What is Licensing?

Licensing is one of the most popular methods of business leveraging strategies after Franchising. In general, Licensing is a permission given by the licensor or authorize the licensee the legal rights to use the brand name, logo, product, technology, inventions and/or works of expression for commercial purposes, sparing the license from a claim of infringement brought by the licensor.

How does the Licensing Work?

The business licensing is centered on a legal contract between the business owner who is the
licensor and the person intending to obtain the license which is the licensee. A license contract
is an agreement in which the licensor grants permission to the licensee for using the intellectual
property (product technology, trade/ service marks), within the limitations specified by the
contract terms.

How is Business Licensing Beneficial?

Licensing a business have the key benefit of using an IP to its maximum capacity and many
other which is describe below:

  • Licensing is an opportunity to create a continuous stream of income
  •  A licensee may benefit from this form of the agreement because it takes less capital to start a business venture for them. They may purchase a license rather than an outright possession, and start making money immediately.
  • Licensing is intended to reduce the level of risk to everyone involved in the business.
  • Helps in the entry into the new markets that wouldn’t have been possible with its own
    funds or abilities

What are the benefits of Licensing for Licensors?

There are many benefits, among others are:

  • increase the brand presence at retail or distribution outlet
  • create further brand awareness to support the core products or services
  • support and enhance the core values by associations with the licensed products/service or category (e.g. association with a healthy food product)
  • enter new markets (consumer or geographical) which were unfeasible via its own resources or capabilities
  • generate new revenue streams, with little involvement or additional financial or other resource implications

What are the benefits of Licensing for Licensees?

The benefit for a Licensee (especially manufacturer or retailer) is the ability to significantly increase consumer interest in and sales of its products or services.

Licensing can:

  • transfer the values and consumer favor towards the property to the licensed product or service
  • provide added value and differentiation from competitive offerings
  • provide additional marketing support or momentum from the core property’s activity provided by the licensor
  • appeal to new target markets who have not historically been interested in a licensee’s product or service
  • give credibility for moving into new market sectors through product extension
  • gain additional retail space and favor

Is the licensor required to register his licensing with the government of Malaysia?

No, so far there is no such provision of law required the licensor to do so in Malaysia.

Can I license my idea without registering my Intellectual Property (IP) rights?

Ideas can be copied unless they are either covered by some form of IP rights or if the person who has received the information in confidence. If you want to license an idea it is advisable to be covered by certain form of intellectual property right such as patent rights or trade mark registration or alternatively the idea must have been received by the intended purchaser in confidence. It is usually difficult to get a potential purchaser to agree to receive information in confidence from a stranger and therefore in practice it is usual to file for some form of intellectual property protection.

What is the difference between a Franchising and Licensing?

Franchising Licensing
Complete business package (including technical know-how) will be shared with the franchisee. Only brand name will be shared with the licensor
Continued assistance and guidance must be provided by the franchisor to the franchisee. Only the technical/ product knowledge training will be given at the beginning by the licensor and then it is up to the license to run the business on his own
Bounded by the Franchise Act 1998. Governed by the Contract Law.
A Franchise agreement has to be at least five years long. A licensing agreement generally lasts less than five years.
Compulsory to register a franchise. No legal requirements for registration.
Only available to business that have been operating as a Sdn Bhd for at least three years Sole proprietors can also opt for licensing.
A stringent franchisee selection process is usually done The licensee selection process is usually less stringent than the one done for franchisee.
Must have a registered trademark ® Not necessary to secure a registered trademark™

How long does a license agreement usually last for?

Duration of licensing agreement is flexible, usually, less than five years, as opposed to the Franchise agreement where the Franchise term, shall not be less than five years pursuant to Section 25 of the Franchise Act 1998.

What sort of terms and conditions are usually included in a license agreement?

Generally, it contains what is being licensed (product technology, trade or service marks), territory granted, the duration of license, type of license (whether the license is exclusive or not), accounting provisions, license fee and royalties need to be paid, role and responsibility, termination clause and so on.

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