Licensing is generally viewed as an easy way to grow a company internationally. Licensing is becoming a common practice as a way for retailers and manufacturers to build their brands. Some of the major companies that grant licenses to retailers to manufacture and sell their products include: Merck and Upjohn Pharmaceutical Company; McDonald's; KFC; Nestlé
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What are the advantages of licensing a business?
It creates new business opportunities. A licensee can benefit from this type of arrangement because it requires less money from them to start a business opportunity. They can purchase a license instead of outright ownership, then begin to make profits right away. It takes less upfront cash to pay for a license.
What are the benefits of a license agreement?
When a licensee can improve upon a product, they can make even more money off their venture. Even if the item wanted is a trademark or brand name, the new business benefits from the reputation and consumer awareness of the information. 3. It reduces risks for both parties.
How much do licensing agencies get paid for a license?
Payments to the licensor are typically in the form of royalties on sales and guaranteed minimums. Depending on the licensee's level of expertise and the specific property involved, royalties normally range from about 5 to 11 percent.
What are the benefits of volume licensing?
Volume licensing makes it easier and more affordable to run software on multiple computers within an organization. Cost savings. By centralizing software purchases within the Microsoft Volume Licensing program, your organization can leverage the power of companywide pricing, which lowers operating and maintenance costs.
Why do companies do licensing?
Companies who know their brands well have a good understanding of the equity of the brand. A brand's equity is derived from the awareness and image a brand holds with its consumers. Licensing enables companies whose brands have high preference to unlock a brand's latent value and satisfy pent up demand that exists.
What advantages does licensing provide for the manufacturers retailers and designers that are involved?
There are tremendous benefits of brand licensing to manufacturers and service providers (licensees), as well....Achieve instantaneous recognition. ... Enhance their authenticity and credibility. ... Reduce in-house costs. ... Gain access into new distribution channels. ... Enter new regions.More items...
What are licensing benefits?
Advantages and Disadvantages of LicensingAdvantages to LicensingDisadvantages to LicensingYou will not need to incur the costs of producing, promoting, packaging, or selling your product.You will likely lose control over your product, including promotion, packaging, and selling.2 more rows
How does licensing help a business?
Some of the benefits a company might gain from licensing include increasing its revenues with a minimum of expenditure, exploiting its technology, and opening new markets for its products and services.
Disadvantages of Licensing
Licensing can be advantageous, but there are some risks to be aware of.
The Purpose of Licensing
Licensing serves two main purposes. An established company has access to capital, expertise, and experience in an already established market. To produce your own product, you will need to either seek investment from others or put forth your own money as a startup business.
How does a licensee benefit from a business?
A licensee can benefit from this type of arrangement because it requires less money from them to start a business opportunity. They can purchase a license instead of outright ownership, then begin to make profits right away. It takes less upfront cash to pay for a license. When a licensee can improve upon a product, they can make even more money off their venture. Even if the item wanted is a trademark or brand name, the new business benefits from the reputation and consumer awareness of the information.
Why is licensing beneficial?
A licensing agreement can be beneficial because both parties get the chance to earn profits.
What are the advantages and disadvantages of a licensing agreement?
14 Licensing Advantages and Disadvantages. A licensing agreement gives a licensee rights to use a product that the licensor already owns. Numerous items can be part of a licensing agreement, including a trademark , a patent, or even branding. The rights of the licensee are fully outlined in the agreement for the license, ...
What does it mean when a licensee slips up?
One slip-up is all it takes for your items to be distributed illegally, which means you don’t see the royalties on the profits being made. 2. It creates a dependency upon the licensor. When a licensing agreement is signed, then the licensee is taking on all the risk in the arrangement.
How does licensing affect intellectual property?
Once you begin to license your intellectual properties and products, you are exposing yourself to higher levels of exposure. There will be more opportunities for theft, piracy, and misuse because you don’t have full control over how the licensee conducts operations. You can police how your IP is being used to some extent, but you can’t see everything that is being done. One slip-up is all it takes for your items to be distributed illegally, which means you don’t see the royalties on the profits being made.
What are the rights of a licensee?
The rights of the licensee are fully outlined in the agreement for the license, which may allow them to sell items, use a trademark, or take advantage of a specific brand message. The licensee is able to keep the profits earn by their use of the licensed items. In return, the licensor receives an agreed-upon royalty out ...
Why is it easier to enter foreign markets with a license?
It is much easier to enter foreign markets in this manner, as the license allows for the intellectual property to jump border requirements.
There are three methods for obtaining and licensing Microsoft products
Volume Licensing provides a flexible and economical way to acquire and centrally manage a variety of Microsoft products. Designed for organizations that require anywhere from five to thousands of licenses, Microsoft has a number of volume licensing options available.
Why Choose Volume Licensing?
Volume licensing makes it easier and more affordable to run software on multiple computers within an organization.
Open Licensing Programs
Microsoft makes volume licensing available in a variety of programs that are optimized to deliver the right level of pricing and benefits for your organization.
What are the advantages of licensing agreements?
The advantages of licensing agreement include increasing market share, lowering capital requirements, increasing the return on investment, and decreasing financial and legal risks.
What is a license for a company?
In the business world, a license permits a company to use a property right, with some limitations, while the licensor retains ownership of the product. For example, a clothing company may grant a foreign manufacturer to use its specifications and designs to manufacture clothes under a U.S. licensing agreement.
What happens if a licensee fails to make sales figures?
For example, if a licensee meets or exceeds the minimum sales figures, the contract is renewed. If a licensee fails to make its numbers, the licensor may have the option to discontinue the relationship. If you need help with the advantages of licensing agreement, you can post your legal need on UpCounsel's marketplace.
What is the responsibility of a licensee?
The licensee will take on the risks and responsibilities, including: Making the investment in the facilities. Handling and manufacturing the goods.
What is a licensor?
The licensor provides the right to use a piece or pieces of property , and the licensee contributes its knowledge of the industry involved. The result is a relationship that resembles a partnership or joint venture. There are many types of licensing agreements, including: Trademark licensing. Copyright licensing.
What is software licensing?
Software licensing. Merchandise licensing. Generally, licensing is a key mode of entry for firms that are considering expanding internationally. Licensing agreements give a foreign company the right to produce and/or sell another company's products in its country.
When did licensing agreements start?
Licensing agreements have been around since the late 1700s, when the first patents and copyrights were issued. A licensing agreement is a complicated legal document that provides details surrounding a contract. This may include specifications such as: Identifying the parties of the agreement. Significant dates.
What are the benefits of a licensee?
If you do, the benefits are enormous. 1. Speed to market. Scaling up is time-consuming and cost-prohibitive. A good potential licensee will have relationships with manufacturers, marketers, and the shelf space you need already in place. Everything you need to get your product to market fast, in other words. 2.
What do I need to start a business?
All you need is a good idea, a little knowledge, and to believe in yourself. You don't have to be rich, have a lot of experience , know the right people , or be able to write a business plan. You do have to hang in there to get good at this. If you do, the benefits are enormous. 1.
What does it mean to license your brand?
When you license your brand, you are giving another company permission to use your intellectual property on products they produce and sell. You can earn an upfront advance as well as royalties, which are calculated as a percentage of total sales or net profits, depending on the licensing agreement.
Benefits of licensing your brand
Many companies, from major corporations to small independent artists, recognize the benefits of licensing their brand. Consider some of these major benefits:
Potential pitfalls in licensing your brand
Of course, as with any business venture, licensing your brand has some potential pitfalls that you should watch out for. Being aware of these pitfalls, and putting systems in place to combat them, can help ensure a successful licensing arrangement.
Partnering with licensees: Mind your P's
When you’re partnering with a licensee, you want to ensure that not only is the licensee depicting your brand in an accurate – and positive – light, but that they are maximizing their chances of profitability with relevant, well-marketed products.
What type of business license do I need?
Government agencies at the federal, state and local levels issue business licenses, while professional organizations provide certifications and associations.
1. Federal business licenses
Most businesses won’t need a federal license. However, if you make or sell products regulated by the federal government, you may need a license from the applicable federal agency before you start up.
2. State business licenses
While not all businesses need to register with the federal government, many need state licenses. States issue operating licenses to industries ranging from construction to pet care services. Check with your Secretary of State’s office or state Department of Commerce to confirm if you need a license.
3. Local business licenses
In some cases, you may also need county or city business licenses. For example, local agencies often issue permits to businesses that serve food or alcohol.
4. Professional licenses
Many states also require professional licenses and certifications to work in certain fields. These licenses prove you or your employees have the necessary knowledge and experience for the job. Industries that commonly require professional licenses include:
5. Sales tax licenses
Most states and many localities charge sales tax on products and some services. If you plan to sell goods, you probably need to charge sales tax and apply for a state tax license.
6. Home-based business licenses
If you’re a consultant or a freelancer, you may run your small business from your home. It’s easy to assume that you don’t need any special paperwork to start this type of business, but that isn’t the case.
It Increases Opportunities For IP Theft.
It Creates A Dependency Upon The Licensor.
- When a licensing agreement is signed, then the licensee is taking on all the risk in the arrangement. They are dependent upon the quality of the IP being used to make their own profits. If they do a great job and earn plenty of cash, the licensor might ask for a renewal that costs more than the initial license. There is also no guarantee of exclusivity with many licenses, which mean…
It Creates Added Competition in The Marketplace.
- Many licensors have found that their licensees eventually become competitors in their own marketplace. That creates a difficult situation, as one company or the other stands to lose from the process of selling IP in the same way. For that reason, many licenses include geographic barriers to protect against a needlessly competitive marketplace. With internet access growing …
It Is Offered For A Limited time.
- Most licenses are only offered for a limited time. Although that time period may be 5-10 years, there is an expiration date which must be considered by the licensee. Is it worthwhile to invest time, effort, and cash into the promotion of goods or services that may not be available to them at the end of the licensing period? Is there a guaranteed renewal rate for the license, especially if th…
It Could Damage The Reputation of Both Parties.
- When one element of the relationship is mismanaged with licensing, then both parties can see a reduction in the brand reputation of the IP involved. If multiple licenses are offered, then the reputation may suffer globally, affecting multiple businesses who are not involved in the situation. The only way to resolve this potential management is to have good quality management practic…
It Is Not A Guarantee of Revenues.
- There is no guarantee that a licensing agreement will generate cash. You could agree to a specific royalty rate with a licensee, then never see anything because the licensee is unable to generate any sales. Many products don’t get licensed either, even when they are offered at discounted rates, because there is no interest in the product. You might face returns of damaged merchandi…
It Takes Time For Royalty Payments to arrive.
- In a franchising agreement, royalties might be paid weekly out of the sales that are generated at the register. This can be an automatic process, withdrawn directly from a bank account or the batch sales created. For many licensing agreements, however, the royalty payments are offered just once per quarter. That means it could be 5-6 months before you see your first meaningful ro…
It May Lead to Royalty Litigation.
- One of the biggest issues that licensors face with licensing agreements is a refusal by the licensee to validate royalty statements. They may not let you audit their statements at all for accuracy. This does allow you as the licensor to take legal action, but that tends to get very expensive, very quickly. For that reason, arbitration clauses are becoming a common componen…