European IP Helpdesk

Bulletin No. 1 Licensing


Setting up a new business or introducing innovative products or services to the market does not necessarily imply that an organisation has to start from scratch even less does it mean that it needs to hold all necessary knowledge, knowhow or technologies itself. Nowadays, most successful innovations are based on collaboration and many innovative companies provide products or services to their customers building on intellectual property (IP) or inventions that already exist, held by someone else and very often used for completely different purposes. This is where licensing comes into play.

In principle, licensing means that the holder of a certain IP (licensor) grants permission for the use of this IP to another party (licensee) within the limits set by the provisions ( a certain time or territory) included in a contract called licence agreement. There are two basic modes of licensing: “licensing in” and “licensing out”. “Licensing in” refers to the process in which a company acquires and uses knowledge or technologies held by another party. “Licensing out” describes the converse process in which an organisation makes their IP available and grants the right to use it to others.

Licensing may play a vital role in a company’s commercialisation strategy, providing substantial benefits to licensor and licensee alike, ultimately aiming to reach a “win-win” situation for both parties.

Besides, licence agreements can also be seen as an instrument for the distribution of risks between the licensor and the licensee.



A Brief Introduction to

Intellectual Property Licensing

For Licensor

For Licensee

The licensee can become a competitor.

Licensing may create a technological/business dependence.

The licensor can lose control of the licensed product/service.

The licensed IP may be challenged and the technology become obsolete.

There are difficulties to find a fair, solid licensee willing to obtain a licence.

There are difficulties to find a fair, reliable licensor willing to grant a licence.

Licensors must trust licensees as a source of revenue. In the case of a market failure, licensees may generate no revenues although there may be a minimum royalty clause in the agreement.

Payments can be too burdensome to cover and a certain amount might still need to be paid even though there is a market failure because of a minimum royalty clause in the agreement.

For Licensor

For Licensee

Opportunity to reach new markets with existing products/services.

Opportunity to create new businesses.

Opportunity to enter a market with existing clientele of the licensee, which reduces risks for market failure.

Opportunity to provide licensor’s already available/well established products/services to the clients, which reduces risks for market failure.

No need to invest in marketing and distribution.

No need to invest in R&D.

The licensor retains ownership of the IP while receiving royalty income from it.

The licensee does not need to “purchase” the IP and use the opportunity to test market success of the licensed product/service without investing much.

Licensing is a means for turning a possible competitor into a partner.

Risks of licensing

Benefits of licensing

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