If you have an innovative product or invention and want to sell it in the UK, product licensing is the best way to do it. In this article, we will explain what product licensing is and how to go about selling your idea in the UK. We will also provide a few tips on how to make your product more appealing to potential licensees. So if you're ready to sell your invention in the UK, keep reading!
What is a product licensing agreement?
A license agreement is a contract between an inventor and a manufacturer in which the manufacturer agrees to produce, distribute, and advertise the inventor's product. In return, the inventor receives a percentage of the royalties.
The license agreement gives the manufacturer the right to use the invention for a specific period of time and in a specific territory. It also sets forth the terms and conditions under which the invention can be used, sold, or otherwise distributed. The license agreement may also contain provisions relating to patent protection, confidentiality, and other matters.
The different types of product license arrangements
There are many different types of product licenses, but the three main categories are exclusive, sole, and non-exclusive licenses.
An exclusive product license
An exclusive license is a license that grants a company the sole right to produce a particular product. This type of license can be beneficial for several reasons.
First, it allows the company to keep its production process and methods secret, preventing competitors from copying its products.
Second, it gives the company more control over its supply chain, ensuring that it can obtain the materials and components it needs without having to worry about competition.
Third, it allows the company to charge higher prices for its product since there is no other company offering a similar product.
Finally, an exclusive license can lead to greater brand loyalty among consumers, as they know that they can only obtain the product from the licensed company.
While an exclusive license can have many advantages, it is important to note that it also has some disadvantages. First, the company may not be able to produce the product at a large enough scale to meet demand. Second, the company may be unable to make necessary modifications or improvements to the product without permission from the licensor.
A sole product licence
A sole license gives you and one other company the ability to produce the product. This license is granted by the owner of the patent or copyright, and it allows the licensee to produce the product without competition from other companies.
The main advantage of a sole license is that it gives the licensee exclusive rights to produce the product. This can be a critical advantage in markets where there is a high demand for the product and where other companies are likely to enter the market if they were not restricted by a license.
In addition, a sole license can give the licensee greater control over the quality of the product and the price at which it is sold.
However, a sole license also has some disadvantages. For example, it can limit the potential market for the product if the licensee is not able to produce it at a large scale. It can also be difficult to find a licensee that is willing to enter into a sole license agreement.
A non-exclusive product license
A non-exclusive license is the most common type of product license. It gives the licensee the right to produce and sell the product, but it also allows other companies to do the same.
The main advantage of a non-exclusive license is that it is easier to find a licensee. This is because it does not restrict other companies from entering the market.
However, a non-exclusive license also has some disadvantages. For example, it can lead to lower prices and reduced profits for the licensee. It can also lead to a decline in product quality as companies compete to produce the product at a lower cost.
The licensee is the company who receives the license from the licensor (inventor). When determining which type of license is best for your product, it is important to consider the market potential and who your competitors might be. An exclusive license can be more difficult to obtain, but it may be worth it if you believe your product will be highly successful.
What is included in a licensing agreement when selling an idea?
When someone licenses their idea to another party, they are essentially renting out the idea for that party to use to create a product. The license is an agreement that spells out the terms of the rental, including how long the license lasts, what the licensee can and cannot do with the idea, and how much the license costs.
Inventors should be careful when drafting a licensing agreement, as it is important to protect their intellectual property while also ensuring that they are compensated fairly for their idea. Once an agreement is in place, both parties can rest easy knowing that their interests are protected.
The below explains some of the most important components of a licensing agreement:
Length of Contract:
A license agreement is a contract between two parties, in which one party grants the other party the right to use its intellectual property. The length of the contract can vary, but it is typically set for a period of 6 months to 1 year. The reason for this is to allow the licensee adequate time to produce the product and to ensure that the licensor is happy with how the product is being marketed.
A shorter contract may be desirable if the parties want to have more control over the product, or if they are not sure about the success of the venture.
However, a longer contract may be necessary in order to fully develop the product and establish it in the market. Ultimately, the decision of how long to make the contract should be based on the specific needs of the parties involved.
Exclusivity of the contract:
This refers to the type of contract agreed, with the 3 main options shown above: exclusive, sole or non-exclusive. Usually, a company will ask for exclusive rights. In this scenario, it is often more likely to negotiate a higher royalty payment, as the company is essentially giving up other opportunities by agreeing to the exclusive contract.
On the other hand, a licensor may want to offer a non-exclusive license in order to increase the number of potential licensees. This can be beneficial if there is a large market for the product, as it allows more companies to produce and sell the product.
When licensing a product, it is important to negotiate an advance payment if possible. Advance payment is an upfront lump sum that can be very advantageous. It can take some time for a product to get to market after development, and therefore licensees will not accrue payments until the product is sold. An advance can allow for this by giving licensees the funds they need upfront. This way, licensees can recoup their costs even if the product takes a while to sell.
In addition, an advance can help to cover the costs of marketing and promoting the product. Therefore, if you are licensing a product, be sure to negotiate an advance payment in order to protect your investment.
Royalties are a common form of payment for licensees, and usually take the form of a percentage of the wholesale price of the product. This means that, even if sales are low, licensees will still receive a royalty payment.
However, it's important to note that royalties are paid on the wholesale price, not the profit margin. This means that licensees may not receive as much money as they expect, since the retail price of the product includes other factors such as overhead and marketing costs. Still, royalties can be a great way to ensure a steady income from your product.
The payment schedule is typically laid out in the contract and should be negotiated before both parties sign. Advance payments are paid upfront, and some companies will offer additional lump sum payments if certain sales targets are met.
However, the most common form of payment is royalties, which are usually paid monthly or quarterly. It's important to note that payments offered any less frequently than quarterly should be re-negotiated, as this is not an adequate form of payment.
Ultimately, whether a company pays monthly or quarterly will depend on the individual business.
Intellectual Property Involvement:
A company's involvement in your intellectual property can vary depending on the extent of the license you have granted them. If they are only licensed to use your IP in certain countries, then their involvement will be limited to those countries.
However, if you have granted them a license to use your IP worldwide, then their involvement will be much greater. They may advise you on future applications for Intellectual Property protection, and they may even cover the cost of those applications. This can be extremely beneficial for both parties: for you, this can save the future potential costs associated with international applications; for them, this can provide the security that future international applications can still be applied for as they have a budget to allow for this which the licensor may not. This also allows the licensee to have more control over the product.
Legal Fees / Liability:
When licensing a product, it is important to consider the legal fees involved. These will be incurred by both parties and can be costly. Therefore, it is important to negotiate who will pay for these fees and how they will be split between the two parties.
Another thing to consider is the liability of each party. If something goes wrong with the product, who is responsible? The licensor or licensee? This needs to be clarified in the contract so that both parties are aware of their responsibilities.
Improvements / Modifications:
One important thing to note when licensing a product is that the licensee has the right to make improvements and modifications to the product. This is a great way for them to add their own touch to the product and set themselves apart from other licensees.
However, it's important to remember that any improvements or modifications made by the licensee must be approved by the licensor before they can be used. Otherwise, the licensor could lose control over the product.
When licensing a product, it's important to consider the geographical jurisdiction of both parties. This is because, if a dispute were to arise between the two parties, they would need to know which court they would need to go to in order to settle it .
The geographical jurisdiction of the licensor and licensee can be different, or they can both be in the same country. It's important to discuss this before signing any contracts so that both parties are aware of their responsibilities.
What Does the Inventor Get in Return?
When selling an idea, it's important to remember that the inventor gets a percentage of the profits as their reward. This is typically laid out in the contract and should be negotiated before both parties sign.
Advance payment can also be provided to help cover the costs associated with developing the product.
Other times, the inventor will receive set bonuses when certain sales targets are met.
Most deals will also include a minimum payment that the company must make to the inventor, irrelevant of sales.
Future legal fees and Intellectual Property advice can be covered by the licensee, which can be extremely beneficial for both parties.
It's important to remember that these payments should be made regularly, usually monthly or quarterly. If they are not, it's important to renegotiate the contract. This is because not paying on a regular basis is not an adequate form of payment.
When licensing a product, there are many things to consider. By understanding what each party gets in return, both the inventor and company can make a well-informed decision about whether or not to go ahead with the deal.
What are the benefits of a licensing agreement?
Companies to whom you license your product have the funds to bring it to market quickly and successfully.
An expert in the industry can help build the reputation of your product before taking it on yourself.
Legal costs can often be negotiated so that the concern of future costs and legal issues becomes the responsibility of the licensee.
The licensee has the right to make improvements and modifications to the product, which can set them apart from other licensees.
The geographical jurisdiction of both parties should be considered before signing any contracts.
The inventor gets a percentage of the profits as their reward, usually laid out in the contract.
Advance payment can be provided to help cover the costs associated with developing the product.
Future legal fees and Intellectual Property advice can be covered by the licensee.
It's important to remember that payments should be made regularly, usually monthly or quarterly. If they are not, it's important to renegotiate the contract. By understanding what each party gets in return, both the inventor and company can make a well-informed decision about whether or not to go ahead with the deal.