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The most common types of licensing agreements include technology (patents), trademarks (merchandise), copyright and trade secrets (know-how). Sometimes these agreements include more than one type of IP.
Examples of licenses include a company using the design of a popular character, e.g. Mickey Mouse, on their products. Another example would be a clothing manufacturer like Life is Good licensing its designs and brand in a certain country to a local company.
Licensing means nothing more than the renting or leasing of an intangible asset. An example of intangible assets includes a song (Somewhere Over The Rainbow), a character (Donald Duck), a name (Michael Jordan) or a brand (The Ritz-Carlton). An arrangement to license a brand requires a licensing agreement.
A licensing agreement is a legal contract between two parties, known as the licensor and the licensee. For example, a retailer might reach agreement with a professional sports team to develop, produce, and sell merchandise bearing the sports team's logo.
Royalty rates vary per industry, but a good rule of thumb is between 2-3% on the low end, and 7-10% on the high end. I have licensed consumer products for as low as 3% and as high as 7%, with 5% being the most common and a generally fair number.
Licensing involves obtaining permission from a company (licensor) to manufacture and sell one or more of its products within a defined market area. The company that obtains these rights (the licensee) usually agrees to pay a royalty fee to the original owner.
Federal, state and local licenses But there are many types of state licenses, generally granted by state agencies or the state department of taxation. And therefore require licenses. Many states have licensing requirements for bars and restaurants. Most retail businesses need a sales tax license.
Business licenses are issued by all levels of government and, depending on what type of goods you plan to sell, you may need to obtain a business license on federal, state and/or local levels. Certain businesses are required to obtain a federal business license, such as the sale of alcohol or firearms.
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