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Welcome to the July issue of Licensing4Profits. The value of your IP plays a big part in negotiating the royalty rate. It's based on what rights are "transferred" to the licensee. The more valuable the rights, the more a licensee would be willing to pay. In this month's featured article, Price vs. Value: What's the Difference?, you'll learn about some of the IP value drivers and how these can be used when negotiating the royalty "price". Your intellectual property is more than just a product or service. It's a bundle of rights that creates the value of your IP. In this month's featured video, 3 Secrets to Unlocking IP Value, you'll learn how to find the valuable parts of your IP and how to use those to create money-making licensing deals. Some key concerns when entering a licensing agreement are making sure the IP rights are free and clear, and that both parties can do what they say they will do. In our next article, Key Terms & Conditions: Representations & Warranties you'll find out how this clause addresses these issues and helps to reduce the "performance" risk for both licensing partners. Find out what concrete, a well known ice cream brand, and a popular 1960's TV series have in common in This Month in IP History. We conclude with this month's question "How does licensing work for digital goods?"Enjoy! 
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Price vs. Value: What's the Difference?
Price is an expression of value. It's derived from what the IP owner believes is the economic benefit from using the intellectual property, the lack of any competitive alternatives, and the negotiating skills of the licensee and licensor.
The value of your IP is what its economic worth (i.e. future benefits) is in the market. It's determined by adding together a set of assumptions and facts, such as the R&D costs, time to develop it, and opportunity to use it, that determines its value.
Price is what someone is willing to pay, either to buy or license your IP, and is negotiated during a transaction. In a licensing deal, the royalty rate is the negotiated price a licensee is willing to pay you to use your IP.
IP value plays a big part in determining the royalty rate. It's based on what rights are "transferred" to the licensee. The more valuable the rights, the more a licensee would be willing to pay. Some of the most valuable rights include exclusivity, multiple types of IP (i.e. patents, know-how, copyrights and technical data), rights to future-improvements, and rights to sub-license. When I was licensing the big entertainment properties, the "price" for an exclusive license was a double digit royalty and seven figure minimum guarantee.
How the royalty will be paid can also influence the royalty price. Royalty payments can be structured in many ways. Some examples include running royalties, fixed payments, common stock (equity), R&D funding, consulting services, grant backs, or licensee access to other proprietary resources.
The advantage of the royalty based price is that it spreads the risks between you and your licensing partner. If your IP becomes wildly successful in the marketplace, it will generate big financial rewards to both parties.
Value is the economic worth of your IP, and price is what some is willing to "pay" for it. The most important price factor for your licensing partner is that your IP provides them with a financial gain. A licensee will only "buy" your license if they believe they can produce and sell your IP at a price significantly greater than what they are willing to pay to acquire it. |
Feel free to pass this newsletter along to friends and associates. You can visit our websites ( www.licensing4profits.com and www.licensingcg.com) to view our blog, special reports, published articles, webinars and audio presentations.
If you are interested in learning about our consulting services, please contact us at (646) 395-9572 or email info@licensingcg.com.
 Best regards,
Rand Brenner
President & CEO
Licensing Consulting Group
Licensing4Profits
About Rand Brenner
Rand has licensed some of the biggest Hollywood blockbusters, including "Batman" and the "Mighty Morphin Power Rangers", both of which generated billions of dollars in worldwide merchandise sales. His career included executive positions at Saban Entertainment and Warner Bros Consumer Products where he developed numerous licensing and promotional deals with Fortune 1000 companies
LCG advises clients on the strategic use of IP assets to build business value, increase revenues, lower costs and capitalize on new market opportunities. Our consulting services are designed for small and mid-size businesses, enabling them to benefit from top end IP licensing services typically afforded by large companies.
About Licensing4Profits
Licensing4Profits is the only online resource providing coaching, teaching and training on how to manage and make money with intellectual property. We offer audio workshops, seminars, videos, e-courses, blog articles and webinars. Our goal is to advise, guide and help you master the licensing skills to transform your intellectual property into money-making products, services and technologies.
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Free Webinar: 3 Secrets to Unlocking Your IP Value
This webinar will show you how break out of the tangible thinking box, find the valuable parts of your IP, and see new ways to make money with your IP.
Click Here to Sign Up
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Key Terms & Conditions:
Representations & Warranties
If you're an IP owner, how do you make sure your licensing partner can enter the agreement and perform as agreed?
When licensing rights to an IP, a key concern is the ownership and validity of the IP. Your worst nightmare is to get caught in an IP infringement claim by another company, or to find out that the IP owner (licensor) doesn't own or have rights to the IP.
The Representations & Warranties clause addresses these issues. It specifies that the IP owner and the licensee each has the legal right to enter the agreement, and there's nothing that will impede them from doing what they agree to in the contract.
The terms include a set of promises covering the validity and title to the IP, rights of the licensee and licensor to enter into the agreement, and that the IP can be used for a specific purpose (i.e. make and sell x product). This clause helps reduce risk for both you and your licensing partner. It's like a guarantee on the IP and each parties performance under the licensing agreement. When preparing or reviewing a licensing agreement, it's always best to seek qualified legal advice before you sign anything.
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This Month in IP History
1878 Thaddeus Hyatt was granted a patent for reinforced concrete. 1921 The name Breyers Ice Cream was trademark registered. 1960 The first episode of "The Andy Griffith Show" was copyright registered. Source:About.com |
Ask Rand Brenner
Q: How does licensing work for digital goods?
A: Licensing digital products is leasing or renting the rights to its use. It gives the buyer a temporary right to use the product under the guidelines of the license agreement.
Here are some examples of how licensing works with different types of digital products:
- E-books are licensed to users based on a user limit.
- Images, pictures, and photos are licensed based on how they are used such as by the location (print or web) or commercial use (for profit or noncommercial).
- Video is licensed to users based on a time limit.
- Music is licensed to the user, usually with use on multiple devices.
In each case, the buyer (licensee) of the digital product doesn't own it, they are licensing it for a specific use.
Got a question about licensing? Send an email to askrandbrenner@ licensing4profits.com. You'll get an answer to your question which will be included in a future issue of this newsletter.
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