Licensing 101

BENEFITS

When used effectively, brand licensing can increase the value of a brand by extending into new, relevant product categories and further monetizing brand equity.  Successful brand licensing generates significant royalty revenues and furthers consumer engagement. In fact, licensing has become one of the most powerful contemporary forms of marketing and brand development across all industries and product disciplines.

Merchandise licensing offers opportunities and benefits to both the owners of the properties (licensor) and the manufacturers of the licensed products (licensee).  The usage of an established brand name or popular characters on products under a licensing agreement provides the manufacturer with immediate brand recognition and enhances the value of the product to retailers and consumers. This can be accomplished without making the longterm and expensive investment required to launch and build a successful brand.

Licensors execute licensing strategies for their brands to expand the brand’s retail footprint and enhance brand value without having to invest in the development, production, or marketing of products that may be outside their core competency. Licensing also provides heightened legal protection, since the trademark associated with the brand is used in various trademark classifications.

 

DEFINITIONS While licensing is a simple concept, understanding the licensing industry lexicon is an important first step. Licensing basics are provided here to get you started. If you would like more in-depth information, there are several books available on the subject, and you can visit the Licensing Industry Merchandisers’ Association website for more information.

PROGRAM DEVELOPMENT The process of leasing a legally protected (trademarked or copyrighted) intellectual property. An intellectual property can be a name, likeness, logo, graphic, design, slogan, signature, character, or a combination of several of these elements, in conjunction with a product or a product line. An intellectual property can also be licensed for many non-product purposes, such as for a promotion or a service.

LICENSOR The owner of the Intellectual Property.

LICENSEE The company/entity who acquires the contractual rights to license the Intellectual Property.

LICENSING CONTRACT An agreement between the licensor and licensee granting legal permission for the licensee to use the licensor’s Intellectual Property. The document includes specific terms and conditions, such as scope of rights, territory, length of term, and financial remuneration to the licensor.

ROYALTY The basic component of financial remuneration paid by the licensee to the licensor, ranging anywhere from 3% to 15% (depending upon the product category) of the licensee’s sales of the licensed products. In addition, a guaranteed minimum royalty, or guarantee is typically required, payable to the licensor irrespective of whether the license results in sales. A percentage of the guarantee is normally paid as an advance upon execution of the