Licensing a product Pros & Cons
Product licensing is a term that describes a symbiotic relationship where a product owner (“the licensor”) confers on another person or entity (“licensee”) the right to exploit the use of the product on mutually agreed terms and conditions. The right being licensed to the other party is referred to as an Intellectual Property (IP) right, and such a right must be vested in the product owner.
Why would a Company look for products it can produce under license?
Product Licencing Gives company wider reach
In our fast-paced ecosystem, innovation is central to the sustainability of any business. Hence, companies are under increasing pressure to continuously seek new ways to develop new products and improve existing ones.
Failure to continuously innovate places companies at risk of being ousted by their competitors. The innovative process requires resources denominated in time, human resources, and money; which may not be readily available to the product company. A strategic leeway to circumvent this process is for this producer (“Subject Company”) to seek out partners who already developed the new or improved product it desires that is where brand licensing comes into play
What are the advantages of licensing?
Creating a Unique Marketing Approach
Licensing arrangement offers many promises to both parties involved. The gains of the same could include any or all of the following:
- It is a tool to access entry and gain market presence in a foreign market. This is more probable where the licensor’s brand or product is well known.
- It de-risks the licensor from the loss of resources that would otherwise have been expended on research and development of new products, especially where the new product fails in the market.
- It could deter potential and costly lawsuits, especially where the businesses operate in related space and deploy similar technologies.
- It calls for strategic alliances where IP rights belonging to several holders subsists in the development or improvement of a product.
What are the disadvantages of licensing?
Be aware of poor quality management
Licensing arrangements, if not properly managed, may portend a potential pitfall for parties involved. In the case of the licensee, this may include the following:
- Typical consumer products licensing agreement is replete with restrictions and covenants to the advantage of the licensor.
- For instance, there may be restrictions as to the geographical location(s) the licensee can market or sell the product. Also, the licensee may be prevented from undertaking inventive activities on the product, even where such is necessary to maintain its market presence in its market territory.
- The introduction of new technology into the market may affect the sales of the licensed product. Remember, ‘What is today’s innovation is tomorrow’s obsolete product.’
- The danger that the licensed product may not be market-ready for commercial exploitation.
What does a typical licensing agreement cover?
Right to produce and sell good
A license is a contractual agreement in a class of its own, subject to the general rule of contract. Generally, issues covered by a licensing agreement include:
- Subject Matter: It must identify the Subject-Matter of the licensing agreement. This could be Intellectual Property Rights(Copyrights, Trademarks, Patents, and Trade Secrets) or Technology Rights.
- Parties: The contract must spell out the parties subject to the agreement.
- Scope of Contract: It must define the scope of the licensed rights. Matters under this head may include issues appertaining to territorial, exclusivity, and field of use restrictions.
- Royalties: It must include the financial terms that underpin the licensing arrangement such as royalty management rates, calculations and up-front payments to be made;
- Duration: It must stipulate the length of the contract and whether the agreement is subject to renewal.
- Rights and Obligations: It must also indicate whether the licensor is allowed to exercise monitoring rights over the licensee’s exploitation of the licensed rights.
How does a Company reach and find products that may be available for licensing?
Reaching out to Companies for product Licensing
A company on the lookout for products available for brand licensing can consult various sources for information as regards its availability. These include:
- Searching the pages of trade publications, professional and business journal in respect of the product;
- Visiting technology licensing offices of research‐based institutions, relevant government ministries, and parastatals;
- Attending trade and technology exhibitions, fairs, shows, etc.
What is the procedure if you or your company has a product to license to others?
Finding the Right Partner
An individual or company desirous of licensing its products could undertake the following steps:
- Due Diligence: This is very important as it allows the prospective licensor to conduct an in-depth investigation into the business of the prospective licensee. Such examination exposes any risk that could be associated with the potential agreement, which could be political, reputational, or economical.
- Products Valuation: The valuation of the product to be licensed, taking into consideration other factors, would be the foundation upon which the prospective licensor would make financial demands as to product exploitation.
- Negotiating the licensing agreement: The proprietary right in the product resides in the prospective licensor. Invariably, the prospective licensor has a huge interest to safeguard under the licensing agreement. It is essential at this stage that the prospective licensor takes benefit of his right by negotiating favorable terms in the agreement.
What is licensing in marketing?
A license under the marketing category permits the licensee to reproduce and distribute the licensed product in an authorized manner that would otherwise have amounted to an infringement where the licensor withheld such permission.
How do license agreements work?
Licensing Agreement For Mutual Benefit
A license agreement, just like any other commercial contract, operates on a quid pro quo basis. In simple terms, the licensor permits the licensee to use the licensed product while the licensee pays royalties to the licensor in exchange. Primarily, both parties furnish consideration.
How do you license a product?
Licencing Your Product & Services
Before starting the process of getting partners on board the commercialization of your product, you must protect it under the existing legal regime for IP rights. After that, search and pitch your products to prospective partners. Finally, you negotiate and execute the licensing agreement with your partner(s).
Do you need a bespoke Ip licensing solution? our IP rights specialist for a free consultation today.