5 things you should know about licensing your product
Read time: 3 minutes
Licensing your product or invention to a partner can be a great way to get to market quickly and with less cost or risk for your business. But how do you know if licensing is right for you?
According to Véronique Larose, Partner in the Business Law Group at the law firm McCarthy Tétrault, the decision to licence usually comes down to one of two things: “Either you don’t want to take on all the costs of commercializing your product alone, or you want to tap into the skill set of someone who may be more expert than you are at manufacturing, sales, distribution or some other aspect.”
While the decision to licence often gets made once a product exists in a finished form, you can also choose to enter a licensing arrangement in the development phase. Larose says these earlier types of licensing deals are often broader partnerships.
Regardless of when you decide to licence your product or invention, here are some tips for setting up a successful agreement. (Note these tips aren’t legal advice. Consult a lawyer about your situation.)
1. Know your strengths…and your weaknesses
Be realistic about where your talents are. Maybe you’re a terrific scientist or engineer but don’t have a lot of sales expertise. Or maybe you’ve got plenty of business know-how but your time is already maxed out. You know you want to take your product forward: Think about what you can contribute. The gaps are where you may want a licensing partner’s support.
2. Consider every possibility
Take a long-term view. As Larose says, “Dream big.” Where could your product go over its lifetime? What markets can you reach? Which country could you target? If you’re looking at a potential licensing partner in North America but think your product could take off in Southeast Asia, you may want a licensing deal with someone there who has local knowledge and is “on the ground.” Don’t get into exclusive arrangements for all markets. Keep your options open.
3. Have the tough conversations up front
“A big part of licensing is making sure your goals match those of the partner you decide to go with,” says Larose.
If you know you’re going to want to have a say in the ongoing development of your product but the partner you’re talking to says they want to own the roadmap, it may not be a good fit. You don’t want to be having those conversations after you’re in a licensing arrangement. The time to hammer all that out is before you sign.
4. Protect your interests
Once you’ve chosen the right partner, be sure your agreement includes a clear commitment on your partner’s side, like a non-negotiable sales period or a minimum investment amount. That way, if things don’t go as planned for some reason, you’ve done all you can to ensure your product will continue to get the attention it deserves.
5. Be smart about royalties
Setting royalty terms can often feel like taking a shot in the dark. But don’t guess at it! Licensing fees are actually semi-standardized by industry. Larose suggests searching free tools like www.royaltystat.com and www.royaltysource.com for industry-specific comparisons to give you a solid foundation before you sign on the dotted line.