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Licensing is defined as the procedure of hiring a copyrighted or trademarked entity for use with a product or service. It might be any assets from the signature of someone famous to a picture, graphic or logo. A business contract is signed 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 reply is to increase their sales. A few brands attract such high client loyalty that you could sell almost anything once you have that image or logo or signature on your product.

The licensor is usually encouraged by the cash they could earn but this is not all the time the only reason. Entering into the market could be a bigger issue. For instance, if a new movie is being produced, the producers know that having stacks of toys or goods related to the movie in shops will aid increase the hype around launch date therefore resulting into a raise in box office takings.

Licensing also provides 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 enter into new markets for instance a US product launching in China but because of limited knowledge of the new market they will wish to test it out first via a relatively low risk cheap way such as licensing. If the new market likes the product, they know they have just hired the brand for a short length of time and are collecting a percentage of sales. Once the time limit is over 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.

Certainly the licensor have to guard their brand first and foremost so there will be extremely strict quality controls put in place to cover this issue. The other common elements to a license will be a specific geographic place i.e. you cannot just buy and sell wherever you desire. The deal will also stipulate the timeframe the license has been granted for, the conditions for renewal, the agreed contract rate and terms of payment - this is generally a percentage of sales subject to a lowest value i.e. you complete paying a specified minimum amount even though 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 only have a license or be permitted to license more people.

People who wish 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 linked with that brand name for even a short period of time. Making status in the business is important, nearly 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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