Exploitation of IP rights can be done directly by the owner or an assignee of the property rights, by making or importing and sale of the object or process of the rights. Depending on the resources of the owner and the nature of the property, however, licensing of the rights to one or more others may gain more return for the property than exploitation by the owner or any single assignee. Non-exclusive licensing opens a product, mark, or creative property to making and sale by one or many others who find the product or process or property to be profitable, and royalties from successful licensees can create a large stream of income.
Many pitfalls exist for prospective licensors. In its most extreme form, a licensee may want exclusive rights in order to quash the product and stop its competing with its own older, established products. If the license is not written with an out for the owner in such circumstance, the property can lose all its value, subject to any remedies expressly ; reserved to the licensor. Or, the licensee may botch final design or manufacture of the product, making it unsalable without reworking the product execution. An audit right must be provided for the licensor, to see that proper royalties in fact are paid on all devices made, not just devices made during the day shift, for instance. Trademark rights must only be licensed with a quality inspection and approval right, since the mark represents the goodwill of the trademark owner as the source of the goods, regardless of the actual maker of the goods; if goodwill is not expressly licensed with the mark, rights in the mark can be lost entirely. Resale and reimportation rights must be controlled by proper licensing restrictions, particularly as against damaged goods not sold as scrap and as against different goods sold in foreign markets.
Experienced licensing counsel is important for avoiding such pitfalls, although a licensee in a strong bargaining position can offer to license a property only on a take it or leave it basis with highly unfavorable terms. A licensor with a patented property or registered trademark cannot, however, abuse its position of strength for fear of anti-trust implications on many dominant behaviors, such as requiring that only unpatented supplies from licensor be used with a patented machine or in a registered business.
Franchising is a form of licensing of IP rights, as chain restaurants or auto dealerships, but special law and business practices are devoted to the myriad details of the successful operation of franchises including the use of marks and proprietary machines of the licensor or franchisor.