rights to the buyer and no one else. A licensor of an exclusive license can only provide license rights to one buyer at a time. For instance, when a film production company buys the rights to a book in order to adapt it into a movie, they usually purchase exclusive rights. That production company doesn't want another company making the same movie at the same time.

Movie theaters purchase licenses to show movies and profit from their showings. However, they don't purchase exclusive licenses. Non-exclusive licenses may be granted to multiple companies or individuals at a time. Within a certain area, five different movie theaters can show the same movie, because they have all purchased non-exclusive licenses.

Additional Elements to Buying Licensing Rights

Once you know what you need from the rights holder, make sure you've identified the correct person or company. Sometimes a copyright holder will have a person who handles the licensing process for them. Then, you'll need to send your request for licensing. Usually, this will be done via email or through an online process.

If you need the license by a certain time, you can include a response deadline in your request. The process for buying licensing rights can take a while, so be sure to give yourself enough time.

Understand Key Terms in Licensing Agreements

When buying licensing rights, it's essential to understand common terms typically found in licensing agreements. These may include:

  • Grant of Rights: Specifies the exact rights being transferred, including usage scope.
  • Territory: Defines the geographical area where you may use the licensed property.
  • Duration: Details how long the licensing agreement remains in effect.
  • Exclusivity: Indicates whether the license is exclusive or non-exclusive.
  • Royalty Rates and Payment Terms: Describes how much you will pay the licensor, including lump sums, percentages of revenue, or milestone payments.
  • Quality Control: May require the licensee to meet certain quality standards to protect the brand.
  • Termination Clauses: Outlines conditions under which the agreement can be ended by either party.
  • Dispute Resolution: Specifies how disputes will be handled, such as arbitration or litigation.

Carefully reviewing and negotiating these terms helps avoid misunderstandings and potential legal issues.

Conducting Due Diligence Before Purchasing Licensing Rights

Before acquiring licensing rights, take time to perform proper due diligence to ensure:

  • Verification of Ownership: Confirm that the licensor has the legal authority to grant the license.
  • Existing Licensing Agreements: Check whether the rights have been granted to other parties (especially important for exclusive licenses).
  • Compliance with Laws: Ensure your use of the licensed material complies with intellectual property laws in all relevant jurisdictions.
  • Market Evaluation: Analyze whether the license aligns with your business strategy and target market.
  • Financial Viability: Assess whether the cost of licensing is justified by the potential revenue or strategic value.

Engaging an intellectual property attorney during this process can help identify red flags and reduce risk.

Negotiating Licensing Rights Effectively

Negotiation plays a critical role when purchasing licensing rights. Keep these best practices in mind:

  • Clearly Define Your Objectives: Know whether you want exclusive rights, how broad your usage needs to be, and your budget.
  • Understand the Licensor’s Priorities: Some licensors may prioritize higher royalties, while others seek broader exposure.
  • Prepare to Negotiate Key Terms: Focus on scope, royalties, term length, renewal options, and termination rights.
  • Put Everything in Writing: Verbal agreements should always be documented in a formal licensing contract.
  • Seek Professional Guidance: Having a qualified attorney review and negotiate the contract ensures your interests are protected.

Avoiding Breach of Licensing Agreements

Violating the terms of a licensing agreement can lead to serious legal and financial consequences. Common causes of breach include:

  • Using the licensed property outside of the agreed territory.
  • Exceeding the scope of the license (e.g., using images in media not covered by the agreement).
  • Failing to make timely royalty payments.
  • Not adhering to quality control standards set by the licensor.

To avoid breaches:

  • Keep accurate records of royalty payments and usage.
  • Periodically review licensing agreements for compliance.
  • Communicate regularly with the licensor, especially when your business plans change.

Proper contract management and compliance systems can help prevent accidental violations.

Frequently Asked Questions

  1. What are licensing rights?
    Licensing rights are legal permissions granted by the intellectual property owner that allow another party to use, distribute, or sell a product, work, or brand under agreed terms.
  2. What is the difference between exclusive and non-exclusive licensing rights?
    Exclusive rights grant the licensee sole use of the licensed material, while non-exclusive rights allow multiple licensees to use the same intellectual property.
  3. How do I know if I need to buy licensing rights?
    If you plan to use, reproduce, or profit from intellectual property you did not create, you likely need licensing rights. Always consult with an attorney to confirm.
  4. What should be included in a licensing agreement?
    A licensing agreement should include the scope of rights, duration, territory, royalty terms, exclusivity, quality control requirements, and dispute resolution processes.
  5. Can licensing rights be transferred to another party?
    Generally, licensing rights are not transferable unless the licensing agreement specifically allows it. Always check the contract for assignment provisions.

If you need help with licensing rights, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.