Licensing refers to an owner’s authorization or permission for another entity to use trademarked, copyrighted, or patented material for a specific activity, during a specific time period, for the profit of both parties. The licensor is the owner of the material, and the licensee is the buyer.

In many licensing agreements, the licensee pays royalties, or a percentage of the profits, to the licensor in addition to an initial licensing fee. Because terms vary and each situation is unique, you should consult a lawyer to develop licensing agreements.

These agreements are usually very specific, and improper use of licensed material may result in a lawsuit. Businesses and individuals grant licenses for many things, including:

Technological information
Intellectual information (e.g., research findings)
Industrial processes or methods
Formulas or recipes
Recognized brands, names, or logos
Music and art
Inventions

As a business owner, you may be the licensee or the licensor. Perhaps you have a great product and want to use your favorite professional sports team logo on the item. In this case, you are the licensee because you must receive permission to use the logo. If you have developed an invention or process that someone else can manufacture or distribute, you are the licensor.