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Once you begin to license your intellectual properties and products, you are exposing yourself to higher levels of exposure. List of the Disadvantages of Licensing 1. Even when certain elements of the arrangement are pre-planned, there is still a certain level of freedom and control given to the licensee in the management of their business. It is a chance to expand the reach of a message, product, or concept without actually needing to invest into them fully. That knowledge allows an intellectual property to be marketed in a way that is more attractive to the average consumer. It offers the freedom to develop a unique marketing approach.Ī licensee knows their market much better than the average licensor. For the licensor standpoint, personal IP carries the same advantages as well. From a licensee standpoint, there is the opportunity to gain a monopoly over a product or service in a specific territory at a lower investment rate that going alone. They get to experience all of the advantages of self-employment, such as setting their own hours, while you get the benefits of having someone invested into your IP. Licensing allows people to go into business for themselves. It creates self-employment opportunities.
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That means tariff barriers to entry can be avoided because a domestic company is using the IP, just as the licensor might be using the IP domestically. It is much easier to enter foreign markets in this manner, as the license allows for the intellectual property to jump border requirements. When a licensing arrangement is in place, then the licensor is able to get their product into new markets much easier than if they were doing the work on their own. It creates an easier entry into foreign markets.
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Neither party is required to throw their own money in these areas to earn profits, which creates a win/win situation for everyone involved. From a licensor standpoint, there are fewer risks in the selling and service of what is being offered. From a licensee standpoint, there are fewer risks in product development, market testing, manufacturing, and distribution. Licensing is designed to reduce the risks involved in doing business for everyone involved. Even if the item wanted is a trademark or brand name, the new business benefits from the reputation and consumer awareness of the information. When a licensee can improve upon a product, they can make even more money off their venture. It takes less upfront cash to pay for a license. They can purchase a license instead of outright ownership, then begin to make profits right away. It creates new business opportunities.Ī licensee can benefit from this type of arrangement because it requires less money from them to start a business opportunity. These payments could last for several years without interruption. As long as the licensees are making money, then you’re going to be making money too and you don’t risk losing your ownership rights. Just sell licenses after developing the IP and you’re good to go. You don’t need to do anything to generate those revenues either. If you are the owner of an intellectual property, then licensing it is an opportunity to create an ongoing stream of passive revenues. It creates an opportunity for passive income. There are advantages and disadvantages to licensing for both parties to consider before finalizing their agreement. Most licensing agreements include a one-time upfront payment for access to the desired items as well. In return, the licensor receives an agreed-upon royalty out of those profits for the ongoing use of their items. The licensee is able to keep the profits earn by their use of the licensed items. The rights of the licensee are fully outlined in the agreement for the license, which may allow them to sell items, use a trademark, or take advantage of a specific brand message. Numerous items can be part of a licensing agreement, including a trademark, a patent, or even branding. A licensing agreement gives a licensee rights to use a product that the licensor already owns.