What is Licensing?

The basic definition of trademark licensing is rather straightforward, if somewhat legalistic. A license is an agreement through which a licensee leases the rights to a legally protected piece of intellectual property from a licensor –the entity which owns or represents the property — for use in conjunction with a product or service. But the relative simplicity of that definition is a mere gateway to a way of doing business in an ever-widening range of product categories and types of properties.

Licensing is a marketing and brand extension tool that is widely used by everyone from major corporations to the smallest of small business. Entertainment, sports and fashion are the areas of licensing that are most readily apparent to consumers, but the business reaches into the worlds of corporate brands, art, publishing, colleges and universities and non-profit groups, to name a few.

Licensing is defined as the process of leasing a trademarked or copyrighted entity (known as a “property”) for use in conjunction with a product, service or promotion. The property could be a name, likeness, logo, graphic, saying, signature, character or a combination of several of these elements.

Licensing is usually based on a contractual agreement between two business entities: the owner or agent of the property, also known as the licensor and the renter of the rights, and the prospective licensee – generally a manufacturer or service provider who believes that by using the property as a marketing tool, it can sell more of the product or otherwise attach itself to the emotion generated by the property.

The formal permission to use the owner’s property is subject to certain terms and conditions, such as a specific purpose, a defined geographic area, and a finite time period. In exchange for granting the rights, the licensor obtains a financial remuneration. The basic component of this payment is the royalty — in most cases a percentage of the licensee’s sales of products covered by the license. Most deals also include a “guarantee” or “minimum” – a sum that the licensee is required to pay to the licensor even if little or no product is sold. A percentage of this guarantee is often paid as an advance at the time the deal is signed.