Licensing is a common strategy to commercialise IP. It simply means that permission is granted by the owner of an IP right to another person or organisation to use the on agreed terms and conditions. There are different types of licencing available. A franchise is a form of licence, while assignment is different again because it is the outright sale of IP.
IP licensing gives the licensee the right to use (but not own) the copyright, patent, trade mark, design, technology, technical know-how or specific marketing skills to their advantage. They can use the IP right for a defined purpose, in a defined territory, for an agreed period of time. The licensee isn't paying for a product; they are paying for access to legal exclusivity.
The value of the IP rights is negotiated and is based largely on the strength of the IP rights in the creation or invention.
Licensing your IP to another party can be an effective way to exploit IP, particularly if you don't have the resources or experience to develop and market your product or service.
Licensing arrangements are common involving copyright, patents, design and trade marks, but any type of intellectual property can be licensed.
Key points on licensing:
- A licence is a contract where the IP owner gives permission to a licensee to commercialise that IP.
- A licence can cover product development, manufacture, marketing and selling products.
- The owner of the rights will usually get payments in the form of royalties in return for their use. The value of the rights is an agreement based largely on the type of IP involved.
- An exclusive licence is the most commonly used mechanism to commercialise IP with a partner, but there are many other types of licences, including know-how, trade mark and non-exclusive.
- Taking out a licence is a cost-effective alternative to investing in development that has already been done.
If you think licensing is for you, learn more about the specific licence conditions you need to consider. We recommend you seek the advice of a licensing expert to help you in negotiations.
Franchising - a form of licence
When the owner of a successful business wants to expand without borrowing capital to develop, they can license IP to franchisees. This generally includes trade marks, logos, promotional material, the business system, various processes and shop fit-outs.
Key points on licensing:
- Franchising is a method or system for distributing goods and services.
- The franchisor owns the IP rights over the marketing system, service method or special product.
- The franchisee pays a fee or regular royalties for the right to trade under the brand name.
- The franchisee benefits from coordinated marketing efforts and a developed business system.
Assignment - selling your IP
An assignment is an outright sale of IP. You transfer your ownership to another person. This can be a viable business strategy if you prefer to receive a substantial up-front lump-sum payment instead of smaller royalty payments throughout the commercialisation period.
When IP owners transfer their ownership, they cannot impose any performance obligations on the new owner. This is different from licensing.
The lump-sum payment for an assignment should be regarded as a purchase price. The owner should factor into the purchase price:
- all costs, including direct and indirect costs of research and development, materials, any outsourcing and the cost of protecting the IP
- a profit component
- the potential market value of the technology or IP.
The IP purchaser, however, may seek to pay royalties instead of a lump sum for the assignment of title to the IP in question. In this way, the purchaser's initial capital outlay is less and payment for the IP in the form of royalties becomes conditional on the IP product being successful in the market place. In this case, if there is no success there is no payment.
Seeking professional advice
For specific assistance and advice on licensing you can contact an IP professional.
The Licensing Executives Society of Australia and New Zealand (LESANZ) and Franchise Council of Australia offer further information on the issue of licensing and franchising.
Last Updated: 17/12/2012