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What Are the Different Types of Product Licensing?

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  • Written By: R. Kimball
  • Edited By: Daniel Lindley
  • Last Modified Date: 28 September 2016
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Product licensing generally is leasing an idea or product to a manufacturer. The manufacturer is responsible for producing, distributing, advertising, and ultimately selling the product. In return for giving the manufacturer an idea or product, the inventor receives a commission or royalty payment for each item manufactured or sold. Product licensing terms vary by agreement and industry.

Usually, product licensing is completed for an idea or product. This idea or product may be new or could be a variation of an existing product. New ideas may be licensed to any business, as there are no preexisting rights to take into consideration. Variations or improvements to an existing product must be licensed to parties with the rights to the existing product in order to protect preexisting rights.

Individual inventors or manufacturers approach a consumer brand to pitch a product to be created using the brand’s characters as part of the consumer product. The consumer products might include apparel, toys, electronic appliances, books, home decor, and outdoor gear, among other things. Consumer product licensing may also be completed in a reverse process, where the character or name of a major brand is licensed to the manufacturer to be included on a consumer product, rather than where an idea is licensed to a manufacturer

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Scouts help match inventors with manufacturers. Product scouting companies are paid by the manufacturer to help with the manufacturer’s product licensing program. These parties are looking to find commercial, industrial, and consumer products in order to expand their customers’ product lines. Commercial and industrial products might include those used by government agencies for maintaining government property and equipment.

Impulse purchase items that may be sold for a small amount of money are priority items for many manufacturers for product licensing. Impulse purchase items that may be sold at kitchen shops, retail stores, and home and garden stores allow a manufacturer to expand its product offering without risking as much capital as with a higher-priced item. Generally, these are simple products.

Each manufacturer and inventor must decide how the idea is to be protected. Some inventors choose to file a provisional patent while working toward product licensing. Certain manufacturers will only license fully patented products. Specialists in product licensing suggest that inventors invest as little as possible in an idea until a licensing arrangement has been arranged, but make sure that the idea is protected during negotiations with a provisional patent and confidentiality agreements.

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