UK: Licensing – A Good Way To Grow

Last Updated: 27 July 2009
Article by Robert Sales

Robert Sales of Swindell & Pearson suggests that growing companies should include licensing in their strategic thinking, as a potential way of increasing revenue, obtaining revenue from new areas, and hence achieving growth without some of the pain this usually involves.

Licensing

Licensing usually entails a company allowing a third party to use one or more of its rights, and the third party pays for the privilege of using these rights.

Free Beer?

It may sound too good to be true, but effective licensing can come close to approaching this ideal. In licensing a company can seek rewards by allowing somebody else to work their rights, where and how the company presently cannot or does not work these rights themselves.

A good licence arrangement may provide a steady income stream for a company, for little effort on their part. This income can significantly assist a company in its growth.

Why license?

Aside from obtaining "free beer", there may be one or more markets out there which a company is unable to supply. This may be because the company is too small, too busy, may not have appropriate expertise, or doesn't have sufficient capacity, to supply a particular market. Alternatively, it may be a market which the company cannot supply satisfactorily, without significant investment in arranging distribution, local partners and the like. A licensee may already be established in this market, and may readily be able to add the company's products, services or other rights to their existing business in this market.

Another scenario is that the rights are in a field in which the company does not have sufficient knowledge and/or reputation. It may be possible that the company's rights are applicable in a field in which the company has no track record or experience.

It may be that a company cannot, or is not ready to, enter a particular geographical market. Accordingly, rights in that market could be licensed perhaps to a company established in that area, which may be a local partner.

Licensing can be carried out by all sizes of companies, and throughout their existence. Microsoft have recently launched a program to spin off its unused intellectual property, with the hope of generating licensing revenue from its unused innovations. IBM are famous for their extensive licensing activities. Licensing also takes place in many smaller companies.

What do you need to be able to license?

The usual rights to be licensed are intellectual property rights (IPRs) such as patents, designs, copyright, trade marks or know how. In view of this care must be taken when seeking to obtain these rights. Strategic thinking is necessary in deciding which types of protection to seek, how broad protection to seek, and geographically where to seek protection.

For instance, if a company knows it can only service the U.K. market, it may seek for a licensee for the U.S. market, and therefore protection should be sought in both the U.K. and U.S.

Turning to consider particular rights which may be licensed.

Lets share the big idea

Concepts are generally protected by patents, which can be granted for a wide range of inventions, as long as the invention is novel and inventive relative to previous arrangements. Ron Hickman became a multi millionaire by licensing the WORKMATE® to BLACK & DECKER®. Mr. Hickman struggled for many years in achieving his success, and also when necessary bringing legal proceedings against various infringers of his patent rights.

Most licensing of ideas is not so dramatic. Possible licensing scenarios include a start up U.K. firm making electronic testing equipment. Their new testing product has proved very successful and they are hard pressed to meet the demands in the U.K. and EU for this product. In view of this they have licensed an established U.S. company to make and sell the product in the U.S. This provides profits from a market they cannot fulfil themselves.

A West Country manufacturer of traffic cones has developed a new moulding process which helps to provide a stable base for their cones. This moulding process has a wide range of potential applications. They have already signed a licensing deal with a Northern Ireland firm which makes garden furniture, and negotiations are about to start with a Scottish manufacturer of children's toys, with a view to using the moulding process on their products. Again, this provides profits from a market they cannot fulfil themselves.

A grand design?

There are many instances of the licensing of designs. For instance men's suits and also pottery dinner sets bearing designs by Jeff Banks are available in our High Streets.

A wall paper manufacturer may turn to licensing their very successful designs for use on other products such as bed linen or general furnishings, for use as coordinated items, or stand alone ranges. In both cases, profits are being obtained from markets for which the licensor does not have manufacturing experience.

Copyright – how far can it be spread?

Again there are many instances of copyright being licensed. For example, the copyright in characters in films, television series and cartoons are widely licensed on diverse products such as yogurts, t-shirts, board games, footballs, bed linen etc. The income from such licensing deals can significantly supplement the income from the original film or other work, without the film company needing to establish themselves in these other markets.

Exploit the brand

A company's brand can be its most valued asset. The brand may be what attracts customers, and may provide a guarantee of quality, durability, value, exclusiveness, or reliability.

The goodwill in a brand can be taken into new areas by licensing. For example the well known and respected brand JCB®, originally known for agricultural and earth-moving equipment, has been taken by licensing into the field of power tools, lawnmowers and elsewhere, to provide the same message of quality to purchasers of these products.

An example of potential licensing would be when a company purchases the assets including the main trade mark of a well known brand in the baby care field. This mark has been used for over 100 years by this U.K. family firm which has now fallen on hard times, due in no small part to competition from the Far East.

The purchaser of the assets now intends to make only a small number of high quality premium products under the brand, which is where their expertise lies. This company also though intends licensing the trade mark on other products, still in the baby care field, but which will be made and sold by a foreign company, bearing the well known U.K. brand. Strict provisions have been put in place to ensure that the quality of the foreign made products will be appropriate to this esteemed U.K. brand. Thus, the licensor gains profits from markets which are outside their own expertise, by careful choice and control of a licensee.

Know How – tell others how to

Know how covers trade secrets such as recipes, process steps and conditions and the like. As the only protection for know how is confidentiality, care must always be exercised to retain this confidentiality. Once a secret has been lost it can never be regained.

An example of licensing here is the recipe of a particular biscuit. The recipe is licensed for manufacture abroad, and particularly for sale into the expatriate market in the U.S. who wish to purchase this special typically British biscuit. Strict provisions are provided in the licence to maintain the secrecy of the recipe, and also to ensure the quality of the product. The British manufacturer is able to gain profits from the ex-patriate market, without setting up overseas.

What you should be looking for in a licence

Where should it cover

This would normally be markets you are not active in, or those which could be penetrated much further by the licensee.

What should it cover

This could be products or services similar to your own, or could be restricted to products, services or activities away from your main activities.

What's in it for you?

Most commonly this is a royalty, which may be a fixed percentage or a fixed figure. This can vary dependent for instance on the volume of sales.

When negotiating a royalty figure it, it is always worth bearing in mind that 2% of a lot of sales, is usually more than 20% of a very small amount of sales. Therefore any royalties should aim to be realistic for both parties so as to enable significant sales to take place whilst providing an appropriate income for the right's owner.

advice is important.

Summary – don't miss out on a potential bonus

Licensing can provide growth in bringing in extra revenue, and especially from markets which a company may not be able to serve themselves. To be able to successfully license, it is necessary to have in place appropriate IP rights, covering what is wished to be licensed and where.

Therefore strategic thinking is required at the outset to decide how and where there is a potential for any new innovation, and whether one or more third parties may be required to fully develop and realise the potential of the innovation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.