What Is a Licensing Revenue?

Licensing revenue is money a business earns by authorizing others to use its intellectual property. This type of revenue can come from granting others the right to use any type of patented or copyrighted material, including technology, logos, designs or other property. Licensing revenue is paid by the user of this property to the owner, inventor or copyright holder of said property. These types of licensing deals can be lucrative for both buyer and seller, and may serve as a long-term source of passive or residual income for the owner long after the product has been invented or patented.

Businesses can earn licensing revenue from virtually any kind of intellectual property. This includes entertainment copyrights, like songs, movies or characters. It also covers patents on inventions or technology, such as software licenses. Sports teams, logos and other designs are also protected, and serve as a source of licensing revenue for their owners. Everything from art to images and photography can also be licensed out for authorized use if the owner wishes to do so.

Many countries have strong intellectual property laws, which offer a significant amount of protection to the creator or developer of a product. If an unauthorized person were to use a design or product without the permission of the owner, the owner could pursue civil damages against this unauthorized use. In a licensing agreement, the owner of the intellectual property grants a third party the right to use his creation in exchange for a fee. This agreement usually comes with very specific terms of use, including rules governing the time period of the license. For a basic example, a cartoon maker can earn significant licensing revenue by licensing his characters and designs to a lunch box manufacturer for a set period of time.

In certain fields, licensing revenue may represent a large portion of revenue. For example, software developers rely on licensing for the majority of their gross margin. In other fields, licensing may represent only a small portion of income, which is used to supplement other income sources.

Some countries offer little in the way of intellectual property protection. In these countries, there is little incentive for firms to pay a fee to license a patented or copyrighted material. Instead, firms in these countries often manufacture counterfeit goods, which may feature unauthorized logos, images or other copyrighted material. Owners or inventors in these areas lose out on licensing revenue due to poor intellectual property laws.