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Licensing is a business development tool which can best be described as granting permission to a business or an individual to do something that, without the licence, would be an infringement of Intellectual Property rights. The person granting the licence is usually called the licensor, and the person receiving the licence is usually called the licensee. (There may be more than one licensor or more than one licensee in a licence agreement).

A common example of an IP licence is the one you receive whenever you buy a copy of software to use in your business or in your home.

There are various reasons for licensing but, for a licence to operate successfully, it must provide business benefits to all the parties involved. Some of these reasons are:

Sharing Risk: Where a licensor licenses the right to manufacture and sell products, the licensor receives revenues from that licensing but does not take the risk of manufacturing, promoting and selling those products. On the other hand, the licensee has the right to use the IP without the expense and risk of the research and the costs of developing the product.


Additional Revenue Generation: An owner of IP may commercialise the IP itself in one particular industry sector and may then obtain additional income by licensing the IP to someone else to commercialise it in a different industry sector.

Increasing Market Penetration: An owner of IP may license another business to sell in territories that the owner cannot, or does not want to, cover.

Reducing Costs: A business may ‘buy-in’ an innovative product or process in order to reduce its own research and development costs.

Saving Time: A business may get its products or services to market more quickly by acquiring a licence to use existing IP rather than ‘engineering around’ that existing IP with the attendant risks of accusation of infringement.

Accessing Expertise: By taking a licence, a business may tap into expertise that it does not have in-house. This is often the case when accessing the expertise of an academic institution or a research organisation.



Collaboration: Businesses may want to work together to develop new products and services. Such collaboration is often the subject of a Technology Development Agreement prior to a formal licence.

Obtaining Competitive Advantage: By acquiring a licence to use IP, a business may obtain an advantage over its competitors by denying them that opportunity.

The terms and conditions on which IP is licensed are very varied. The licensor and licensee usually agree those terms and conditions by negotiation. The outcome of those negotiations will usually depend on the relative bargaining power of each side. You are more likely to obtain favourable terms if you own IP which protects a significant and distinctive innovation or work than if the potential licensee has several equally attractive alternatives.

IP may be “licensed-out” or “licensed-in”. For example, you may “license-out” to another company or organisation in return for a reward, financial or other “in-kind” benefits or a combination of both. You may wish to “license-in” if you want to use another company’s IP to develop your own business and products.