LICENSES

A license in its ordinary meaning is permission to do something which would otherwise be illegal. Under one definition, a license is a waiver of the right to sue the licensee for acts that, absent the license, would be unlawful. In the field of intellectual property, a licensor may grant a license to do something, such as associate a trademark with certain goods or use a patented invention, without fear of a claim of infringement brought by the licensor.

One shorthand definition of a license is a promise by the licensor not to sue the licensee. An exchange of promises is the back bone of any contract or agreement including a license agreement. A license agreement under intellectual property has various component parts, including a term, payment or royalty, territory, renewal, as well as other limitations important to the licensor; for example, a licensor’s right to oversee the manufacture of a licensed product. Many licenses are valid for a particular length of time. This protects the licensor if the value of the license increase, or market conditions change. Royalties are one form of consideration paid for the grant of a license. A royalty may be in the form of a lump sum at the execution of a license agreement or a percentage of the price of each item sold, paid in installments over a period of time. Typically, the higher the price of the product or service associated with the license, the greater the percentage rate of royalty. A license may also stipulate a specific territory the rights pertain to. For example, a license with a territory limited to the United States would not permit a licensee any protection for actions in China.

The subject matter of an intellectual property license may comprise patented inventions, trademarks, copyrighted works such as books, art photographs or music as well as unpublished research and development information, unpatented inventions, know-how, trade secrets, and technical data in the possession of the licensor which licensor has the right to provide to a licensee. Trademark licensing is the process of creating and managing a contract between the owner of a trademark and a company or individual who wishes to use the trademark in association with a product, for an agreed period of time, within an agreed territory. A patent licensor grants one or more of its bundle of patent rights (i.e., the right to exclude all others from making, using, selling offering for sale, or importing the patented goods) to a licensee. Licensing is one way for an owner of a patent or trademark to create a revenue stream without actually manufacturing or selling a product or service.

Brand licensing is a well-established business. Trademark licensing has a long history in American business, beginning with the rise of mass entertainment such as the movies, comics, radio and TV. Superman's popularity since the 1930s resulted in an explosion of toys, books, and consumer products having the super hero’s logo, none of which were manufactured by the creator of the Superman character. Few children’s movie pictures are distributed without a mass marketing campaign for associated toys and clothing.

Instead of spending millions to create a new trademark or logo, companies are willing to pay a royalty on the sales of their products to license an established brand name. Tony the Tiger toys, McDonald’s tee shirts, alma mater university paraphernalia, and Hanna Montana clothing are only a fraction of the products carrying well-known trademarks which are made under license by companies unrelated to the companies who own the trademark. So successful has the process become that some companies, such as Texas Instruments, make more money from licensing than from manufacturing.
 

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