Not Messi or Woods, but Jordan... The Power and Pitfalls of Licensing [AI Mistake Notebook]

AI Use on the Rise, Licensing Issues Are a Ticking Time Bomb
A Single Explosion Could Destroy a Company

Editor's NoteExamining failures is the shortcut to success. "AI Mistake Notebook" explores cases of failure related to AI products, services, companies, and individuals.

Who is the highest-earning sports athlete of all time?

Many names come to mind: Roger Federer (tennis), Tiger Woods (golf), Cristiano Ronaldo (soccer), and Mike Tyson (boxing).

You might also think of Michael Schumacher (F1), Usain Bolt (track and field), Alex Rodriguez (baseball), or Tom Brady (American football).

However, none of these are correct. The athlete who has earned the most money in sports history is none other than Michael Jordan from basketball.

According to the "All-Time Sports Athlete Earnings Ranking" announced last month by the American sports business media outlet Sportico, Jordan earned $3 billion (approximately 4.29 trillion KRW) during his career and after retirement, making him number one.

The Power of Licensing: 5% of 'Air Jordan' Sales Every Year

The second highest-earning sports athlete of all time is the "Golf Emperor" Tiger Woods ($1.91 billion, approximately 2.7 trillion KRW), and third place is Ronaldo ($1.83 billion). The photo shows Michael Jordan wearing a Chicago Bulls uniform. Photo by AP Yonhap News

The secret behind Jordan's number one ranking is "licensing." This is a contract in which the owner of intellectual property (IP) such as a name, image, or brand allows others to use them and receives royalties in return.

Jordan licenses his name and brand to Nike for use in sports equipment and apparel. This is the secret to generating nearly 4 trillion KRW in revenue. Nike earns trillions of KRW in annual sales through the "Air Jordan" brand, and it is known that about 5% of this goes to Jordan.

Licensing, as shown here, is a structure that allows you to generate revenue without directly creating products or services yourself. This demonstrates how powerful a revenue-generating tool licensing can be for creators or brand owners.

Because the power of licensing is so strong, it is paradoxically necessary to be cautious with licensing issues. Mishandling licenses can lead to serious crises.

The Pitfall of Licensing: You Could Go Bankrupt

In the United States, many companies have faced critical management crises or even bankruptcy due to license violations. Pixabay

Westinghouse Digital Electronics made a name for itself in the U.S. market in the mid-2000s as a "cost-effective TV" brand. To lower product prices, the company used open-source software when creating its TV operating system. However, it faced an unexpected lawsuit. Although the software was open source, there was an obligation to disclose the modified source code when distributing products that used it.

Westinghouse ignored this obligation, and as a result, the Software Freedom Conservancy (SFC), an open-source advocacy group, intervened. Westinghouse did not actively respond to the lawsuit, and the court eventually ordered the company to stop selling its TV products. Westinghouse incurred costs for inventory disposal and legal fees. Most importantly, it lost trust in the market and effectively went bankrupt.

The SCO Group is a case of the opposite. In 2003, SCO filed a $1 billion (about 1 trillion KRW) lawsuit against IBM, claiming that IBM had illegally included its UNIX code in Linux. The claimed damages later increased to $3 billion and then $5 billion. What started as a simple license infringement claim escalated into a massive legal battle.

However, SCO's problem was that it did not clearly own the copyright to the code it claimed. After seven years of lengthy legal disputes, SCO's claims were dismissed, and in the process, the company faced legal costs and reputational damage. In 2007, SCO filed for bankruptcy protection. By 2011, it had to sell off most of its business, and the company effectively ceased to exist. This is a case where a misunderstanding of licensing and excessive legal action threatened the very existence of a company.

Why Licensing Is Dangerous: A Time Bomb That Can Explode at Once

Vibe coding through AI has made coding accessible to everyone, but license infringement issues may increase. Pixabay

The most frightening aspect of license violations is that nothing may happen for a long time, but then the issue can suddenly explode like a bomb. What happens if you suddenly have to stop selling a product that is already on the market? Inventory piles up, customers are lost rapidly, and the brand image plummets uncontrollably. Lawsuits related to licensing are also extremely costly. If you lose, the damages you must pay can be several times higher.

With the advancement of artificial intelligence (AI), licensing issues can become another ticking time bomb. Recently, Vibe coding has become popular. This is a method of programming using natural language through AI. Thanks to AI services like ChatGPT and Claude, anyone can now program and develop services.

AI models have been trained on countless codes publicly available on the internet. Depending on user requests, AI can generate similar or even identical code. In this process, users may unknowingly infringe on copyrights. There is a possibility that users are using code owned by third parties without even realizing it.

Just because the code was written by AI does not mean you are free from licensing responsibilities. Non-expert developers may not fully understand the structure and functions of AI-generated code. They may fail to identify hidden licensing obligations in the code or overlook necessary compliance steps (such as copyright notices or source code disclosure).

Like terms and conditions hidden in fine print, license-related clauses are easy to miss. However, it is important not to forget that ignoring this "fine print" has led many companies to bankruptcy or hundreds of millions of KRW in losses.

In the AI Era, Licensing Is Another Ticking Time Bomb

First, you must consider licensing from the very beginning of development. The approach of "let's build first and think about it later" is dangerous. From the initial development stages, you need to review the licenses of tools and libraries you plan to use and check if they are suitable for your business model.

Consulting with a licensing attorney or specialist is also essential. With a small investment, you can prevent significant risks that may arise later.

Policy support is also needed. The use of AI will inevitably continue to increase. Cases where users unknowingly violate licenses will also become more common. There needs to be a standard for indicating the source and license of AI-generated outputs. We must prevent the mass production of unintentional copyright and license violators.

As seen in the cases of Westinghouse and SCO, neglecting licensing can put an entire company at risk. On the other hand, thorough license management can be seen as an investment that reduces corporate risk and enables stable growth.

As with all contracts, it is important to read and understand every detail of a license agreement. It may feel cumbersome in the short term, but it is the minimum preventive measure to keep your business from falling into licensing pitfalls.