How Licensing Works

Licensing is defined as the procedure of hiring a copyrighted or trademarked entity for use with a product or service. The property could be anything from the signature of someone famous to a picture, graphic or logo. A business contract is drawn up between the owner of the trademark or copyrighted material and the person who wants to lease it. These individual are termed as the licensor and licensee respectively.

Why would anybody want to license an entity? Simple reply is to increase their sales. Several brands attract such high customer loyalty that you could sell nearly anything once you have that image or logo or signature on your product.

The licensor is generally encouraged by the cash they could earn but this is not all the time the only reason. Market penetration could be a bigger issue. For example, if a new movie is being produced, the producers realize that having heaps of toys or items which have picture of that movie on it in shops will aid increase the hype around launch date therefore resulting into a rise in box office takings.

Licensing also gives the licensor a chance to move into related product parts without having to incur the price of product design or development. They might be looking to enter into new markets for instance a US product launching in China but owing to limited knowledge of the new market they will want to test it out first through a comparatively minimum risk cheap way such as licensing. If the new market likes the product, they know they have just rented the brand for a short length of time and are collecting a percentage of sales. Once the time frame is up they can move into that market themselves. If the new market isn't thriving, they have still got profits from hiring the brand but they haven't wasted any money testing an unresponsive marketplace.

Certainly the licensor have to protect their brand first and foremost so there will be very strict quality controls put in place to cover this issue. The other ordinary elements to a license will be a particular geographic place i.e. you cannot just buy and sell wherever you desire. The contract will also stipulate the time the license has been granted for, the stipulations for renewal, the decided contract rate and terms of payment - this is generally a percentage of sales subject to a lowest value i.e. you end up paying a specified minimum amount even if you don't sell anything. But if your product sales take off, you will pay a certain percentage back to the licensor. There will also normally be a contract over how many licenses will be issued for that specific territory i.e. you could only have a license or be permitted to license additional people.

People who want to take up a licensing contract do so since they think that they have found a right market for that product but do not have the capacity to financial support the operation themselves. Or they may have developed a new product that will do much better having been linked with that brand name for even a short period of time. Making reputation in the business is important, almost as vital as being 100% sure you comprehend the licensing procedure and know accurately what you are getting into before you sign that contract.

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