Licensing is delineated as the process of hiring a copyrighted or trademarked entity for use with a product or service. The property could be anything from the signature of someone famous to a picture, graphic or logo. A business contract is drawn up between the owner of the trademark or copyrighted material and the person who wants to lease it. These individual are called the licensor and licensee respectively.

Why would anyone desire to license an entity? Simple answer is to increase their sales. Some brands attract such high customer loyalty that you could sell nearly anything once you have that image or logo or signature on your product.

The licensor is usually motivated by the cash they could make but this is not always the only reason. Market penetration could be a bigger issue. For illustration, if a new movie is being produced, the producers know that having plenty of toys or goods related to the movie in shops will help to augment the publicity around launch date thus resulting into an increase in box office takings.

Licensing also gives the licensor a chance to move into related product parts without having to incur the cost of product design or development. They may be hunting to break into new markets for instance a US product launching in China but due to limited knowledge of the new market they will want to test it out first through a relatively low risk inexpensive route akin to licensing. If the new market loves the product, they know they have just leased the brand for a short length of time and are collecting a percentage of sales. Once the time frame is up they can move into that market themselves. If the new market isn't flourishing, they have still got revenue from leasing the brand but they haven't wasted any money trying an indifferent marketplace.

Obviously the licensor have to protect their brand first and foremost so there will be very strict quality controls put in place to cover this issue. The other ordinary elements to a license will be a specific geographic location i.e. you cannot simply trade wherever you desire. The contract will also stipulate the time the license has been granted for, the stipulations for renewal, the agreed contract price and stipulations of payment - this is usually a percentage of sales subject to a lowest value i.e. you end up paying a specified minimum amount even if you don't sell anything. But if your product sales take off, you will pay a certain percentage back to the licensor. There will also generally be an agreement over how many licenses will be issued for that particular region i.e. you could have a sole license or be permitted to license additional people.

People who want to take up a licensing contract do so because they think that they have found an ideal market for that product but couldn't finance the operation themselves. Or they may have manufactured a new product that will do much better having been associated with that brand name for even a short period of time. Making reputation in the business is important, almost as important as being 100% sure you comprehend the licensing process and know exactly what you are getting into prior to signing the deal.

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