Categorized | Licensing

Bringing Your Product to Market 4.9. Licensing

4.9. Licensing

When you license your product, you’re essentially “selling” it to another company. They then have the right to manufacture, market, and sell the product. In return, they pay you a flat fee (rarely) or a percentage of every sale they make, called royalties. But why would you want to sell your product?

  • You may not have the resources or time to roll out your product, so you seek out someone who does.
  • Once you’ve completed a licensing deal, you don’t have much work to do. If the licensee is a good and experienced company, all you have to do is sit and wait for the checks to arrive.
  • Your product may actually involve an entire line of products, say books, toys, blankets, mouse pads, video games, and so on. The only way to realize the entire product line is to license the manufacture, marketing, and distribution of some of these product lines to other companies―even if you’re manufacturing some of the products yourself. (Every large company licenses at least some of its products to other manufacturers and marketers).

When you license your product or idea, you are not giving it up. It still belongs to you. An assignment is when you actually transfer ownership of your product or idea to someone else. A license only gives someone else the right to manufacture the product or use the idea under certain restrictions. A license has several important aspects:

  • Exclusivity—a license can either be exclusive, meaning that you as the owner of the license cannot license anyone else for the product or idea, or nonexclusive, which means that you can assign a license to someone else. Most are combinations of the two: a person or company sells a license that is exclusive in terms of geography or the type of product but nonexclusive in that the license can be sold in other geographies or for other products.
  • Value—this is the value of the product or intellectual property you’re selling; it is usually transferred to you in the form of royalty payments.
  • Restrictions—licenses frequently are restrictive; they grant a licensee permission to use the product or idea within a certain geographical area, only for certain products (say, T-shirts), and sometimes with certain sales expectations.

While all three are very important, what matters the most to you is the value. That, after all, will determine how much money you make off the license. Licensing value can be determined in three ways:

  • Market value—this is the price that similar products or ideas are fetching on the licensing market.
  • Future income value—this is a price based on projected earnings for the product
  • Cost value—this is a price based on the cost of developing the product or intellectual property and recouping that cost with profit.

Keep in mind that what you are licensing is your patent, copyright, or trademark. You are not licensing the product itself. If you don’t have a patent, copyright, or trademark―or have one pending―no licensee will pay you squat for your idea.

Many people hire a licensing agent to do the work for them—they typically take an up-front fee plus a commission on the sale. Since licensing agents make a career of finding manufacturers and negotiating licenses, they often earn their fee and more by landing you the best possible deals.

If you don’t use a licensing agent, you have to perform the following steps:

  • Locate manufacturers (we’ve provided resources in section 10)
  • Prepare your marketing materials and proposal
  • Submit your marketing materials and proposal to manufacturers
  • Negotiate the licensing contract

While you can accomplish the first three steps on your own, the last step requires the services of an attorney who specializes in licensing or patents. Remember this: when you’re negotiating a license with a company, they do these negotiations all the time. They’re much, much, much better at it than you are. So you need someone in your corner who can maximize what you get out of the deal.

4.9.1. LIMA: International Licensing Industry Merchandiser’s Association

Founded in 1985, LIMA is the largest world-wide organization representing companies and individuals in the marketing of licensed products. If you’re very serious about licensing your products or intellectual property, you should become a member of LIMA and exploit the services, including a monthly magazine, they offer you. LIMA sponsors several world-wide licensing conventions and networking events―these will cost you additional money, but keep in mind that a fairly large proportion of licensing deals originate―and finish―at licensing or manufacturing conventions. The LIMA site’s calendar gives you a good run-down of international networking and conference events.

Most valuable to you in your fledgling enterprise is LIMA’s free online international directory of licensing agents at It is the most comprehensive directory available on the Internet.

LIMA membership offers you several resources. In addition to the trade magazine, Licensing, membership gives you access to the largest online database of international manufacturers, licensing agents, and licensees in the world. You also receive a printed copy of LIMA’s Who’s Who, which I have found to be an invaluable resource in negotiating the world of licensing agents and manufacturers―no-one who is serious about licensing should not have this book on their desk. Membership also includes educational resources and seminars, including a certificate program, the Certificate of Licensing Studies. Membership dues are based on a sliding scale of revenues―the lowest end of the scale (no revenues) means you’ll be forking over $500 to be a member for one year.

4.9.2. Inventor Fraud: Companies Looking for Inventions

Inventor Fraud seeks out inventors and provides resources for helping them get patent protection, sell their ideas, profit from their ideas, find manufacturers, find licensees, and negotiate licenses. They provide these resources to protect inventors from invention scammers who take money from inventors and accomplish nothing. The site publishes a directory of companies and manufacturers actively looking for patents to license. These companies are listed by industry category.

If licensing is your game, Inventor Fraud should be a heavily bookmarked site. In addition to listing companies looking inventions, the site provides you with a marketing letter template as well as instructions on how to do a brochure and Web site.

4.9.3. Patent Value Predictor

For $150, PatentValuePredictor will assign a future income value to your patent based on the patent description and some financial data. These have to be published patents or applications; if you have yet to apply for a patent, the cost is $1,000 for a valuation.

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