Presentation on theme: "LICENSING AND FRANCHISING; FUNDAMENTALS Tamara Nanayakkara."— Presentation transcript:
LICENSING AND FRANCHISING; FUNDAMENTALS Tamara Nanayakkara
Outline Challenge to businesses – how to keep growing in a slowing economy; Importance of finding new ways of generating income Thinking of IP as assets Licensing (and Franchising), strategic use of these assets Negotiating
Economic Growth Traditionally, economic winners were those who had natural resources. Scarce=assumption of finite growth. Resources down or constant, population up. But growth up!?
New Economy Reason the new economy. Knowledge making more effective use of resources - 1950 knowledge component in manufactured goods 20%, 1990s 70% Application of knowledge, key to competitiveness
Globalization New Economy flourishing in an economy that is globalized, competition not confined to national boundaries that is web based, a global marketing and information tool
The IP System Provides a legal means for protecting creativity and knowledge; patents, TM, copyrights, design rights etc provide the creator the means to prevent others from using his knowledge creativity Ensures the continued production of knowledge and its dissemination
IP Assets By providing such protection the IP system gives more than the right to prevent others but in fact creates valuable tradable (intangible) assets.
Licensing Licensing is when an owner of such an intangible asset, transfers the right to use that asset to another, for a price, while retaining ownership of that asset.
Licensing of IPR Licensing is only relevant where there is an intellectual property right Territorial nature of IPR If the technology (or other kind of expression of human creativity) is not protected by an IPR, it is then not property owned by someone and as such the issue of licensing does not arise.
Why License For the Licensor Simultaneous use by many Expand manufacturing Earn revenue Access to markets Stick licensing Create standard For the Licensee Ahead of competition Despite lack of R&D, access to new technologies and know how Possibility of creating innovative products Settle infringement dispute Manufacture standardized product
Why Not License For the licensor Create competitor Bad choice of licensee could damage reputation Lose control of proprietary information For the Licensee Royalties add cost Secrecy requirements Administrative burdens - audits, reports etc May be obliged to grant back improvements
Negotiation you dont get the deal you deserve but you get the deal you negotiate
Preparation - information gathering General information on the relevant market Companies active in that market and their products Existing technologies used by such companies On going R&D about relevant technologies Prevalent licensing practices in the relevant markets and products
Preparation - sources of information Publicly available information of publicly traded companies. Online and subscription database services for the relevant market or products Trade publications, trade and technology exhibitions, fairs and shows Technology licensing offices of research based universities Relevant government departments Professional and business magazines, journals and publications concerning the relevant products and markets Professional and business associations Technology exchanges, Innovation centres Patent information services
Preparation - Patent Information Patent information is the collection of patent documents consisting of patent applications and grants worldwide. For technologies that are patented it is the most useful yet the least utilized it is the most recent, gives the legal status, information on technological activity (possible alternatives) and those involved in such technological activity
Preparation Analyze your strengths and weaknesses Identify your team leader supported by financial, legal and technical people Prepare summary of key issues (Heads of Agreement)
The Agreement – who, what Parties - who will be bound by it Subject matter - what exactly is being licensed
The Agreement - Extent Exclusive, non exclusive or sole (licensor and licensee can operate in the territory) Sub licenses Field of use - to be used in an identified field, product Scope - make, use or sell, offer for sale, import Territory Improvements
The Agreement - Financial Lump sum - payable on the happening of a particular event Royalties - recurring payments tied to the use of the technology, commonly based on sales. Could go down as production goes up.(fixed price per unit or % of sales) Annual minimum royalty - usually where the license is exclusive and the licensor needs to ensure a regular income.
The Agreement -Other Best efforts Usually with an exclusive license. An ambiguous obligation. Better to specify particular actions, such as an obligation by the licensee to spend agreed amounts on research or marketing or other activities tailored to increase the likelihood of success.
The Agreement Infringement A third party may be using the technology with no license. Essentially harms the competitiveness of the legitimate licensee. A non exclusive licensee would expect the licensor to take action and an exclusive licensee may bring suit on its own and join the licensor. If the licensor fails to bring suit licensee could suspend paying royalties.
The Agreement Product liability insurance Dispute settlement - Increasingly parties opt for alternative dispute resolution procedures, such as arbitration and mediation, or mediation followed by arbitration. Termination - either on the happening of an event such as the expiry of the patent or on termination by one of the parties
The Agreement Clauses to pay attention to - grant back provisions (obliging licensee to give improvements to licensor), post termination use of know how, price and volume fixation by the licensor, tie in clauses (obliging licensee to take other technology that he does not need)
Nothing is cast in stone Everything is negotiable
Franchise A specialized license where the franchisee is allowed by the franchisor in return for a fee to use a particular business model and is licensed a bundle of IP rights (TM, service marks, patents, trade secrets, copyrighted works…) and supported by training, technical support and mentoring All franchisees are licensees but not all licensees are franchisees
Both the franchisor and the franchisee share the overall aims and goals of the franchise and work for their mutual benefit
The franchisor nurtures, encourages and provides assistance to the franchisee The franchisee maintains and promote the franchise and conducts the business as prescribed in the manuals and guidelines, including protecting the IP of the franchise system, and to operate in accordance with territorial or geographical obligations agreed The franchisee has the obligation to pay the agreed fees.
Why enter into a Franchise Lower risk of failure Recognisable image On going support Easier to obtain financing Benefit from franchisors R&D Why not enter into a Franchise All IPR owned by the Franchisor Payment of fees Obliged to follow the business model Innovations may be assigned back to the Franchisor Depend on the success of the Franchisor
Summary To survive and flourish in the global business environment where competition is acute and product cycles are short, business have to find new ways of being competitive. Identifying IP assets and strategically using and leveraging them is crucial in this environment. Licensing is an efficient way of maximising IP assets