Final answer:
A company is engaging in product licensing when it allows another entity to manufacture, use, or sell its patented products. Licensing is a means for companies to earn from their intellectual property while controlling how their inventions are used, typically involving patents with exclusive rights granted for a period, usually up to 20 years.
Step-by-step explanation:
A company is licensing its products when it grants permission to another entity to manufacture, use, or sell its patented product or service. By doing this, the licensing company permits others to leverage its intellectual property (IP) under agreed terms and conditions, typically in exchange for a licensing fee. This is a common strategy for innovative firms to recoup their investments in research and development (R&D) while still controlling the usage of their invention.
Licensing occurs in various forms but often involves intellectual property rights such as patents, which confer the exclusive legal right to use the invention for a limited time, usually up to 20 years. After the patent expires, other firms can manufacture the product more cost-effectively, which can help spread new technologies and innovations.
In essence, licensing is a strategic approach to business that allows for the expansion of a company's market reach without directly managing the production and sales processes in new markets. This model contrasts with franchising, where the franchisee purchases the right to operate a business using the franchisor's brand and business model, and includes ongoing support and training.