Licensing intellectual property can greatly help you grow a business. What is licensing? Essentially, licensing is a business arrangement that facilitates the transfer of rights to manufacture, distribute, sell, or otherwise use a form of intellectual property — such as a product, brand, or technology — from an owner to a user. It has existed for a long time in many forms.
For example, if you are creating intellectual property, you can generate revenue by licensing it out for others to use. Industries where licensing agreements for patents are commonly implemented include software,biotechnology, semiconductor, clean tech, healthcare, manufacturing, aerospace, and transportation, writes Caldwell Intellectual Property Law attorney Katherine Rubino. Consumer-facing industries — including toy, pet, kitchen, and hardware — are also popular for licensing ideas.
Another type of licensing that entrepreneurs should know about is brand licensing. If you are selling products yourself, it can be greatly beneficial to license the rights to feature other brands on those products. I experienced the power of brand licensing firsthand when I started a company selling uniquely-shaped guitar picks. Becoming a Disney licensee was a game-changer. Ultimately, featuring icons like Mickey Mouse and trendy properties like Captain Jack Sparrow from The Pirates of the Caribbean on our picks is what allowed us to begin selling in major retailers including Walmart and 7-Eleven.
As an inventor who has licensed my ideas for new products, I’ve experienced both sides of the licensing agreement negotiation table. What I’ve learned is, licensing is licensing. It doesn’t matter whether you’re the licensee or the licensor, because your concerns are the same. You need to mitigate risk, and that includes managing royalty rates and minimum guarantees.
To find out about the latest developments in brand licensing, I spoke with entrepreneur Bryan Tan. As the Chief Strategy Officer at Mighty Jaxx, the Singapore-based designer toys and art collectibles studio, he negotiates licensing deals with artists and popular brand owners like Netflix, Formula 1, Hasbro, Toei Animation, Cartoon Network, Nickelodeon, Warner Brothers, and Adidas. Founded in 2012, the company has grown to 150 employees, is valued at $200 million, and ships to 80 countries.
Tan described three of the most common obstacles entrepreneurs who want to harness pop culture licenses face and how to overcome them.
Problem: Licensors don’t want to work with you because you have no track record.
Brand owners want to license their intellectual property to companies that are in business and able to demonstrate their success. If your idea for a new business is entirely dependent on licensing intellectual property, how do you get started?
To overcome the hesitation of brand owners, you will need to get creative.
When Tan met two brothers who were excellent at creating and sculpting superheroes, they were stuck making repairs to existing figurines because they didn’t own the rights to any pop culture licenses. After knocking on a lot of doors, leading brands like Warner Brothers told them to come back after they had some products out. Tan realized they needed to do something unignorable to gain some traction.
So, the brothers put their heart and soul into making huge prototypes of beloved Marvel characters like Ironman and Spider-Man to present in person to Disney. When employees walked into the meeting room, their eyes opened wide and they exclaimed, “Wow, what is that?”
“They were instantly interested in what we had to offer because we showed them something that we thought was going to be a game changer in the industry,” Tan said. “They’d never seen premium, high-quality statues where people could switch out different parts and create a different story based on which parts were interchanged on the figurine itself.”
Their ploy worked. After they secured the Marvel license for Southeast Asia, the rest was history, Tan said.
Problem: You don’t know which intellectual properties to pick.
Which intellectual properties will resonate with your audience? How can you be sure? Selecting the right intellectual properties to license is crucial. Of course, that’s easier said than done.
One of Tan’s key roles at Mighty Jaxx is predicting where trends are headed and what consumers will be interested in. The company makes a point of identifying promising new intellectual properties to invest in them early on. This is a risky proposition! How does Tan limit risk?
First, Tan doesn’t limit his research to the digital realm. When he travels to attend trade shows like the Licensing Expo and Comic Con, he makes a point of having informal conversations with collectors, fans, and his industry peers. Eventually, he gets a sense of what everyone’s talking about and excited by.
Then, his team at Mighty Jaxx applies a qualification process that includes researching how popular the intellectual property is based in part on the size of its subscriber base and number of views on YouTube.
After the intellectual properties are loosely ranked by popularity, employees from different departments — including sales, advertising, and product — come together and chip in with their perspective about the challenges and opportunities each IP presents. After the intellectual properties are scored and ranked again, the most promising are presented to Jackson Aw, Mighty Jaxx’s founder and CEO.
This multi-pronged strategy is effective because it acknowledges that no one has a crystal ball when it comes to predicting what’s going to become popular.
Problem: You’re concerned you won’t be able to meet the minimum guarantee.
“Minimum guarantee” is an important licensing term. It refers to the amount you agree to pay the licensor for the use of their intellectual property, regardless of how many units you sell. Put another way: You are responsible for making this payment no matter what. It’s the minimum you agree to pay the licensor for the rights to use their intellectual property.
Fearing your ability to meet a minimum guarantee is natural when brand licensing. But as Tan reminded me, “All business is a risk. No pain, no gain.” He mitigates the risk of minimum guarantees by determining the minimum number of units that Mighty Jaxx needs to sell (and at what price) to meet its obligation to the licensor.
Minimum guarantees are particularly important for companies that sell collectibles, like Mighty Jaxx, because the value of a collectible is tied to scarcity. Because the consumer needs to feel like “not everyone can get their hands on it,” it’s not an option for Mighty Jaxx to simply produce and sell more units to meet a minimum guarantee.
The Benefits of Brand Licensing
The power of a well-known brand can help you open doors that you wouldn’t be able to alone. In a crowded field, leveraging the intellectual property of others is some of the best protection you can get.
But you need to be careful, because you will be paying minimum guarantees. You can hedge risk by licensing well-known brands. Make sure to calculate the added cost of making royalty payments, which will affect your retail price point.
In my experience, becoming a brand licensee isn’t that difficult. I became a Disney licensee simply by calling Disney’s brand licensing department and asking a few questions. At the time, I had been in business for several years, was selling in hundreds of stores, and no one owned a license to put Disney characters on guitar picks. The man I spoke with actually asked me if I wanted to become a Disney licensee!