Intellectual Property: Licensing for Revenues
July 06, 2019
Intellectual property can be a critical element for the success and continued growth of a business. Many companies invest significant funds to develop products and services and the related intellectual property and to retain ownership of such assets. Yet, business owners have financing limitations and other obstacles to growth and expansion. Seeking other ways to monetize these assets, business owners should consider the benefits of licensing some of their assets to generate further revenues.
Internal research and development is clearly one approach to developing products and services and the related intellectual property. Many companies employ engineers, scientists, software developers, writers, graphic designers and other skilled personnel to perform their in-house development of new products and services. Other businesses do not have such in-house resources, and accordingly, they contract the work out to third parties with the specialized skills and experience. With careful planning, the business can own all of the applicable intellectual property rights. Such intellectual property rights include, for example, patents, copyrights, trade secrets and trademarks.
While the business may have already succeeded in selling its products and services to a specific target market or geographic area, it may not desire to spend even more funds to enter into certain other markets or other geographic areas. Licensing offers the opportunity to license certain assets to a third party that will at least fund the sales and marketing efforts necessary for a new target market or geographic area. The license would be made in exchange for a reasonable royalty and other compensation. In some cases, the business receiving the license may also fund the tailoring of the product or service so that it may benefit its existing niche clientele.
In another situation, the product may be developed for an internal need. For example, a business may need a specialized software product to design and analyze its own products and services. Alternatively, it may need specialized web-based software in connection with its manufacturing operations. While it owns all or substantially all of the intellectual property rights, the business may still desire to generate revenues from such assets. Licensing offers the opportunity to license the product to a third party which will fund the sales and marketing of the product and related services. The license would be made in exchange for a reasonable royalty and other compensation.
In another situation, an author of various literary works may be selling his works via traditional and digital marketing means. For example, these works could include books, training materials, articles, and presentations. The author could also license his works to training organizations in various industries. Licensing offers the opportunity to create royalty streams from several different licenses to different organizations. In some cases, the license may also include the non-exclusive rights to use the author’s trademarks in connection with works, limited to the restrictions in the license agreement.
We should keep in mind that many small and mid-sized companies cannot afford large technical teams, such as those of larger companies. Licensing offers an opportunity to gain access to products and services and related intellectual property without too much of the upfront development cost. Licensing provides a business with another means to effectively gain access to certain products and services and the related intellectual property that it needs to grow its business.
The licensor business benefits from another party’s efforts to further commercialize the products and services while it receives a royalty payment. The licensee business benefits from having obtained a license to the assets that it needs to grow its business. Both the licensor and the licensee should view this as a win-win situation.
The license agreement should identify the assets and intellectual property initially owned by each party. The agreement must also address who will own any modifications, improvements, and derivative works made by each party. The licensee may desire to own them as the licensee is funding their development. The parties may otherwise agree to joint ownership of the modifications, improvements, and derivative works.
For some businesses, the license agreement must also include limitations to assure that the assets and related intellectual property are not accessed by the licensor’s competitors. The license agreement will include a confidentiality provision, as well as a provision to limit sales to a list of competitors of the licensor.
In conclusion, business owners should regularly review their products and services and related intellectual property, to assure the appropriate level of protection of such rights, and to evaluate what key components are missing, They should consider licensing to create other revenue streams for their business.
1 Vasilios Peros is founder and principal of Law Office of Vasilios Peros, P.C. His practice is focused primarily on business, technology and intellectual property law. He has been recognized as one of Greater Baltimore’s top attorneys, including SmartCEO’s 2016 Centers of Influence, 2015 CPA + ESQs, 2014 Power Players, and Legal Elite in 2011, 2010 and 2009. He can be reached at (410) 274-2053 and VPeros@PerosLaw.com.
2 This article is provided for informational purposes only and should not be construed as a legal opinion or legal advice. The reader should not rely on this article in making business, legal or other decisions on any matter without first consulting an attorney regarding any such decision or undertaking.