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It’s no secret that we live in a knowledge-based economy where intellectual property is often an entrepreneur’s most valuable asset. But that’s good news for business owners who want to create additional revenue streams so they can stop trading their time for money.

You’ve already worked hard to create all kinds of IP that is likely just as valuable to others as it’s been to you. Now, it’s time for all that hard work to pay off… literally.

IP licensing allows you to get paid for your IP from third parties without transferring ownership. How does it work? Let’s dive in.

What is intellectual property?

Intellectual property (IP) is any work or invention resulting from an individual’s creativity and intellect. This could include books, poems, paintings, sculptures, designs, videos, films, images, music, logos, names, software, and inventions.

As an entrepreneur, your intellectual property includes things like digital products, courses, podcasts, videos, and more. It also includes your brand name, logo, and slogans.

There are 4 main ways the U.S. government helps individuals protect their intellectual property rights:

• Copyrights protect literary, artistic, and scientific works. In most cases, the creator is protected by copyright without officially filing for it. The copyright lasts for the lifetime of the artist or author plus 70 years.
• Trademarks protect words, symbols, or designs that distinguish an individual’s goods or services from another’s goods or services. Companies can register a trademark with the USPTO. It lasts indefinitely as long as the individual continues to use and renew it.
• Patents protect inventions and processes. Individuals file for patents with the USPTO. They expire after 15 to 20 years.
• Trade secrets protect confidential information a company needs to secret due to its potential or actual economic value based on its status as a secret. Companies don’t need to file or register a trade secret, and they can last indefinitely.

Check out my trademark vs. copyright guide for more details on what these types of IP protections include.

What is IP licensing? (And how does it work?)

Intellectual property licensing is a legal agreement where an IP owner grants third parties the right to use their IP while maintaining ownership. The IP owner (licensor) gives the third party (licensee) a license to use the intellectual property in exchange for something of value—typically a lump sum payment or royalty payments (recurring).

In other words, licensing allows you to make money on assets you’ve already created by “leasing” them to other organizations. You still get to own the IP, but you are giving others access to it and getting paid for it. IP owners can receive royalties for their licensed intellectual property for their lifetime, plus 70 years after they’ve passed.

Licensing qualifications

The qualification for licensing is simple—you have an asset that another person or organization would find beneficial to use and is willing to pay a fee for it. There are many reasons why businesses seek to license IP instead of creating their own. They may not have the time, skills, or resources to create it themselves, so they pay to use something already existing.

As an entrepreneur, there’s a good chance you already have plenty of assets you could license to organizations willing to pay to use them. In fact, you might have a gold mine sitting in your Google Drive right now!

Who buys licensed material?

Technically, anyone can buy a license to use IP. In fact, you’ve probably purchased a license yourself.

For example, if you’ve ever purchased a stock photo or font, you have purchased a license to use these on your website or marketing materials. Or if you’ve ever used a SaaS (software-as-a-service) product like Canva or Hootsuite, you have a license. You don’t actually own the software; you’re just paying to use it.

While anyone can purchase a license, entrepreneurs typically create licensing agreements working with:

• Private corporations that want more output from their workers for higher profits
• Government organizations at the federal, state, and local or county levels that want to ensure that their initiatives are being met
• Non-profits and community impact organizations that want to increase capacity for their mission’s impact

These organizations will purchase licenses for educational content and other materials that will help them meet their goals. For instance, let’s say that one of these organizations has begun to notice that their team is missing a vital skill that’s necessary to accomplish their goals. They might purchase licenses for a course that helps bridge this skill gap so they can improve results.

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Why license your IP?

There are many different reasons to license your intellectual property. Licensing creates a new business opportunity for the licensor by allowing them to get paid for their intellectual property. IP licenses create an additional revenue stream for the IP owner that doesn’t require trading time for money.

The licensee can also create new business opportunities by purchasing IP licenses. For example, if a company wanted to offer additional services to its clients, the company might purchase licenses for courses or frameworks that teach its team the skills needed to provide those additional services.

Licensing intellectual property to partners with established customer bases and distribution channels enables entrepreneurs to enter new markets or industries quickly and with less risk. Their products can hit the market faster and more efficiently than if they were to build these channels themselves.

IP licensing can also create a competitive advantage that allows your business to scale, innovate, and dominate your market. By creating licensing agreements, your business can foster relationships with other organizations that lead to additional opportunities to collaborate.

Types of IP licensing

There are 3 main types of intellectual property licensing. Each offers its own rights, advantages, and disadvantages. You should consult an IP attorney who can help you choose the right type of IP licensing agreement for your business. (Hey, that’s me!)

Exclusive license

An exclusive IP license grants a third party exclusive rights to the intellectual property. This means that the IP owner cannot use the intellectual property or grant any other third parties the right to use the IP. However, the IP owner still maintains ownership.

Sole license

Sole licenses grant a third party the right to use the IP while prohibiting the IP owner from allowing other third parties to use it. While they cannot grant additional third-party licenses, the IP owner can still use the intellectual property themselves.

Non-exclusive license

Non-exclusive licenses grant third parties the right to use the IP without restricting additional licenses. This means that the IP owner can use the intellectual property and/or grant licenses to other third-party organizations.

How to license your intellectual property

So you’ve decided you want to license your intellectual property. Now what?

There are six basic steps you need to take to license your IP:

1. Identify your IP

The first step is to assess your intellectual property assets and determine your strategic goals. There’s a good chance you already have some IP that is perfect for licensing. As both an IP attorney and a strategic business consultant, I can help you identify which assets make the most sense for licensing.

2. Make sure your IP is protected

You must ensure that whatever IP assets you plan to license are protected. This means applying for a trademark, copyright, or patent and all the due diligence that comes with that process.

Whether or not you plan to license your IP, it’s important to protect it so you can get credit for (and get paid for) all the hard work you’ve already done. This is something I can support you with, whether you’re ready to license or just want to protect your sauce.

3. Market to or identify potential licensees

Once you know your IP is protected (ie. the trademark, copyright, or patent is official), you can begin to market to or identify potential licensees. Many business owners may struggle during this phase if they do not already have some industry contacts that want to license their IP.

As a business consultant, I will help you create custom marketing strategies and tactics to reach industry stakeholders. This makes the process of finding licensees quicker and more efficient.

4. Negotiate terms

After you’ve found potential licensees, it’s time to negotiate the terms of your licensing agreement. This is where an experienced intellectual property attorney comes in. They can help ensure all your bases are covered and lead the negotiation process.

Here are just a few of the important terms of the agreement that your IP attorney will help negotiate during this phase:

• Costs – Fee structure, or how often and how much the licensor gets paid (lump sum amount, recurring fees, royalty rates)
• Term – Time period the licensing agreement covers (annually, indefinitely, etc.)
• Type – Type of IP license you’re granting the licensee (exclusive, sole, or non-exclusive)
• Rights – Rights the licensee has to the IP and use of the IP
• Infringement – What happens if either party infringes on the agreement
• Dispute resolution – How the parties will resolve any disputes related to the agreement

The agreement will also include things like reporting and record-keeping requirements, warranties and representations made by both parties, and liability disclosures. This is by no means an exhaustive list, but it gives you an idea of the complexities that come with negotiations.

5. Draft and execute agreement

Once you’ve negotiated the licensing terms, your IP attorney will draft an intellectual property licensing agreement. After both parties are satisfied with the terms, they will sign the agreement, and the licensee will be responsible for paying the agreed-upon fees.

6. Manage the agreement

Your job isn’t done once the agreement is executed. You then need to make sure both you (licensor) and the licensee are adhering to the agreement terms. This can involve regular check-ins and audits. And it’s a much smoother process if you have an IP attorney helping you navigate management.

Ready to get started?

If you want to start the IP licensing process, it’s time to hire a lawyer. An experienced IP attorney like me can help you protect your IP, negotiate terms, and draft a customized IP licensing agreement. 

Not to mention, I can also help make sure the licensing agreement is followed after it is signed so you can feel confident that you have control over your IP and you’re getting paid for it!

Whether you are ready to get started with the process or just curious if licensing is a good option for your business, let’s chat. Get started with a 15-minute call. On this call, no legal advice is given. I will see if I can help you and find the solution that makes the most sense.

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