Licensing

Licensing is a contractual agreement between two parties, the licensor and the licensee. The process involves the licensor granting the rights to brand names and trademarks, manufacturing techniques, services, or other confidential knowledge to the licensee in exchange for an agreed-on royalty or fee payment. Licensing is used in U.S. and international retailing, the most common form being the franchise. Licensing is also one of several market entry strategies a company may choose from in entering a particular market, whether domestic or foreign.

Licensing offers a business, as a licensee, a way to quickly access technology that has been proven in the marketplace while reducing exposure to financial risks. However, the business as licensee still must have some strong, internal strengths (competencies) to draw on, and the licensing rights can be taken away by the licensor. The licensee also is dependent on the licensor for information, training, and ongoing support (Duncan, Ginter, & Swayne, pp. 238, 245).

In the field of health care management, an example of licensing is a computer software manufacturer granting a local hospital the right to use its health care-tailored software, such as customized patient billing and tracking, in return for a yearly fee. This is similar to a university contracting with SPSS (Statistical Package for the Social Sciences) to use its statistical software package on campus, in computer labs and faculty members’offices, for an annual fee. More information about licensing can be found at http://www.licensing.org, the Web site of the Licensing Industry Merchandisers’ Association (LIMA).