I have mentioned licensing in previous posts, YouTube videos, and articles here on the website. But, I wanted to take a more in-depth look at licensing and help shed some light on why this might be something your business should consider when planning out the future.
What does Licensing mean?
Simply put, a licensing agreement is an arrangement between two companies where one company gives the other permission to manufacture its product or a product with its brand identity or other intellectual property, for a specified period of time and for a specified amount.
For example, photographers may license an image to a pharmaceutical company for use in an advertising campaign, or a reputable clothing brand might license their brand name to a manufacturer for certain products they no longer wish to make themselves. Calvin Klein actually only produces their women’s clothing line, everything else including the ever popular underwear line is licensed out for creation by other companies.
When might you use this?
There are a few different scenarios where licensing might come in handy for your business.
You have a great idea for a product, but you’re a new business and you don’t necessarily have the means to produce it, market it, get it on shelves, and in the hands of people worldwide. You have the ability to take that idea and license it to a company that can do all of the above. If your product is, in fact, a great idea, finding a company already heavily involved in retail can be very beneficial to building your business in the beginning. An established company with connections to big stores like Walmart can bring on success in a few months that might take years for your business to accomplish on its own.
Your licensing agreement will provide that your business receives X amount of the profit whether that be a big or small number, you are likely still to make a lot more money from this than going it alone in the beginning. You won’t be spending any money to make, market, ship or sell the product. All that is taken care of, and you reap the rewards of sales.
This is the scenario in which having your trademark, and copyright registrations and patents all in order is extremely important as you build your business and its intellectual property assets. In order for a company to want to manufacture or produce your product, or use a song, photo, book, (anything creative) you have to own the legal rights to it-not just have common law claims. Your trademarks and copyrights are much stronger if registered and protected at the highest level.
You want to be the one to license a logo or trademark from someone in order to produce the products or even services. The idea is that you might license an NFL team’s logo to put on a bumper sticker or license the use of a brand name like Golds Gym for use on home gym equipment. Of course, that is hypothetical in that either of those massive companies do licensing deals for those types of items, but you get the picture.
Doing a licensing deal this way allows you to profit from a well-established brand and likely you will turn a profit on your product relatively quickly. You are of course paying the licensing fee as arranged in your agreement, but aside from that the remainder of the profits are yours.
If you are embarking on one of the two above scenarios then you probably have a product idea, or brand name/creative content that is unique and not yet on the market. This will likely give you slightly better margins. Further, major retailers that may have traditionally turned you down will open up and look at what you’re selling, thus opening the retailer up to any other products your business wants to take on and sell.
Who can do this?
Well, just about anyone can obtain a licensing agreement. This isn’t something that is restricted to large corporations by any means. One man operations can undoubtedly take advantage of licensing.
Generally, though, as a company or brand looking to get into licensing from one direction or another will need to have a few things in line.
Have your finances under control and in order. This doesn’t necessarily mean you’re turning a giant profit, but you aren’t in the red and you aren’t overextended on obligations. If you plan to manufacture and market using someone’s IP have your systems in place to prove you are capable of handling the deal. Have the proper distribution channels set up and be able to show a history of your own products sales if you can.
The next step in the process for either type of agreement is to get out there and make connections. Talk to other business owners and leaders in the areas you want to be in. Connect with the brands you want to license, and build up your own brand awareness. Don’t be afraid to make this happen for yourself and your company!
The contract itself will be negotiated and you will want to have an attorney on your side when developing these relationships. The clauses and actual meat and potatoes of the agreement will vary depending on the industry, the product, and the players involved.
When you get to that step I would love to talk to you about it! Don’t hesitate to reach out with questions or comments!
Please note that this is not meant to be legal advice for you or your situation, this is merely some legal research and knowledge on the given topic.