Licensing involves obtaining permission from a company (licensor) to manufacture and sell one or more of its products within a defined market area. The company that obtains these rights (the licensee) usually agrees to pay a royalty fee to the original owner. Show
Why would a company look for products it can produce under license?In today's world of rapid technological change, new technologies are the key to economic growth. Today, many products have very short life cycles and are readily replaced in the marketplace by new technology. If a company wants to survive, it needs to continually add new products to replace declining products. Also, a company may want to grow and diversify by expanding its product line to take up excess manufacturing or marketing capacity, level out seasonal highs and lows, or simply add to profitability with a proven product. Companies may not have the internal skills, time, or money to develop their own new products, so obtaining a proven product quickly through licensing may be very attractive. What are the advantages of licensing?
What are the disadvantages of licensing?
What does a typical licensing agreement cover?
How does a company search and find products that may be available for licensing?Steps to take:
Search sources
Providing a profile of your company and its search requirements to any or all of the foregoing would result in you receiving names and addresses of prospective licensors for your direct contact. When contacting prospective licensors, you should enclose your company profile and request assurance that they are prepared to license. It would be important to ask as well if they have licensed others, and if so, request that they provide the names, addresses, etc., and permission to contact. Determine feasibility of opportunities found
Negotiating a license agreement
What is the procedure if you or your company has a product to license to others?You've invented something, it has received a positive evaluation, and has a patent pending. Or maybe your company doesn't have the capital or expertise to manufacture and market its product to a global market. Inventors often find it is better to license their technology rather than try to manufacture and market it themselves. Similarly, licensing may be the only practical way for a company to maximize the potential for its existing products. Licensing companies in other areas of Canada or in other countries expands your potential while minimizing your risk by using companies that have the necessary manufacturing capability and marketing networks already in place. Licensing can be done by a single company, however if this is not possible, an alternative is to consider a multi-prong approach to your licensing with several component parts being done by different manufactures, final assembly by another, and possibly distribution by yet another. This may divide up the risk if the magnitude of the project is perceived too large by any one licensee. Licensing out of a product, process, technology, etc., will follow much the same procedures as licensing in or searching for opportunities. You will need to prepare a formal presentation to explain the functionality and marketability of the concept containing the following:
Your presentation should be sent to the same sources listed previously in this handout (see the previous heading Search sources), and you would request that names and addresses of likely licensees be provided to you. As a licensor, you will be expected to provide the legal agreement that will ensure both parties are fully aware of their respective rights and responsibilities, over and above simply determining royalties. Good legal advice is usually required to negotiate such things as:
Determining an acceptable royalty rate for a product is difficult, as there is no quick-fix percentage that can be applied as a general measure. Although rates ranging from 3% to 8% of net sales are common, each licensing agreement is unique and the only consensus that matters with respect to royalty rates is the one that occurs between the licensor and the licensee as a result of negotiations. Several factors that may influence the potential royalty rate of a licensed product include:
If you are an inventor and wish to approach a large company with your invention, you may find that they have very specific policies on how they will consider unsolicited proposals. Your first response from them will usually be to spell out the terms and conditions of their corporate policy on submissions. Prepared by: Government of Saskatchewan What is licensor and licensee?The party that is providing intellectual property rights to another party is called the licensor. The party that is receiving intellectual property rights from another party is called the licensee.
What should be included in a licensing agreement?The licensing agreement should explain what the licensee can do with the license. It should say whether the license is exclusive or not. It should also discuss whether the licensor gets to use the license or cedes all rights to the licensee.
What is a primary benefit of a licensing agreement for the licensor?A licensing agreement allows one party (the licensee) to use and/or earn revenue from the property of the owner (the licensor). Licensing agreements generate revenues, called royalties, earned by a company for allowing its copyrighted or patented material to be used by another company.
What are the advantages and disadvantages of licensing?Advantages and Disadvantages of Licensing. |