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Most of us have a government license of some sort, whether it’s for fishing, hunting, owning a gun, driving a car or being married. Our license indicates that we have met all of the necessary legal requirements and have been granted permission to conduct the licensed activities. However, there is an entirely separate category of license that allows for creative works of all kinds, which are generally protected by trademarks, patents or copyrights, to be bought, sold and used fairly in the marketplace. Licensing provides the incentive to bring creations that might otherwise waste away in the creator’s basement into the public eye eventually into the hands of consumers like you and me. |
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Licensing agreements are similar to other kinds of sales deals in that they are mutually beneficial agreements in which buyers and sellers agree to trade fairly with each other in order to receive something of satisfactory value in return.
The difference is that licenses do not normally apply in deals where “things” such as cars are sold to one individual buyer. Rather a license is used for special kinds of sales involving “intellectual properties.”
Intellectual properties are less tangible sorts of goods like songs, movies and software that are protected by patents, trademarks and copyrights. Unlike ‘regular’ property, they can be sold to multiple buyers and used in lots of places at one time.
Just as your driver’s license allows you to drive on government roads as long as you obey the traffic laws (or risk paying a fine or going to jail), licensing limits how intellectual property can be used. You have seen licensing agreements pop up on your screen (and agreed to accept the terms) each time you have loaded new software onto your computer or begun to view your favorite movie. This is one example of how licensing agreements work to restrict the use of intellectual property.
By limiting the way in which intellectual property can be used, licensing assures that licensees pay only for the benefit of their own use and, in turn, licensors receive their fair share in return for each use.
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Who wins in a licensing agreement?
If the system works properly…everyone wins! |
It’s not just large corporations that bring to light creations that move innovation forward. Often ordinary folks develop unique ideas that the public is eager to pay for and that change the way we live.
Read about Jay Sorensen
Inventors always have the right to give their inventions away. But licensing makes it possible for those who wish to invent for a living to be compensated for their efforts so that they can afford to spend more time creating. But for the system to work effectively, there has to be mutual trust and fairness.
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What does a licensing agreement include?
The licensing system is based on trust and fairness. |
While only the parties involved know the specifics of licensing agreements, most are structured to include:
- A clear statement of the rights being granted by the owner and whether those rights are exclusive to the buyer
- The fair payment amount for the rights being provided and the buyer’s (or “licensee”) terms for the deal.
- Specifics about the scope and field of where the licensed activities may be conducted and duration of the agreement
- Other terms and conditions concerning such things as when, where and how payments are to be made
The licensing system is based on trust and fairness. It’s in place to keep innovation rolling by rewarding individuals who create successful products so that they have the incentive to continue in their creative pursuits. At the same time, consumers (or licensees) continue to benefit from a never-ending flow of new and always improving products with the implied understanding that they will use them fairly.
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I have a unique and creative idea or invention. How do I find someone to help me get it into the marketplace?
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There are many steps to bringing a bright idea out of the darkness and into the light of the marketplace. Often the creative individuals responsible for inventions are not particularly well versed in the business end of things. Similarly, there are business-minded individuals who may have money to invest and who are more adept at the manufacturing, distribution, administration and marketing of products. So how do you find a partner to develop and commercialize a promising new product?
In addition to good old fashion word-of-mouth networking, the vast resources of the Internet can lend a helping hand. Today you can find a good bargain and even a life partner using the World Wide Web. Odds are you can also identify numerous potential partners for a commercial venture.
If you are an inventor, you can find and pursue companies that are selling products similar to yours. And, if you are a venture capitalist looking to invest in a new invention, you can find patent law firms, university tech transfer offices and other venues inventors routinely use to license their inventions.
Usually partnerships begin with a series of e-mails or phones calls in which few product details are divulged but where mutual interest in moving forward with the potential deal is established. It is very important to keep in mind that some intellectual property rights can be lost if you disclose your idea without taking adequate precautions. It is a good idea to speak with an intellectual property attorney for more information before beginning any discussions.
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Now that I have a successfully commercialized a product/invention, show me the money!
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There are two types of payments made by licensing agreements. The first is called a royalty (sometimes called a running royalty), which is paid out for each unit sold by the license. The other is called a period payment where a fixed, usually annual, payment is specified in the licensing agreement. These two payment options have their advantages and disadvantages based on the degree of success of the licensed product,
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