A video game company bought the trademark IP rights to a bankrupt video game company but failed to research the legal rights before buying them. After they started producing and selling the game, they received a cease-and-desist letter claiming they infringed on the IP. It turned out that the bankrupt company didn’t have IP rights. It was in litigation with the IP owner. The video game company was forced to stop production and redesign their video game.
When you find an IP to license, the first thing to check is who owns it. Nothing is more frustrating than spending lots of time negotiating a deal only to discover at the last minute that the IP wasn’t owned by the “IP Owner.” Sometimes, they are sub-licensing rights. In other situations, they are brokering a deal. And in the worse case, they are trying to license an IP they don’t own. I had that situation happen with a company claiming to own an extensive collection of celebrity photographs. They were in a legal dispute over their rights to use and license the photos with the owner.
As a licensee, you invest time, money, and resources to bring the licensed IP to the market. Due diligence is one of the best steps to help ensure your best chance of success with the IP.
Don’t overlook this critical step in evaluating an IP to license. It includes getting information about the IP’s ownership, rights availability, whether the IP is ready to market, and, most importantly, whether it will be profitable.
Your first step is to find out whether the IP rights are available. You can waste a lot of time and money if you enter negotiations only to learn the rights are unavailable or licensed to someone else.
The next step is to search quickly to verify whether the IP is registered correctly. You can search any public database, such as the USPTO or Google Patents, for patents and trademarks.
If the licensor has other licensees, you’ll want to verify that the rights already granted to them do not conflict. If the rights are non-exclusive, you’ll want to determine if other licensees have the same or competing products.
Depending on the IP type, you will need to decide its strength. Does it stand out, or is it a short-term fad? For example, movies are very short-term IP opportunities and may only have a short lifespan.
It’s also important to check the IP owner’s reputation or stability and how it’s viewed in the marketplace. Are there any licensees whose actions have damaged the image of the IP? For example, sports figures and celebrities are often prone to problems caused by their actions, which lessen their standing with the public.
The last step is to verify the commercial viability of the intellectual property. More time is required in some cases, such as a technology IP. An unknown or untested IP will also take more time and resources to get into the market than one already in the market. Interest and demand by the buyer’s IP will determine the potential upside. One example is licensing well-known brands, which are less risky than up-and-coming brands.
Finding an excellent IP to license takes time and resources. The key is knowing what you are looking for, where to find it, and, most importantly, how to verify that you found the right IP. But the payoff can be significant. A good IP can reduce internal product development costs, launch a new product into the market faster, and increase a business’s stature based on its association with the licensor.
Rand Brenner is an IP professional whose passion is helping inventors, startups, and businesses use licensing to turn their IP into income-producing products, services, and technologies. His decades of experience run the gamut from medical devices to food technology to consumer products. He’s licensed some of the biggest Hollywood entertainment blockbusters, including the Batman Movies (1 and 2) and the number one kid’s action TV show, the Mighty Morphin Power Rangers. Rand speaks about licensing and is a featured speaker at investment conferences, trade shows, colleges, and startup events. His first book, Hidden Wealth: The Money-Making Power of Licensing, was released in 2019 and is available on Amazon.com. He’s also a published writer, and his articles have appeared in several prestigious trade magazines, including The Licensing Journal, Intellectual Property Magazine, and License India.
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