The Benefits of Licensing Your Idea
Some entrepreneurs make money from their business ideas without actually setting up and running enterprises that put them into practice. Instead, they license their intellectual property and then allow other businesses to take advantage of the ideas in return for royalties.
This approach can suit inventors who don’t have the resources to establish a business to exploit their ideas – or the interest in doing so. It’s also useful, however, for any entrepreneur who has an excess of business ideas and lacks time to pursue them.
Intellectual PropertyIntellectual property refers to an entrepreneur’s copyright, design, patent and trade mark rights. Copyright applies to artistic, literary, dramatic, or musical works; a design is the shape, pattern, and ornamentation of a product; a patent provides legal protection for an invention; and a trade mark is a slogan, logo, or jingle.
The Types of LicenceWhen an entrepreneur licenses a business to use his or her intellectual property, the business can sell products and services that derive from it. The entrepreneur’s royalties come from the income that the intellectual property creates for the business. Licensing business ideas in this way has the benefit of providing a regular income without any further work on the entrepreneur’s part.
The types of licence are non-exclusive, exclusive, and sole. An entrepreneur can give a non-exclusive licence to as many businesses as he or she chooses. An intellectual property spread across different companies, however, may not lead to higher royalty income. An entrepreneur may also find it difficult to keep track of all the licence holders.
An exclusive licence applies to just one business. Licensing in this way is usually easier for an entrepreneur to manage. A good licensee with exclusive rights will also use a business idea to its full potential and provide a steadily increasing income for the period of the licence.
A sole licence is similar to an exclusive licence. In this instance, however, an entrepreneur also keeps the legal right to exploit the intellectual property.
Retaining ControlLicensing doesn’t mean that an entrepreneur has to lose control of an idea. In fact, relinquishing control could be disastrous if a licensee promotes an intellectual property in an unsuitable manner, using an entrepreneur’s name. This can damage an entrepreneur’s reputation, and affect related products or services.
The Licensing AgreementTo prevent this happening, entrepreneurs must pay careful attention to the licensing agreement. They should take legal advice and ensure the agreement contains the following key issues.
- The calculation of the royalties and the dates of payment.
- The geographical areas the licence covers.
- The period of the licence.
- The circumstances for terminating the licence agreement.
- The details of what the licensee can legally do with the intellectual property.
- The indemnities the entrepreneur and the licensee must provide.
- The insurance the entrepreneur and the licensee must have.