Chapter
6
Licensing
Key Points
What is Licensing?
When is it employed?
Licensing related issues
Some Licensing Announcements
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What is Licensing?
Licensing is a contractual arrangement whereby the licensor (selling firm) allows its technology, patents, trademarks, designs, processes, know-how, intellectual property, or other proprietary advantages to be used for a fee by the licensee (buying firm).
It is a strategy for technology transfer.
Franchising is an organizational form where the franchisor of a service, trademarked product, or brand name allows the franchisee to use the same in return for a lump sum payment and/or royalty, while conforming to required standards of quality, service, and so forth.
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When is Licensing employed?
Used both in technology intensive and non technology-intensive industries (eg. Computer software, food, sport teams, publishing)
A licensor lacks the capital knowledge of foreign markets required for exporting or FDI, but wants to earn additional profits with minimal commitment.
Host-country governments restrict imports or FDI, or both; or the risk of nationalization or foreign control is too great.
A firm wishes to test the potential for future direct investment.
The technology involved is not central to the licensor’s core business. Generally only peripheral technologies are licensed.
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When is Licensing employed? (contd..)
High prospects of technology “feedback” or “flowback”
The licensor wishes to exploit its technology in secondary markets that may be too small to justify larger investments; the required economies of scale may not be attainable.
The licensee is unlikely to become a future competitor.
Rapid pace of technological change such that the licensor can remain technologically superior to the licensee. If the technology may become obsolete quickly, there is pressure to exploit it fully while the opportunity exists.
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Licensing Related Issues
Risks
Dissipation of proprietary advantage
Tarnishing of reputation due to lack of quality
Profits may not be maximized
Difficulty in enforcement of license terms
Intellectual Property Rights
IP legislations nonexistent or not enforced
“Reluctant Licensing” – attempts to offset piracy
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Licensing Related Issues (contd..)
Costs of Licensing
Protection costs
License Agreement costs
Agreement Maintenance costs
Unattractive markets for Licensing
Governmental regulatory schemes
Restrictions imposed on duration and exclusive rights to territories
Foreign exchange controls and tax on royalty fees
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Elements of License Agreement
A clear and correct description of the parties to the agreement
A preamble or recitals describing the parties, their reasons for entering into the arrangement, and their respective roles.
A list of defined terms for the purposes of the particular contract to simplify this complex document and to eliminate ambiguity.
A set of schedules, in an exhibit or appendix, where necessary, to segregate lengthy detailed descriptions of any kind.
Explicit description of the grant that is fundamental to the agreement and the nature of the rights being granted to the licensee.
Description of any geographical limitations on the licensee’s manufacturing, selling, or sublicensing activities.
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Elements of License Agreement (contd..)
A description of any exclusive rights to manufacture and sell that may be granted including rights to sublicense.
The terms relating to the duration of the agreement and its extension or review.
Provisions for the granting of rights to downstream refinements or improvements made by the licensor in the future.
Provisions for “technological flowback” agreements.
Details regarding the royalties or periodic payments based on the use of licensed rights.
Specification of minimum performance requirements and other protection clauses
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Some Licensing Announcements
Starbucks, the . coffee chain, hopes to have 500 branches in Asia by 2003 through licensing agreements
Licensed properties account for nearly half of the $4 billion in home decorating retail sales sold for the Halloween season.
Palm makes new licensing deals with Intel, Motorola and Texas Instruments, to expand the Palm operating system into all kinds of mobile devices from handhelds to cell phones and perhaps even wristwatches.
On June 26, 2001, hundreds of independent record companies in Britain and Europe signed a licensing agreement with Napster to immediately make thousands of tracks available to computer-users worldwide.
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