What is Licensing?
Simply put, licensing is the granting of a permit by the owner (a licensor) of intellectual property (which includes a patent, trademark, copyright, know-how, trade secret, industrial design, and confidential information) to another person (a licensee) to use the intellectual property (“IP”).
Licensed IP may be used for a stated business purpose (for example to manufacture or market a product or service or effect a business management system) in a certain territory, for a specified period of time, for a payment called a royalty. This royalty may include an up-front payment and ongoing payments calculated as a percentage of gross sales (or other accounting yardstick) over time.
This account of licensing, however, is quite traditional and represents a property-based approach to licensing as opposed to a property-based and business-based approach to licensing. Experience demonstrates that understanding this distinction is a critical starting point for an understanding of licensing.
At the outset, it is important to distinguish between two types of licensing, as follows:
First, there is the licensing of well-know brand names and properties. This type of licensing is typically quite successful, in large measure because of the fact that these brand names and properties are already well known.
Second, there is the licensing of new innovations, for example a new invention in the hi-tech field or a new business management system. This type of licensing is generally more sophisticated.
For example, adding a well known name or personality (such as a well-known cartoon character) to established packaging of a product (for example a lunch box for a child to take to school) can attract shoppers’ attention and add additional, instant appeal without disrupting the contents of the package or nature of the product.
But to license new technology or a new business management system is to change something that is already happening. To do this may require familiarizing the parties with the new technology or business system, how it works and what it can do, perhaps displacing some existing technology or methods.
In the lunch box example, a traditional license agreement would generally be used. In that license agreement, the brand name or property would be identified, rights to use the brand name or property would be granted (subject to territorial controls, quality controls and so forth), cash would generally change hands (a lump sum payment) and a piece of the action (an ongoing royalty) would flow thereafter. The new package would be printed and buyers approached accordingly. The product would be placed on retail shelves and shoppers would see it and presumably more would buy it. Not to be negative in the least, because this type of licensing is very powerful and generally very successful, but this is fundamentally “property-based” licensing.
But with a new innovation or a new business system, much more is needed. Indeed, a range of “business-based” aspects, are needed. This is the nub of the matter and requires the development of a range of complimentary approaches (commonly called “Programs”) to enable the requisite business development and ongoing business management of the venture.
Please visit the Fine Touch Dental® management system web site at www.finetouchdental.com to see a creative example of the range of “Programs” that can be employed in the context of an innovative business system.
What is Partnering?
Partnering is the term most often applied to the formation and management of Strategic Alliances and Joint Ventures. The term “partnering” is also applied to business arrangements among the parties at various distribution levels, for example between suppliers and manufacturers and between licensors and territorial licensees.
Please visit the Fine Touch Dental® management system web site at www.finetouchdental.com to see an application of the use of “Partnering” in the context of an innovative business management system.
The underlying point is that it is possible, in fact desirable and sometimes essential, to forge business relationships with third parties to exploit innovation and deliver it accordingly.