Licensing Intellectual Property: A Way to Business Growth

Licensing is one of the best ways for businesses to grow... fast

But what do businesses need to set into place in order to secure the best licensing opportunities? Our guide explains more.

Words by Dr Martin Douglas Hendry

Introduction

Intellectual property is a crucial asset for businesses in today's economy. It includes patents, trademarks, copyrights, and trade secrets, and it can be a valuable source of revenue for businesses if leveraged correctly.

One way to monetize intellectual property is through licensing agreements. In essence, these grant third parties access to the use of IP in a legally specified way, typically in return for financial consideration.

In this blog, we will explore licensing intellectual property as a way to drive business growth.

Understanding Intellectual Property

Before delving into licensing, it is important to understand the different types of intellectual property and their legal protection in the UK.

Patents protect inventions, trademarks protect brands and logos, copyrights protect creative works, and trade secrets protect confidential information.

It is crucial to identify and protect intellectual property before considering licensing.

In a sense, the IP which is to be licensed should be so strongly protected that, from a legal standpoint, the only reasonable means for a third party to make use of that IP for commercial purposes – would be to license it from the owner.

Typically, demand for a license to make use of IP may only realistically occur if that particular brand, invention or another piece of material is: a. strongly protected (as above) and b. in high demand. Real-world examples of this might include Manchester United – which are a considerable success story in the world of licensing. More on this is in the following sections.

What is Licensing?

Licensing is the process by which a business grants another business the right to use its intellectual property in a specific and limited way.

Licensing agreements can take different forms, such as exclusive, non-exclusive, or sublicensing.

An exclusive license grants the licensee a monopoly over the use of the IP, meaning that they are the sole licensor
Non-exclusive licenses grants the licensee ability to make use of the IP, but means that others can also do the same, potentially in the same goods and services
The ability to sublicense grants a licensor a right to license IP themselves to others, a sublicense is typically more prescriptive that a license

Licensing enables businesses to monetize their intellectual property by receiving royalty payments in exchange for the right to use their intellectual property.

In such instances, the license holder still remains the owner and entity in control of the IP in question and as such gains benefit from specified third-party use of the IP.

As above, Manchester United Football Club are a significant licensor in the sporting arena. Much of their merchandise is made under license (and not by Manchester United themselves) which drives a lot of revenue back into the club.

Large and recognisable licensors may generate the lion’s share of their revenues via licensing as opposed to first-party activities. In such instances, where the demand is high, achieving a solid base of IP protection around this IP in the jurisdictions being expanded into is a key priority for the IP owner.

Failing to put protection in place (and reasonable routes to license) IP owners may find that those clamouring to make use of their IP produce goods or services which infringe upon it. Ultimately this not only leaves money on the table that could be generated through licensing, but can also damage the business by diverting revenue and damaging reputation.

Benefits of Licensing Intellectual Property

Licensing can provide several benefits for businesses.

For the licensor, it can provide additional revenue streams, expand their reach into new markets, and leverage the licensee's resources and expertise. Notably, this expansion is not undertaken at the economic and resource risk of the licensor, but rather that of the licensees.

Whilst all licensors have a vested interest in the success of their licensees – this can remove much of the first-party risk involved with expanding internationally. Despite this, it is important to make sure that licensing terms are prescriptive to the point where the licensee’s use of the IP would not act in contravention of the licensor’s best interests.

For the licensee, licensing provides an opportunity to use an established intellectual property without the high risk of developing it from scratch, and likely an established market appeal.

Again, using the example of Manchester United football club, a producer of ceramic goods could be confident that should they secure the license to produce official Manchester United goods – that there would be a worldwide appeal and market for them.

How to License Intellectual Property

To license intellectual property, a business must first identify potential licensees and negotiate the terms of a licensing agreement.

The terms of the agreement should consider factors such as royalties, exclusivity, duration, and any restrictions on use. It should also consider rainy-day scenarios and the consequences of a failure to perform.

It is important to seek legal advice to ensure that the licensing agreement complies with UK law and that it is comprehensive and well-formulated. Striking the balance between being too onerous, and giving a licensee the freedom to operate is key as this will incentivise their success and thus realise royalties.

Licensing agreements should be tailored 1) to the specific IP being licensed, 2) to the circumstances of the licensor, and 3) to the circumstances of the licensee. Clarity around performance and both positive and negative outcomes will ensure the best outcome for both parties – as expectations are set clearly from the outset.

This may also include a set of standards around use (e.g., brand standards, should it be the licensing of a brand) to ensure that the licensee’s use is consistent with the larger brand use and does not negatively impact the brand by deviating from the standard use.

Case Studies of Successful Licensing Agreements in the UK

We have provided some embedded examples above but for the purpose of further clarity, we will provide more in this section.

There are many examples of successful licensing agreements. For instance, the licensing of the Pokémon brand for merchandise has been hugely successful.

The franchise has become a global phenomenon with the licensing of products from toys, books, movies and more.

Another example is the licensing of Formula One technology for commercial applications.

Through licensing, Formula One technology has been used in many industries, such as aerospace, medical devices, and renewable energy, generating significant revenue and expanding the reach of the technology. All of that is beyond the racing itself!

Finally, another company which licenses its technology is Samsung, which (along with Apple, for example) owns multiple patents that are put to use in the smartphone arena. It might surprise you that Apple and Samsung both receive revenue when the other’s phones are best sellers – this is because both make use of each other’s licensed technology.

There are other companies that have not released smartphones but who develop technology in this area and whose patents are used and will generate licensing revenue from any and all sales.

Best Practices for Licensing Intellectual Property

To ensure a successful licensing agreement, businesses must follow some best practices. Here is a basic step-by-step guide to doing just that.

Businesses must identify and strongly protect their intellectual property before licensing it. As above, licensing it should be the best and only route to its use
Businesses must identify potential licensees and conduct due diligence to ensure that they would be a successful licensee before entering into any agreement
Businesses should consult with a legal expert to ensure that the agreement is legally sound and is tailored to protect their interests and brand consistency
Businesses must keep a close eye on the licensee's use of the licensed intellectual property and enforce the terms of the agreement.

Should these steps be followed, and a number of licensees be secured, a business may quickly scale and generate significant revenue from the activity. This in turn can be reinvested into the brand in a virtuous cycle – ultimately leading to a profitable and sustainable licensing regime.

Conclusion

Licensing intellectual property can be a valuable way for businesses to monetize their intellectual property and drive growth – if undertaken in a careful and concise manner.

However, it is crucial to identify and protect intellectual property before considering licensing.

Additionally, seeking legal advice, negotiating favourable terms, and following best practices are essential for a successful licensing agreement.

By leveraging licensing, businesses can unlock the value of their intellectual property and drive growth in the UK economy.

Should you need advice as it relates to licensing your IP and growing your revenue base, contact our team below to discuss how we can help you.

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