IP licensing: how to get it right for your business

IP licensing can provide companies with additional (or core) revenue streams, enable them to raise brand awareness and enhance their reputation, and extend their brands into new markets and geographies. However, if IP ownership or validity is unclear, it can also pose significant financial and business risk. Chantal Koller explains how to develop an effective licensing strategy. 

An IP licence is an agreement between the owner of a specific IP right and a third party, in which the IP owner (licensor) provides the third party (licensee) with the right to use (part of) its IP rights for a limited time, for certain products, in an often restricted geographic area. 

Managed correctly, it can provide businesses with an important revenue stream, as well as offering them a cost-effective method to extend their brand into new product or service areas, and into new markets. 

Know your assets

Before you can begin to exploit a brand, however, you first need to define your IP rights.

• Who owns the trademark rights?
• What has been registered (word marks, device marks, word/device marks, black and white, colour, lay-out, trade dress, shapes, slogans, corporate brands, product brands, etc.)?
• What for (goods, services, standard specification, broad specification, limited specification, relevant now and/or in the future, own goods/services, pre-emptive goods/services, e.g. goods of industries which are not identical with but are to a certain extent related to goods/services of competitors)?
• Where are the trademarks registered (which territories, countries of primary (A), secondary (B) and tertiary (C) interest, relevant now and/or in the future)?

Regular audits will ensure your IP portfolio is in good shape to begin exploiting your rights, as well as providing you with the insight you need to identify trademarks that could be sold or licensed for profit. Typically this might involve grouping trademarks into ‘core’ and ‘non-core’ categories, where core rights are those that protect a company’s key products and markets, and non-core rights are those involve secondary products and markets, or are little used. Novagraaf’s experts can help you to audit your current portfolio and develop a strategy in line with your overall business plan (find out more: ‘Know what you own: Adding value to trademark audits’). 

Create, register, manage and exploit

Next, you need to develop a strategy for IP licensing and/or exploitation in general. However, you can’t simply register rights and expect to create an IP licensing programme. Commonly, companies will come to us after they have created new brands that need IP protection. Ideally this would be the other way around; the IP strategy leading the creation, protection and, potentially, future licensing of a new brand.

The ideal process should look something like this:

• Create: The business strategy and brand guidelines should drive choices on trade names, branding options, trademark architecture, geographical scope, filing strategy, risk and budgets;
• Register: Trademarks should be filed and refusals/oppositions managed efficiently managed in line with determined budget;
• Manage: Administration of rights needs to be actively managed to ensure validity and upkeep of the portfolio, including changes in ownership and renewals, as well as monitoring for infringement and enforcing IP rights where infringement occurs; and
• Exploit: Once this is all in place, commercial opportunities can be evaluated, such as licensing, sale, spin-offs and joint ventures. For unused or unwanted rights, IP sale offers a short-term and rapid solution, whereas spin-offs and joint ventures typically involve more time and greater risk. Licensing, in contrast, generally involves limited risk and smaller levels of investment.

Evaluating licensing opportunities

Licensing is the typical next step once a company has its portfolio in place and its brands well established. Again, it is the business plan that should help to drive decisions as to which rights (or products/business lines) should be licensed and in which markets.

 Pick your licensees with care; ideally, opt for reliable partners who:

• are experienced in the field – check their track record;
• understand and know your business, your core values and will defend them; and
• share your long-term goals.

Each agreement is unique and there is no such thing as a standard license model. Before beginning a collaboration, however, the following points should be discussed and agreed:

1. the rights to be covered;
2. territories;
3. exclusivity;
4. sub-licensing possibilities;
5. revenue model (royalty or lump sum);
6. corporate identity guidelines/handbook; and
7. reporting requirements.

You should also set parameters for success; for example, the royal rate method of brand valuation is an effective method for valuing revenue. However, don’t expect success to arrive overnight: effective licensing requires long-term collaboration with your partners and trust is a key to success.

Novagraaf advises businesses on IP licensing from establishing and implementing licensing strategies to drafting contracts and adapting them to national legislation, including managing conflicts between partners. Please contact us below for further information and support.

Chantal Koller is Managing Director – Trademarks at Novagraaf in Switzerland.