At its core, licensing is a business arrangement in which one company gives another company permission to manufacture, market, make, or sell the intellectual property contained and protected through a patent, trademark, or copyright.
As an entrepreneur, small business owner, or just a regular person with ideas, why would you license your intellectual property? Well, let’s say you run a restaurant that features a clean, organic menu. You might find a gym franchise where some of your food could be packaged and purchased as grab-and-go fuel for the gym clientele.
Or maybe your hipster husband had a beard a few years ago that was just getting way out of hand. You decided to concoct some home-spun beard oil and mustache wax so you could stand to be near him. Then a local barber started opening shops all around your area. Licensing your men’s grooming line could be a win for everyone.
Licensing puts the onus of production and/or distribution on someone else – someone who has a greater capacity to get production and distribution up and running. While licensing does not guarantee showers of money will start flowing down on you, there are three distinct advantages to licensing:
- Get your product or service to market faster
- Benefit from better margins than if you try to do it yourself
- Working with a larger company provides further protection of your idea because they have a vested interest in your success
Depending on your goals, there are some basic protections you can put into place to keep your intellectual property safe:
- All Rights Reserved – To protect your work from anything beyond private consumption, All Rights Reserved is a way to spell that out.
- Creative Commons – Creative Commons licensing allows others to reuse and redistribute your work with attribution. Licensing your work under a CC license does not preclude you from entering into a separate license agreement with someone else to use your work for commercial purposes.
So what’s your goal? If it is to make money now, reserving all rights and then pursuing selective licensing or transfer deals ASAP is the way to go. If you’d like to gain exposure while you build up a stockpile of intellectual property and a following, you might want to work under a Creative Commons (CC) license for now. Again, the Creative Commons does not preclude other licensing deals in exchange for monetary compensation now or in the future. Your goals for licensure may change over time. A Creative Commons license might work for now, but you are finding your work of sufficient value that individual licensing arrangements are worth exploring.
Hammering out a commercial licensing agreement is best left to lawyers who specialize in intellectual property law. When setting up licensing agreements, think about how much control you want to retain regarding your intellectual property. For a larger gain right from the get-go, you could transfer all rights to the licensee. To retain some rights, clear ownership, and a path to residual income over a longer timeframe, a more limited license arrangement is probably in your best interest. Consult an attorney to understand the full scope of your options for your unique situation.
Considerations with Commercial Licensing
- Partnerships – Licensing your creative work is about creating partnerships. You want to do your due diligence about who you are working with and what their intentions are with your intellectual property. Licensing does not have to be a once and done proposition. If you and the licensee are new to the process, test the waters with a limited license for a limited time-frame. Once kinks are worked out and you have a stronger working relationship, you can expand the timeframe and firm up a longer-term licensing agreement.
- Exclusivity – Exclusive license deals can work under the right circumstances. But I do appreciate attorney Tom Kulik’s note of caution – “Tying the hands of the licensor under an exclusive license should be met with appropriate royalties, minimum guarantees and, in some cases, even upfront fees or advances depending upon the nature of the underlying deal. Further, additional responsibilities are placed upon the parties in exclusive licenses (i.e., joinder of the licensor in intellectual property infringement litigation). Sometimes a non-exclusive construct with specific restrictions may work equally well for the parties. In any event, when it comes to exclusivity in intellectual property licenses, always proceed with caution.”
You’re a smart person with intellectual property that has value. To get the most of it beyond what you can scale up and do yourself, licensing can be one more source of income.
A well-structured licensing agreement can be the gift that keeps on giving!