Intellectual Property Management:

IP Guide for SMEs

Licensing of IPR

A Vital Component of the Business Strategy of Your SME


By: World Intellectual Property Organisation (WIPO)


You may be interested in starting a new business, expanding an existing business (extending your territory or the nature of business) or improving the quality of the goods or services of your SME and thereby its market position. In many situations, licensing of intellectual property rights is an effective tool for achieving these business goals.

A licensing agreement is a partnership between an intellectual property rights owner (licensor) and another who is authorized to use such rights (licensee) in exchange for an agreed payment (fee or royalty). A variety of such licensing agreements are available, which may be broadly categorized as follows:

  • Technology License Agreement

  • Trademark Licensing and Franchising Agreement

  • Copyright License Agreement

  • In practice, all or some of these agreements often form part of one single contract since in transfers of this nature many rights are involved and not simply one type of intellectual property right. You may also come across licensing agreements in other circumstances, such as, during a merger or acquisition, or in the course of negotiating a joint venture.

    All of these mechanisms either on their own or in combination will provide your SME, as a licensor or licensee, a wide variety of possibilities in conducting business in your own country or elsewhere. As an intellectual property owner and a licensor, your SME can expand its business to the frontiers of your partners' business and ensure a steady stream of additional income. As a licensee, your SME can manufacture, sell, import, export, distribute and market various goods or services which it may be prevented from doing otherwise.


    In the international context, a formal licensing agreement is possible only if the intellectual property right you wish to license is also protected in the other country or countries of interest to you. If your intellectual property is not protected in such other country or countries then you would not only not be able to license it, but also you would have no legal right to put any restriction on its use by anyone else.

    Technology Licensing

    If your SME is interested in:

  • improving the quality of your product or manufacturing a new product by using the rights owned by others in the form of a patent, utility model, or know-how protected by a trade secret, then acquiring such rights through a technology licensing agreement may be the right solution, or

  • entering a market or extending your existing market for a product for which your SME owns the rights to a patent, utility model or know-how protected by a trade secret, then authorizing another to use your process or product through a technology licensing agreement may be the right solution.

  • By a technology licensing agreement the licensor authorizes the licensee to use the technology under certain agreed terms and conditions. It is, therefore, a contract freely entered into between two parties and contains terms and conditions so agreed.

    Joint Ventures

    A joint venture may consist of any variety of business relationships that involve two or more enterprises pooling their resources with the objective of implementing a common business purpose. Often, in such agreements, one party will contribute technology or know-how of which he is the proprietor and the other party may contribute financial and expertise of his own to the project. The joint venture will, therefore, often include a license agreement concluded by the parties concerned to regulate the use of the proprietary information and compensation for its use.

    Franchise or Trademark License Agreements

    If your SME is interested in:

  • marketing a product or service and the brand (trademark) or design (industrial design) of that product is owned by others, or

  • entering or expanding the existing market for your product or service for which your SME owns the rights conferred by a trademark, or industrial design


    you may consider a trademark license agreement or a franchise agreement.

    The principle function of a trademark or service mark is to distinguish the goods and services of one enterprise from that of another, thereby often identifying the source and making an implied reference to quality and reputation. This function is to some extent prejudiced if the trademark owner licenses another enterprise to use the trademark through a trademark license agreement. Therefore, the trademark owner is well advised, and often by law or contract required, to maintain a close connection with the licensee to ensure that the quality standards are maintained so that the consumer is not deceived.

    Through a franchise agreement the owner of certain technical or other expertise who has usually gained a reputation in connection with the use of a trade or service mark (the franchiser) may team up with another enterprise (franchisee) who will bring in expertise of his own or financial resources to provide goods or services directly to the consumer. The

    franchiser will ensure, through the supply of technical and management skills, that the franchisee maintains the quality and other standards in relation to the use of the trade or service mark which often require certain standardized features like, for example, a uniform trade dress.

    Copyright License Agreements

    If your SME is interested in:

  • manufacturing, distributing or marketing the results of the literary and artistic efforts of creators, or

  • entering a market or expanding or extending your existing market for the literary and artistic efforts of your enterprise

  • you may consider a copyright license agreement. Many owners find it difficult to manage their rights on their own and they have formed collective management organizations that represent them and manage their rights for them. If you are interested in acquiring these rights you may have to address yourself to the appropriate collective management organization that will be authorized to license the various rights of their members.

    Related Chapters:

    Strategic Licensing in the New Economy