Types of Licensing Agreements: Everything You Need to Know
Knowing the types of licensing agreements that are available can be a great asset for you in the future. If you have intellectual property, or you want to work with another company’s intellectual property, a licensing agreement can be useful.3 min read
Knowing the types of licensing agreements that are available can be a great asset for you in the future. If you have intellectual property, or you want to work with another company’s intellectual property, a licensing agreement can be useful.
What Are Licensing Agreements?
A licensing agreement is a way you can make money from intellectual property, like a patent, copyright, or a trademark. This is known as intangible property (IP). With this agreement, the licensor, or the person owning the intangible asset, gets a fee for letting a licensee use or market the IP.
Similar to real estate, there are many types of licensing agreements based on the different forms of IP. You need to use the correct agreement to have a successful partnership. Otherwise, you could stand to lose money and much more.
A licensing agreement is what creates a partnership. It will lay out how the partners enter, what all the partners agree to, and how you can get out of the agreement.
The most commonly used licensing agreements will include trademarks, technology, and trade secrets. Many times, these agreements will include more than one form of intellectual property. Many agreements have some similarities, but there are some significant differences as well.
A business will use a licensing agreement to both protect and exploit IP. For a business that is providing use of their IP, whether it is a copyright, patent, or brand name, it is a way to invest intellectual capital while still being able to control it.
For the licensee, this agreement is a method to obtain something of value which the licensee cannot create but may have expertise in that area to generate revenue. A licensee is different from a vendor or contractor that provide a service. Licensing involves assigning specific rights to the IP.
While all licensing programs are different, there are various areas of licensing that have certain patterns based on how they are organized. Licensing can be seen as a relationship between different companies that need each other’s help, often in the form of IP use.
Some businesses have intellectual assets that have more value than they can support. Therefore, they look outside the business to work with partners that can satisfactorily market their efforts in trade for licensing commissions.
For example, a trademark owner may not be able to manufacture all the items using his trademark as a springboard. It is also not always best to enter different manufacturing endeavors outside of its regular scope of business. There may be other companies that specialize in this type of manufacturing. So, the trademark owner can license the use of his name to the company that can easily manufacture the products using the trademarked name or logo.
A licensing agreement is a legal contract with rights and responsibilities for all involved. If a copyright is licensed, the purpose is limited; the licensee may not use the IP as he or she wants. It must be used in accordance with the agreement.
The agreement will also spell out all the financial terms, detailing how the grantor of the license will be paid for the use of the IP. The payments are generally paid on a percentage royalty structure, but other arrangements can be made if desired.
Who Needs a License?
A licensing agreement can be very useful to many parties, such as:
- Sports teams: Professional sports teams have valuable trademarks, such as their name and a logo. These busy teams do not have the time or expertise to put into creating their own products. They will license their trademark to various companies to create products, then receive a royalty from those companies.
- Actors: Actors and actresses can license his or her likeness for different products, such as dolls, their name for perfume, and the like.
- Characters: Television and movie characters can be licensed for use on greeting cards, toys, clothing, and so on.
- Record labels: A record label can license its catalog of music to an overseas company instead of taking the lead in the release of the music.
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