Advantages and Drawbacks of Licensing Intellectual Property

Your business’s intellectual property is among its most valuable assets, and it’s important to protect it. However, there may be instances where it is advantageous to let other entities make use of your patents, trademarks, and other IP.

Licensing your intellectual property can yield various benefits to your business, but it does come with its risks as well.

Advantages of Licensing

Some of the advantages of licensing include the following.

Income without overhead

Often, licensing allows you to generate income without taking on heavy overhead and production costs. Normally, you need to invest considerable resources into generating income from your intellectual property. However, allowing someone else to use it essentially passes the burden on to them while allowing you to collect royalties.

Potentially better marketing

Another benefit is the fact that licensing can help improve the way your IP is marketed. For instance, a local business will likely have a better sense of how to reach their market than a national chain will. By licensing your IP to smaller businesses, you’ll benefit from more targeted marketing without having to conduct individualized market research.

Enter foreign markets more easily

IP has an easier time crossing national borders than physical products do, making licensing a great way to enter foreign markets. You don’t need to worry about tariffs or other barriers since you’re not shipping products overseas. You’re just letting foreign entities use your IP.

Diffuse conflicts

One oft overlooked benefit of licensing is its use in diffusing conflicts between businesses. If, for instance, someone uses your IP, it’s often advantageous to create a licensing agreement with them instead of suing them outright. Both parties profit, and an expensive conflict is avoided.

Drawbacks of Licensing

While licensing has its advantages, there are a few risks to be aware of.

Risk of IP theft

One risk of licensing stems from the fact that you’ll have little control over the way the licensee conducts their operations. That means your intellectual property may be more exposed to theft.

No guarantee of revenue

You also have no guarantee of revenue from the agreement since royalties are typically based on a percentage of the profits. If the licensee fails to generate any profit from your IP, then you’ll get no revenue.

Unintended competition

It’s also possible to unintentionally create competition within your own market. Your licensee could become a competitor without really meaning to, particularly in this age of e-commerce.

Risk of diminished reputation

If your licensee doesn’t conduct business in an ethical manner, you may take a hit to your reputation, even though you aren’t technically liable for their actions.

Potential conflicts

Finally, licensing also exposes you to potential conflicts with your licensees, particularly if they try withholding revenue from you. You’d likely be entitled to take legal action in these cases, but that can get expensive.

Deciding Whether to License Your IP

When deciding whether to license your intellectual property to another entity, it’s important to weigh the advantages against the disadvantages. If the licensee has a good reputation and would be effective at marketing your product, the risks are lower, and a licensing agreement could be beneficial.

Even in that case, you’ll want to make sure the agreement is structured properly. An IP attorney can help you do that and reduce the risks you take on.

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