What is Licensing?

Intellectual Property Licensing is one of the most powerful and effective methods available to reach and engage with new customers and retain existing consumers. Licensing is now considered an integral part of any brand’s marketing mix.

Intellectual Property can be trademarks, celebrities, characters from books, television, film, video games, applications, song lyrics, and/or art and design.

Licensing is a contractual agreement between the Intellectual Property owner and a third party who has specific capabilities in appropriate categories of goods to design, manufacture or source, market and sell pre-approved products using the Intellectual Property.

Licensing extends a brand beyond its current reach into new products, categories and/or retail channels extending and enhancing the brand experience to their consumers.

Consumer product licensing helps Intellectual Property Owners further connect to consumers through appropriately designed and marketed products, generating substantial incremental revenue for the brand whilst protecting the trademark.

Intellectual Property

Either a corporate brand (such as Coca-Cola, Harley-Davidson); sporting organisation or sports club (such as FIFA, NBA, Manchester United); film (such as Star Wars, Avatar), TV programme (such as Good Night, Little Fellows!); art or design (such as Andy Warhol Foundation, Forever Friends); celebrity (Jennifer Lopez, Leonardo diCaprio); Social Media (Apps: such as Angry Birds, Games: such as Moshi Monsters; Internet Content; such as Google).

Licensor

The Licensor is the owner of the Intellectual Property who seeks to extend their brand and/or build more awareness through introducing the brand into alternative markets and consumer goods categories, ensuring trademark protection and generating revenue through the sale of Licensed Products.

Licensed Products

The products contracted by the Licensor via their agent bearing the Licensor’s Intellectual Property (brand and/or imagery) to be designed, manufactured or sourced, marketed and sold by the Licensee.

Licensee

The company with expertise in developing and selling to specified channels of distribution the Licensed Products granted to them by the Licensor under a Licence Agreement.

License Agreement

A contract between the Licensor and the Licensee, often negotiated by a Licensing Agent defining the terms agreed to develop and sell Licensed Products.

Licensing Agent

An individual or company with expertise in the licensing industry appointed by the Licensor to identify, negotiate and manage Licence Agreements with appropriate Licensees within a defined territory.

License Agreement Terms

Term

The length of the contract covering the Licensee from product development and usually allowing a period of 2-3 years sales with a defined sell-off period at the Contract end usually of 90 days.

Territory

The specific countries in which the Licensee is permitted to sell the Licensed Products. The Licensee must be able to demonstrate their ability to sell to retailers in the permitted markets.

Channels of Distribution

The channels into which the Licensee is permitted to sell the Licensed Products to reflect appropriate retailers for the Intellectual Property and Licensee’s existing relationships.

Royalty Rate

A negotiated percentage usually of net sales by Licensee which is payable usually quarterly to the Licensor either directly or to the official Licensing Agent acting on behalf of the Licensor.

Advance

A non-refundable but recoupable sum of monies which is an advance of anticipated royalties, negotiated as a proportion of the Minimum Guarantee and paid by Licensee on signature of the Licence Agreement. This sum is then set against royalty revenues generated by the Licensee until the Advance is cleared at which point Licensee will commence quarterly payments

Minimum Guarantee

A negotiated amount of royalties which the Licensee will guarantee to pay to the Licensor either annually or at the end of the term whether or not the amount of royalties reflected in the Minimum Guarantee have been generated.

Approvals

All Licensed Products, their packaging, any marketing materials and/or PR articles must be submitted to Licensor usually via the Licensing Agent for approval at three development stages:

  • Concept: submitted as drawings to indicate the look and shape of the Licensed Product with proposed use of Intellectual Property (brand and/or artwork)
  • Pre Production: submitted at first development stage indicating how the Licensed Product will look at full production stage
  • Production: an agreed number of finished samples including all packaging submitted to Licensor and Licensing Agent