Licensing a Product: Everything You Need to Know
Licensing a product means you have acquired the rights to manufacture or produce and sell products or services towards an allocated market or audience.8 min read
Licensing a Product: Everything You Need to Know
Licensing a product means you have acquired the rights to manufacture or produce and sell products or services towards an allocated market or audience. The licensor acquiring the rights of the product or service usually pays a royalty fee to the person or group of people originally owning the rights.
Licensing ideas can help prosper your business in numerous ways by providing secondary sources of revenue and creating mutually favorable relationships with other industry members.
The change in corporate trends allows your ideas to be easily accessed by global front running companies through the concept of open innovation. If you lack the resources or the desire to sell your idea for a product or service, you will have the opportunity to license it to another company instead.
Consider the Amount of Work You Want to Do
The primary benefit of having your product or service licensed compared to selling it yourself is the extent of work involved. Licensing allows you to sign your idea over to a pre-existing company, which gives them the authority to do all the work while you have less control. You will need to determine what is most important to you as an inventor/innovator before you make the decision to have your product or service licensed.
Research Other Patents
Before getting your product or service licensed, you should extensively research to ensure that your idea has not already been patented by someone else. Successfully licensing your product or invention means you can receive royalties based on its sales, which will allow you to have more time to work on other projects. You need to be knowledgeable about your product to have any chance of getting it licensed. You have to have a high level of expertise in the field to which your invention applies.
Steps You Should Take Before Pitching Your Idea:
- Identify your potential audience.
- Evaluate your competitors.
- Estimate the demand for your product.
- Understand why your product is the most feasible option for satisfying the market’s demand.
Top Tips for Licensing Your Product or Service
- Don’t File Too Early! A common error that people commit is filing for patent protection while in the beginning phases of the project.
- Holding numerous patents is highly dependent on the type of idea you have.
- Within the development and testing phases of your project, you may encounter the urge to make amendments that do not coincide with your original patent, and with regards to this, filing for a patent more than once can cost quite a sum of money.
- It is very important to work meticulously with your patent attorney during the process of submitting a proposal to a potential licensee to adequately protect your idea.
- Always have an attorney review a confidentiality agreement before signing it.
- Always ask for your attorney's approval before handing over materials to a company.
- Adequate patent protection or a sufficient confidentiality agreement is required in order to protect your intellectual property.
Consider a Provisional Patent
A provisional patent application enables you to a have a small leeway to be able to really turn your proposal to its most plausible state before filing an official patent application.
Find Your Market
- It can get complicated when patenting and licensing your idea, so hiring an attorney may be vital.
- Be wary of fully entrusting someone else when licensing your product or idea.
- It is important that you set your objectives and goals that you want to achieve before you get into licensing.
- Investigate the company you plan to pitch your idea to.
- It is imperative to check to see if your potential licensee has the mass producing and marketing ability that you need for your product.
- Be prepared to inform the company of how their existing businesses may benefit from your product.
Create an Ad
- It's advisable to check if your product or service is marketable before paying for an official patent.
- You can try showcasing your idea to companies early to see how well they respond to it.
- If there is a lack of interest in your idea, it might be the more optimal choice to patent it.
- It is crucial to be able to overcome any negative reception from companies that you pitch your idea to.
- Learn to understand why your idea was rejected instead of feeling defeated.
- Rejection offers the perfect opportunity for you to address concerns and make improvements that can hopefully get your product or service approved next time.
- You can try to circulate a video ad to prospective companies to let you gauge their reception of your product or service.
Reach Out to Multiple Companies
- People often make the mistake of giving up on their idea too soon.
- Approaching only one or two major retailers with your idea isn't enough exposure to get results.
- It is advisable to list the companies you are interested in pitching to before reaching out to them.
- Consider several licensees for your proposal; this will raise your chances of success.
- Having multiple bidders that are interested in your idea can bring you some leverage when you're in the process of negotiating, because it brings out the competitive nature of potential licensees.
- When selecting your licensee, it is essential to build good rapport with them on a professional level.
- It is common for innovators to be fearful and indecisive, failing to even begin contacting potential licensors.
- Make a simple sell sheet, which is the clearest and most concise way to explain what your product is for and how it works.
- The focal point of sales is to elaborate creativity and uniqueness, not extravagance.
- Companies will opt out of licensing ideas that they find too risky.
Find the Right Contacts
- Research the key contact person within the company and tailor your pitch for that person.
- After getting approval to pitch your idea, find someone in the company who will be enthusiastic about your proposal and would try to push for it.
- Use tools like LinkedIn to your advantage when looking for people who work in marketing or similar departments in the companies you've chosen.
Ask About Their Process
- There is no need to rush into selling your idea upon initial contact.
- Start your pitch by expressing your positive outlook about the company before discussing the idea that you are seeking to get licensed.
- Inquire about the company's process instead of just blindly sending your idea.
- After submitting your idea, follow the established protocol of a licensee in order to be considered.
- If you overlook or change any of these rules, there is a chance your submission may not be given any consideration.
- If a company has a licensing department, it is good to file your proposal there and learn their procedures.
Study the Language
There are a lot of complex terms involved with licensing your product or service, and the process can become quite perplexing. You should acquaint yourself with the licensing jargon so you can better understand the process.
- Intellectual property or licensing departments typically exist in major corporations to screen and maintain the influx of product licensing opportunities.
- Companies very rarely agree to sign confidentiality agreements.
- Consider filing a provisional patent application to safeguard your ideas prior to pitching them to potential licensees.
- Provisional patent applications are much cheaper to file compared to patents.
- Provisional patent applications have the ability to protect your idea for a year, during which the product is legally tagged as "patent pending."
Why Licensing Is the Best Way to Get Your Product on Store Shelves
You have three alternative choices:
- Start a company and then manufacture and market your product.
- License your idea to a company that can create and disseminate your product.
- Subject your idea to the crowdsourcing platform.
Founding your own company may sound lucrative, but it will come with a big price tag and will require a lot of time and attention to start, run, and make competent overall. Licensing gives inventors/innovators and their products the best equity of variables, because you can get an attractive return exceeding your investment in terms of money and time while doing little to no work and mostly the easy and enjoyable tasks.
Licensing entails a balance between high rewards and risky decisions, because it enables you to determine the outcome of success through the means of an established company of distribution. Having your product sold in retail stores is probably the most challenging portion of any business enterprise.
Why Would a Company Look for Products It Can Produce Under License?
In the current trend of fast technological advancements, innovative ideas are the focal point of the economic movement. To survive, a company must constantly add new products to replace obsolete products. A fully tested product becomes very appealing to companies because most companies will lack the funds, manpower, and time allocation to develop their own new idea or inventions.
Harness the Power of Open Innovation
Licensing creates an opportunity for businesses to lower the costs of research and development while still growing and becoming marketable to potentially benefactoring ideas. Try to develop products/services based on what can clearly benefit consumers. Licensing is a preferred trend in the current economic movement because businesses can prosper with just a phone call or a click of a mouse.
Licensing ideas will not create a discrepancy or hinder a company from its primary obligations because it has a low amount of risk and is negotiable. Licensing an idea to fellow businesses is an outstanding way to create valuable relationships and at the same time increase your business's market power and be perceived as a paragon in the industry. Time, passion, and critical analytical skills are needed to successfully license a product/service.
What Are the Advantages of Licensing?
Licensing will create an avenue for people to experience and familiarize what companies do to develop a product or service since they have a bigger capacity in terms of funding, manpower, and other variables that may be hard to afford. Purchasing an entire company costs more than licensing. There is no cost needed for research and development if you license your product/service. You will only need to settle royalties and not an upfront development cost when licensing. You do not lose a lot of capital if the product does not do well in the market.
What Are the Disadvantages of Licensing?
An annual minimum royalty may be required for a certain amount of time depending on the licensing agreement. Advanced business models may become available that make licensing opportunities antiquated. The licensee may be forced to accept certain restrictions in terms of marketing through the agreement. The licensee could lose all rights to internal further development of his/her own technology.
The licensor will not have the freedom to license his/her product elsewhere. Licensors may lose some, if not all, creative input towards the product/service because the licensee will get to make important decisions about the venture’s future. Licensors may disagree with some of the executive decisions, and the venture may fail from poor execution of strategy. Comparing licensing to crowdsourcing, licensing will cost more because you will need to invest more money to make it worthy enough to be licensed.
If you need help licensing a product, you can post your legal need (or post your job) 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.