Creating a new product, composing a beautiful song, engineering fascinating software, or developing cutting-edge technology is all well and good if you can push it to the level you envision it. Sometimes though, it’s best to allow another party to take over the project to give it the best chance at success. This is where the term “licensing” comes in. When you license a product, you allow another party to use it in exchange for access to their networks and resources to help generate increased sales and revenue. The contract drawn is between two parties; the property owner (licensor) and the permitted party (licensee). Both parties get to agree on how the property is used.
Licensing deals are commonly done on intellectual properties such as trademarks and patents. However, they can encompass other things such as real estate holdings and copyrights for visual art or written materials. The deal generally covers the length of the relationship, issues of quality, how much the licensor will be paid, as well as expectations required of both parties.
You may have a good property to license but if you are lacking in intellectual property law knowledge, you could set yourself up for some issues. There are different licensing agreements to consider, most common of which are the trade secret licenses, the trademark licenses, copyright licenses, and the patent licenses. Regardless of which agreement fits your situation best, it’s important to involve a lawyer, most especially a contract lawyer or an intellectual property lawyer. So what does it take to get a licensing deal?
Have a good understanding of your property
You have to capture the licensee’s attention with something solid. If it’s a product for example, you have to impress them with things such as a commitment from a major buyer or growing sales. Be the master of your business, understand how it works, it’s strengths and weaknesses, what the projected demand is, and what the potential market size is. You should also be able to list off your competition and demonstrate how and why.
You need to have a clear understanding of things such as competitive analysis information, market research data, and patent status. If it’s a product yet to be manufactured, be armed with information such as its details, prototypes, and production cost estimates.
Get it protected
A patent is important in getting a good licensing deal. Without it, there’s nothing stopping someone from taking the idea and running with it themselves. That being said, there are ways to work around patents that a lot of these companies know and utilize. It’s equally important to have a Non Disclosure Agreement drawn up to prevent a company from tweaking the idea enough to skirt around the patent. In these situations, you want to get with a lawyer and pick their brain on the best ways to move forward. It might be expensive, but at the risk of losing a potential licensing deal and having someone else beat you to commercialization, well worth the investment.
Research, Research, Research
You need to do extensive research on any other party involved. Will their goals align with yours? What is the public’s view of them? Will it paint a good picture of the IP (Intellectual Property) you intend on licensing? How do they run their business? Is it something you want to associate with? While you may want a particular licensee, it pays to shop around in case your deal falls through for one reason or another. Once you have zeroed in on a potential licensee and know that the deal is about to be made then it is important to embrace the following:
1: Understand what you are getting into
You need to understand what you are getting into when you enter the licensing deal so you don’t end up with the short end of the stick. You have to safeguard your property before attempting to engage a licensee. For example, if you have a trademark, then you need to ensure that it is properly registered. If it is a product you have created, understand its potential. Understand what you bring to the table to push it forward. Are you great at creation but suck at sales for example? Understanding your strengths and weaknesses will help you arrive at a good deal.
2: Don’t leave any stone unturned
Before signing on the dotted lines, ensure that you understand every line in the agreement and the weight it carries, both now and in the future. Ask about what you don’t understand and most importantly, keep as many of your options open as possible. You don’t want to get into an exclusive licensing deal for example that doesn’t embrace a certain market which you had hoped to push your product. It is important to find a licensee that matches your goals to a tee or at least to a larger extent.
3: Understand your payments
Yes, you will be earning a percentage in royalties but what happens when the projected sales are lower than anticipated? You need to ask the tough questions and cover as much ground as possible when it comes to your payment.
4: Don’t forget government regulations and taxes
You need to understand government regulations regarding the licensing deal you are about to sign. You also need to understand how the taxes will work.
5: Envision every possible scenario
Things such as what happens when the licensee fails to pay shouldn’t get you off-guard. You should have a clear picture of what will happen if the company goes bankrupt for example or if you wish to transfer ownership to another party. Ultimately, getting a licensing deal is not hard as long as you have all your ducks in a row and you have done adequate research.