What is Licensing?

By Dylan Jomy2 min read · Posted Jan 14, 2023

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Have you ever wondered what the term “licensing” was when it was used to describe an action between two companies? This article will go over what licensing is, why it is used, and the different types of it.

What is Licensing?

Licensing is a contractual agreement between two businesses where one business leases the rights to a legally protected piece of intellectual property to another company under specific terms and conditions. The licensor or property owner is the side that grants access to the intellectual property, while the licensee is the side that requests the use of the licensor’s intellectual property.

What is the Purpose of Licensing?

There are several reasons that businesses and companies decide to license a product. Reasons include:

Control: Licensing allows the intellectual property owner to have more control over the use of their IP property. This arrangement enables the licensor to profit from their licensed products and be protected.

Exploration: Licensing allows IP owners to try new businesses and move into new geographic areas without investing in the building and maintenance of a base of operations.

Extension: Licensing enables IP owners to expand their product into new areas (typically geographic). Companies try out new products, license them in new markets, and by maintaining control over their product, they receive revenue and expanded exposure.

Support: Licensing helps IP owners by opening up new revenue streams. For example, a business that licenses its logo to be used on clothing generates licensing fees and promotes its brand whenever a consumer uses or wears an item with the licensed logo.

The Different Types of Licensing

There are several different types of licensing. Types of licensing include:

International Licensing: International licensing gives a foreign business entity the right to manufacture or use a company’s product for its market. For example, a basketball team permits Nike to use its logo on merchandise and sell it worldwide.

Copyright Licensing: Copyright licensing grants the licensee the intellectual property rights to use a copyrighted item. Examples may include books, movies, and musical recordings, to name a few.

Patent Licensing: A patent license gives a patent holder control over their patent while granting the licensor access. This is typically used for distribution purposes. Licensing requirements make patent licensing complicated.

Brand Licensing: A brand license grants the licensee the right to issue products that carry the brand’s name or trademarks, such as a logo, slogan, or the word itself of the organization. The licensee fee may increase or decrease depending on the revenue from the licensee.

Conclusion

Licensing is a marketing tool that everyone from major corporations to small businesses use. It is commonly used in the entertainment, sports, and fashion industries. Without licensing, companies wouldn't efficiently and effectively be able to build out brands to be as widespread as we know them to be.

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About The Author

Dylan Jomy

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Hi, I am Dylan, an Article Editor at Pitch Labs! I am fascinated by business, finance, and the stock market. I also love to write, help, and inform people about economics-related topics. I plan to educate myself on business and STEM-related matters as well.

See more posts by Dylan Jomy

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Our organization cannot give out official legal/fiscal guidance. All articles are written by volunteers and it may be beneficial to contact professionals to assist your understanding of the information and to guide your action. Pitch Labs bears no responsibility for the results of actions taken based off of article content or any other form of assistance given.