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A license is simply the right to do or to use something.

The word, from Latin, means “permission,” thus implying that a license is given by a party who controls something to another. Licenses divide into three basic forms: 1) the right or permission to carry out an activity otherwise regulated or prohibited by government; 2) the right to use a name, image, or representation (including a brand) in packaging, promotion, signage, marketing, and similar contexts; and 3) the right to use and apply proprietary know-how, whether patented or not, for any legal purpose, including its integral embodiment in products. Licensing activity comes in two forms: Licensorsgive licenses to others; licensees receive licenses from others.

Terminology The word itself, licensing, does not cover all forms and instances of the underlying relationship.

For example, users of other people’s patents are typically “licensed” to do so, but users of other people’s copyrights are said to have “permission” to do so. In municipal government, many activities require “permits.” These are functionally identical to licenses in that the permit holder must qualify in some way and is subject to rules.

In commercial relationships a franchise is said to be “held” (“franchise holder”), but to franchise someone is equivalent to two forms of licensing (image and knowhow). “Certification” is a widely used alternative, as in “Certified Public Accountant”; the CPA, however, is typically licensed by the state. “Certification” connotes something more advanced or refined than “licensing,” hence is used in relation to professional permits—but professions well known to be of a high order of skill disdain from using the term. It is impossible to find a “certified physician” or “certified attorney” even though they are all licensed by the state. Conversely, when in ordinary speech someone is referred to as a “certified idiot,” we know that the idiocy is of a high order.

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Government Licensing

The most common form of licensing is the governmental kind. After all, most adults are licensed drivers. But state government, in addition, licenses many skilled and professional occupations, including those that form the core of many small business activities. Small business, therefore, is most likely to be touched by this form of licensing. Municipal government issues all kinds of permits, equivalent to licenses. In Miami-Dade County, Florida, for instance, the county requires that all businesses have “occupational” licenses—but here in the sense of occupying a store.

A surprisingly large number of occupations are subject to license. In the state of Rhode Island, for example (picked at random), the state licenses 149 occupations. Thirty-two of those 149 occupations are architects and attorneys; barbers, but also beekeepers and boxers; chiropractors; dieticians, also dentists, and anyone associated with dog racing; electricians as well as professional engineers; funeral directors and buyers of fur at wholesale; hairdressers, cosmetologists, estheticians, and manicurists; investment advisers; occupations associated with the sport Jai Alai; lottery agents and livestock dealers; massage therapists; every kind of professional level nurse and midwife; occupational therapists and opticians; plumbers and physicians; real estate brokers; speech-language pathologists and many school-related occupations; travel agents and tattoo artists; veterinarians; wildlife rehabilitators; and even professional wrestlers.

The rationale behind licensing of occupations is obviously varied and based on the enforcement of health, safety, commercial, and other laws. One rationale behind Rhode Island’s licensing of beekeepers, for instance, is to control importation of bee hives from another state, on which a fee is levied. In 2002, the state issued 160 such licenses, managed by its Division of Agriculture and Resource Marketing. Licensing of Jai Alai occupations is evidently part of enforcing gambling rules by the state’s Division of Racing and Athletics; in 2002, the state issued 319 such licenses. In professional categories educational requirements must be met. A nurse-midwife, for example, must have completed “an approved educational program in midwifery that is accredited by the American College of Nurse-Midwives.” The licensing is handled by Rhode Island’s Office of Health Professions Regulation, part of its Department of Health. In 2002, 69 licenses were issued; Jai Alai wins by a wide margin.

Most businesses affected by licensing rules learn of these requirements in the course of qualifications or startup. Information on rules is, however, widely and easily available. The small business owner wishing to check on his or her need for such licensing might begin at the Web site of America’s Career/InfoNet (see references) where access is provided to every state’s occupational licensing requirements.

Image Licensing

Marketing of goods and services relies, in the first place, on capturing a potential customer’s attention and then holding it by inducing a favorable reaction. Famous icons—be they celebrities, cartoon figures like Mickey Mouse, or widely recognized symbols like the letters NFL, GM, IBM or the five interlocking rings of the Olympics—have a function in attracting attention and in passing on the values that they represent to objects or messages to which they are attached. Icons are created in commerce by arduous performance and promotion, in which case they are brand identities; they are also “borrowed” or “recruited” by associating famous names with products. For purposes of brevity, all of these recognizable symbols may be summed up as “images.” Images are licensed for the purpose of helping people market goods.

Underlying such licensing is law which protects brands, logos, and other trade-marked symbols from use by others; individuals also have the right to permit or to restrict their names from commercial exploitation by others. Thus, for instance, a newspaper may use the name Schwarzenegger in a headline but cannot label its paper as “The paper Schwarzenegger reads each day” without the California Governor’s express permission.

Should such permission be forthcoming, the paper would belicensed to use the name.

According to Stuart Elliott in The New York Times, citing The Licensing Letter published by EPM Communications, retail sales of licensed products in North America were $70.5 billion in 2004; based on the phrasing the number includes Canadian sales. But if all these sales had taken place in the U.S., they would have represented a mere 1.8 percent of total retail sales of $3,850 billion in 2004—thus a quite negligible portion of the total. Elliott also reports that such sales were down 1.3 percent from 2003. Amy Johannes, writing for Promo put worldwide retails sales at $175.3 billion in the same year, citing License! magazine. (Johannes’ headline mistakenly shows $1.75 billion.) These two numbers indicate that image licensing affects a tiny proportion of sales at retail and therefore represents a sometimes-used marketing tactic.

Know-how Or Technology Licensing

Many inventors and technology companies use patented methods and closely-held practices as the basis of licensing activity. Under a know-how or technology license, the licensee is enabled to deploy a design or use a patented process in his or her own manufacturing activities. The practice is as old as patent law and is present in all of the modern arts of production. Wherever the focus of invention is most intense, there new technologies spring up and are spread by licensing. In the mid-2000s these techniques were mushrooming in electronics, pharmaceuticals, genetic manipulation, alternative energy, and exotic materials technologies, while, at the same time, continuing in traditional fields like mechanics and chemical and petrochemical processing.

Whereas image licensing is likely to be extremely rare in small business, virtually every small business engages in licensing some know-how—although the vast majority would be surprised to learn this. So would the vast public engaged in the same activity: the use of computer software takes place under a license that comes with the software itself. The licensing agreement explicitly prohibits using a purchased package on more than one machine. Such practices are extremely common and also difficult to police. In the international field piracy is a constant refrain. Confusion appears to reign domestically. As Computer Trade Shopper reported, “SMEs are failing to recognize the implications of not meeting licensing requirements, with only 56 per cent having a formal licensing policy. According to research by PC World Business (PCWB), 58 percent did not keep records of the software they owned or file license certificates, but 87 percent believed they were compliant.”

(SMEs are “small to medium enterprises.”) At the same time, as Ed Foster reported in InfoWorld, pressures are mounting to bring small business into compliance.

Under the name of the Business Software Alliance (BSA), Foster wrote, “Microsoft and its allies continue to bombard small businesses with anti-piracy mailings demanding that customers audit their licensing compliance; it is becoming pretty obvious who the real buccaneers are in search of plunder.” The message in these developments for the small business owner is that he or she is engaged in licensing, knowingly or not, and that it might require a closer look.

Licensing In, Licensing Out

Using software purchased from others—or operating a proprietary process under a license—is to be “licensing in.” But the small business may also have an opportunity to “license out” if it has made a useful invention which may be of interest to others. In most cases the activity of licensing others is a new business in its own rights with unique activities and problems, of which the first may be patenting the invention itself to secure all rights to the new art. The activity is relatively easy if the company experiences positive demand for its invention and buyers are calling or visiting. When not, help from an experienced patent attorney may be the best first step in examining the feasibility of turning invention into profit.