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Why Do Companies Use Licensing Agreements

For a license to be valid, a contract must be entered into between two or more persons or parties. The contract must indicate the specific rights conferred by the licensee to the licensee. This type of contract is called a licensing agreement. Licensing agreements have been in place since the end of 17.17. The publication of hot films such as the Lord of the Rings trilogy also generates numerous licensing agreements and links between mass distributors and licensees for toys, games and children`s clothing. Some retailers go so far as to require exclusive agreements for apparel and film products in order to adopt market differentiation strategies. In the early 2000s, a growing number of technology companies began implementing IP licensing programs to turn dormant projects into revenue, open new markets and evaluate potential business partners. These companies carried out inventories of their knowledge bases and patent families and identified technologies that were not at the heart of their business but nevertheless offered some potential for development. They then tried to license these technologies to other companies.

In May 2018, Nestlé and Starbucks entered into a $7.15 billion coffee licensing agreement. Nestlé (the licensee) has agreed to pay $7.15 billion in cash to Starbucks (the licensee) for exclusive rights to sell Starbucks products (single serving coffee, teas, beans, etc.) through Nestlé`s worldwide distribution network. In addition, Starbucks receives royalties from coffees and packaged teas sold by Nestlé. The benefits of licensing can be viewed from two angles: licensees and licensees. Licensing agreements are the conditions under which one party can use the property of another party. While the real estate concerned may include a large number of properties, including real estate and personal property, licensing agreements are most used for intellectual property, such as patents and trademarks, as well as copyrights for written material and visual arts. It is difficult to set an acceptable royalty rate for a product because there is no rapid fixing percentage that can be used as a general measure. Although rates ranging from 3% to 8% of net sales are common, each licensing agreement is unique and the only important consensus on royalties is that between the licensee and the taker as a result of negotiations.

In economics, licensing agreements or agreements are beneficial to both parties.