Overview of Licensing from a Licensing Lawyer

A licensor is someone who has an idea, invention, or design that he or she licenses to established businesses. When someone licenses an idea, invention, or design, the manufacturing of products, marketing, and sales are done by the licensee. The licensor receives royalties on sales of the product. While being a licensor minimizes risk, it generally results in a smaller financial return than if the licensor manufactured and sold products directly.

How Licensors Make Money from Licenses

Licensors make money from royalties paid by licensees. They can increase income by licensing to multiple licensees. For example, suppose you created an original graphic design and licensed it to a t-shirt maker. The t-shirt maker pays you royalties on all sales of t-shirts with your design on them. You could also license your design to other licensees, such as a licensee making coffee mugs.

What Is a Licensee?

A licensee sells products using the design, idea, or invention of another company. For example, a poster maker may obtain a license to use someone else's graphic design on posters. Every time one of those posters sells, the licensee pays a percentage of the net sales to the licensor. A licensee "borrows" interest in a unique invention or design in order to make money selling products that use that invention or design.

How Licensees Make Money from Licenses

When a licensee gains licensing rights, he or she manufactures products with that brand or design and sells them, paying a percentage of sales to the licensor, but retaining the rest of the net sales. For example, if you wanted to manufacture socks with a designer name, you would apply for licensing rights, and if successful, manufacture socks with the designer's name or logo on them, paying a percentage of sales to the designer.

The Role of the Licensing Firm

Working with a licensing firm is critical whether you're a licensor or licensee. A good licensing lawyer can save you from an expensive mistake, help you protect your intellectual property, or help you avoid a lawsuit over improper licensing. Working with a licensing attorney from the start is highly recommended for both licensees and licensors.