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Legal Perspectives: Distinguishing Between Licensing and Sales Arrangements


Introduction


In the world of intellectual property (IP) such as a patent, design and know-how etc, the spotlight turns to the rights to manufacture and the challenge of bringing a product, item etc (The Product) to market. For individuals or small businesses with limited resources, an important decision arises: How to navigate the path from creation to commercialisation?


Differences


The crux of the difference between licensing and selling (or assignment) lies in ownership dynamics.


· Selling entails exchange of intellectual property (IP) ownership for a specified price, typically in monetary terms.


· Licensing revolves around retaining ownership while granting permission, in exchange for a return, to utilise IP and commercialise the associated Product.


Essentially with both options you can realise a return on your IP without incurring the expense involved in manufacturing, marketing, distributing, and selling the Product.


Selling commonly involves a one-time payment but for both options, payments can take the shape of royalties or a one-off price. Whichever arrangement is agreed it needs to be underpinned via a comprehensive commercial agreement that sets out the rights of both parties involved.


Market Entry Strategies: Licensing vs. Selling – Points of consideration


While some individuals hesitate to relinquish ownership, a prudent approach may be to assess the risks and calculate the returns associated with both licensing and selling options. This way the more beneficial route should become apparent.


Licensing holds a notable advantage over selling with its potential for ongoing returns, typically in the form of royalties. While the upfront payment may be less compared to selling, its attraction lies in securing recurring payments over an extended period, possibly even indefinitely.


However, a drawback of licensing is the dependence on the licensee to maximise sales and provide accurate sales revenue reports. With you as the licensor, there's a level of reliance on the integrity and effectiveness of the licensee.


Mitigating these concerns can be achieved by incorporating specific sales targets in the contract. Essentially the licensee would have to meet these goals to retain the licence. Also, including audit rights would allow you to verify the accuracy of the licensee's sales revenue reports.


Reliance on the licensee also extends to the quality of the manufacturing process. If the public associates your IP with the product, maintaining certain quality standards becomes crucial. Ensuring that the licensee adheres to these standards is essential to safeguarding your reputation from potential damage.


This should not be relied upon for legal advice. If you would like any further information or advice please email richard@clariclegal.co.uk.



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