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Licensing is defined as the procedure of leasing a copyrighted or trademarked entity for use with a product or service. It might be any assets from the signature of somebody well-known 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 identified as the licensor and licensee respectively.

Why would anybody want to license an entity? Simple reply is to get more sales. A few brands catches the attention of 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 normally encouraged by the cash they could earn but this is not all the time the sole reason. Entering into the market might be important. For instance, if a new movie is being produced, the producers know that having stacks of toys or items which have picture of that movie on it in shops will aid increase the hype around launch date therefore leading to a raise in box office takings.

Licensing even provides the licensor a chance to move into related product areas without having to incur the rate of product design or development. They might be looking to enter into new markets for example a US product launching in China but because of inadequate information of the new market they will wish to test it out first via a comparatively minimum risk cheap way such as licensing. If the new market likes the product, they know they have only hired the brand for a short period 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 profits from hiring the brand but they haven't wasted any money testing an unresponsive marketplace.

Certainly the licensor needs to guard their brand first and foremost thus there will be extremely strict quality controls put in place to cover this issue. The other common elements to a license will be a particular geographic place i.e. you cannot just buy and sell wherever you want. The deal will also specify the timeframe the license has been granted for, the conditions for renewal, the decided contract rate and terms of payment - this is generally a percentage of sales subject to a minimum value i.e. you complete paying a particular 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 a contract over how many licenses will be issued for that specific territory i.e. you could only have a license or be allowed to license more people.

Individual who wish to take up a licensing contract do so because they believe that they have found a perfect 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. Building status in the business is vital, nearly as important as being 100% sure you understand the licensing procedure and know accurately what you are getting into before you sign that contract.

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