Licensing is defined as the process of renting a copyrighted or trademarked entity for use with a product or service. It might be any assets from the signature of somebody well-known to a picture, graphic or logo. A business contract is drawn up between the owner of the trademark or copyrighted material and the person who wants to lease it. These people are called the licensor and licensee respectively.

Why would anybody want to license an entity? Simple answer is to increase their sales. Several brands catches the attention of such high customer loyalty that you could sell almost anything once you have that image or logo or signature on your product.

The licensor is usually inspired by the cash they could earn but this is not always the only reason. Entering into the market might be important. For example, if a new movie is being produced, the producers know that having stacks of toys or goods related to the movie in shops will assist increase the hype around launch date thus resulting into a rise in box office takings.

Licensing even gives the licensor a chance to move into related product areas without having to incur the cost of product design or development. They might be looking to break into new markets for illustration a US product launching in China but owing to inadequate information of the new market they will want to test it out first via a relatively low risk cheap way such as licensing. If the new market loves the product, they know they have just rented the brand for a short period and are collecting a percentage of sales. Once the time frame is up they can move into that market themselves. If the new market isn't successful, they have still got revenue from hiring the brand but they haven't wasted any money testing an unresponsive marketplace.

Obviously the licensor have to guard their brand first and foremost hence there will be very strict quality controls put in place to cover this issue. The other common elements to a license will be a specific geographic locality i.e. you cannot just trade wherever you wish. The deal will also specify the time the license has been granted for, the conditions for renewal, the agreed contract rate and terms of payment - this is usually a percentage of sales subject to a lowest value i.e. you complete paying a particular minimum amount even if you don't sell anything. But if your product sales take off, you will pay a certain percentage back to the licensor. There will also usually be an agreement over how many licenses will be issued for that specific territory i.e. you could have a sole license or be permitted to license more people.

Individual who want to take up a licensing contract do so because they believe that they have found an ideal market for that product but do not have the capacity to financial support the operation themselves. Or they may have developed a new product that will do much better having been associated with that brand name for even a short period of time. Making status in the business is essential, almost as important as being 100% sure you understand the licensing process and know accurately what you are getting into before you sign that contract.

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