Consider this scenario: during the course of running your business, you've come up with an idea for a new product that will sweep the market off its feet. Perhaps your idea stems from conversations you've had with your customers; or, maybe it's just something that popped into your head. Whatever the case may be, you've got a viable idea, but, unfortunately, you don't have enough capacity to manufacture and market the product.

The research and development is a major piece of the puzzle; however, it is not the only piece. Without the ability to properly produce, distribute and market your product, you might find it challenging to be profitable. This doesn't mean you should have to give up on your idea. You may not have the necessary capacity, but another business might. Product licensing is a common, functional way to bring two or more businesses together in hopes of bringing a product to market.

By licensing your product you can take advantage of:

  • Production resources of businesses that specialize in product manufacturing
  • Marketing and distribution channels of businesses across the country or around the globe

You may also find yourself on the reverse side of the situation: perhaps you'd like to obtain the rights to manufacture and distribute someone else's product. A product licensing agreement between your businesses can make that happen.

In the case of either type of agreement – whether you're the licensor or the licensee – be sure to exercise due diligence. A product licensing agreement is a legally binding document, so you can't change the stipulations of the agreement once they are in place unless all parties agree to do so. You may want to have your lawyer go over the agreement with you in detail before you sign.

For more information on developing your unique ideas, consult our sections on Copyright and Intellectual Property and Innovation.