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.

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 don’t 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

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

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
Golden Rule
Aim
for win-win outcome
Franchise

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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

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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
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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