However big or small you are, licensing is a potentially attractive option and another good way to test out new markets and see if you potentially have a scalable business on your hands.
You can license - and generate revenue from - practically anything, but the most obvious form of licensing is that of patents (inventions and innovative products), trademarks (brands and logos), copyright (written works, drawings, designs and software etc.), know-how (confidential technical information and the knowledge of valuable processes like a secret recipe) and design rights (aesthetic or manufacturing forms, such as the shape of a bottle).
But what would you expect to see in a good licensing agreement? First and foremost, you need to identify the subject of the license, the license rights. They’re intellectual property rights, covered by one form of IP protection or another, such as copyright or a patent.
Then you’ll need to look at where you’re going to be licensing it, i.e. which geographic territory the licensee can use it in and for how long and whether it’s an exclusive or non-exclusive license.
A lot of these terms will be up to you as the licensor to decide, and each one will have major commercial implications.
As you control the IP rights in what you’re licensing, you get to impose whatever limits you like through the license agreement, allowing the licensee to exercise some rights but these can be limited quite tightly, such as how long the license lasts and the circumstances the rights may be used in.
A license agreement shouldn’t dilute your IP ownership if you’ve got the wording right. You retain all the rights, you’re simply granting a license of the rights to another party.
A good licensing agreement should deal with updates and technical improvements too. This refers to situations where the licensee takes a product of yours and builds upon it.
It’s important to include wording that covers this, because if an improvement supersedes your product or otherwise makes the licensee's product more desirable than your own you may lose out. Such improvements could be loaned back to you, possibly for a small royalty allowing you to make use of the licensee’s innovation, but this must be set out in your agreement from the get-go.
That initial agreement could be the start of a long fruitful relationship. One that evolves with each innovation and possibly results in a new business being set up between you and the licensee, either as a joint venture or collaboration agreement.