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LICENSING AND

FRANCHISING;FUNDAMENTALS

Tamara Nanayakkara


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Outline

Challenge to businesses howto keep

growing in a slowing economy; Importance

offinding newwaysofgenerating income

Thinking ofintellectual property as assets

Licensing (and Franchising), strategic use

ofthese assets

Negotiating


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Eco

nomic Gr

owth

Traditionally, economic winnerswere

those who had natural resources.

Scarce=assumption offinite growth.Resources down or constant, population up.

Butgrowth up!?


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New Economy Reason the new economy. Knowledge

making more effective use of resources -

1950 knowledge componentin

manufactured goods 20%, 1990s 70%

Application ofknowledge, key to

competitiveness


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The IP System

Provides a legal meansfor protecting

creativity and knowledge; patents, TM,copyrights, design rights etc provide the

creatorthe meansto preventothers

fro

musi

ng his

knowl

edge/creativit

y Ensuresthe continued production of

knowledge and its dissemination


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IP Ass

ets

By providing such protection the IP system

gives more than the rightto preventothers

butin fact createsvaluable tradable

(intangible) assets.


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Licen

sing

Licensing iswhen an ownerofsuch an

intangible asset, transfersthe righttouse that

assetto another, for a price, while retainingownership ofthat asset.

In practice, the owneroftechnology protected by

patentsortrade secretsor both gives another

the righttouse thattechnology to manufacturegiven product(s)


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Licen

sing

ofIPR

Licensing isonly relevantwhere there is

an intellectual property right

Territorial nature of IPR

Ifthe technology (orother kind of

expression ofhuman creativity) is not

protected by an IPR, itisthen not propertyowned by someone and assuch the issue

oflicensing does not arise.


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Why L

icen

se

Forthe Licensor

Simultaneoususe

by many

Expand

manufacturing

Earn revenue

Accessto markets

Stick licensing

Create standard

Crosslicense

Forthe Licensee

Stay currentin

evolving market

Noin-house R&D, yet

accesstotechnologies

Expand into new

productline

Settle dispute

Manufacture

standardized product

Accessto patent,

know-how, training


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Why N

otLicen

se

Forthe licensor

Create competitor

Bad choice oflicenseecould damage

reputation

Lose controlof

proprietary information Administrative cost

Legal complications

Forthe Licensee

Royalties add cost

Secrecy requirements

Administrative burdens

- audits, reports etc

May be obliged to

grant backimprovements


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Negotiation

you dont getthe deal you

deserve but you getthe dealyou negotiate


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Preparation - information

gathering Generalinformation on the relevant

market

Companies active in that market and their

products

Existing technologiesused by such

companies

On going R&D about relevanttechnologies

Prevalentlicensing practicesin the

relevant markets and products


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Preparation - sourcesof

information Publicly available information

ofpublicly traded companies.

Online and subscription

database servicesfortherelevant marketor products

Trade publications, trade and

technology exhibitions, fairs

and shows

Technology licensing officesofresearch based universities

Relevant government

departments

Professional and business

magazines, journals andpublications concerning the

relevant products and markets

Professional and business

associations

Technology exchanges, Innovation centres

Patentinformation services


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Preparation - Patent

Information Patentinformation isthe collection of

patent documents consisting ofpatent

applications and grantsworldwide.

Fortechnologiesthat are patented itisthe

mostuseful yetthe leastutilized

itisthe most recent, givesthe legalstatus,information on technological activity (possible

alternatives) and those involved in such

technological activity


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Preparation

Analyze yourstrengths and

weaknesses

Identify yourteam

leadersupported by financial, legal and

technical people

Prepare summary ofkey issues (HeadsofAgreement, Term Sheet)


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The Agreement who, what Parties - whowill be bound by it

Subject matter- what exactly is being

licensed


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The Agreement- Ex

ten

t

Exclusive, non exclusive orsole (licensor

and licensee can operate in the territory)

Sub licenses must be expressly granted

Field ofuse technology divided

Scope - make, use orsell, offerforsale,

import

Territory

Improvements


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The Agreement- F

inanc

ial

Lump sum - payable on the happening of

a particular event

Royalties - recurring paymentstied tothe

use ofthe technology, commonly based

on sales. Could go down as production

goesup (fixed price perunitor % ofsales) Annual minimum royalty - usually where

the license is exclusive and the licensor

needsto ensure a regularincome.


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The Agreement

Dispute settlement - Increasingly parties

optfor alternative dispute resolution

procedures, such as arbitration andmediation, or mediation followed by

arbitration.

Termination - eitheron the happening ofan eventsuch asthe expiry ofthe patent

oron termination by one ofthe parties


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The Agreement

Clausesto pay attention to - grant back

provisions (obliging licensee to give

improvementstolicensor), posttermination use ofknow how, price and

volume fixation by the licensor, tie in

clauses (obliging licensee totake othertechnology that he does not need)


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Nothing is castin stone

Everything is negotiable


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Golden Rule

Aim forwin-win outcome


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Trade Mark License A license giving the rightto manufacture a particular

productusing the licensorstechnology may alsoincludean agreementtouse the licensorstrademark. It may

also be only a trademark license agreement In either case in addition tothe general clauses above

there may be clauses particularly relevanttotrademarklicense agreements

Particularly quality control products must meetthequality standardsset by the licensee, submitsamplesofproducts, labels, packaging etc for checking


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Franchise A specialized license where the franchisee is

allowed by the franchisorin return for a fee tous

e a particul

ar busi

ness

mode

land

islicen

seda bundle of IP rights (TM, service marks,

patents, trade secrets, copyrighted works) andsupported by training, technicalsupport andmentoring

Allfranchisees are licensees but not alllicensees are franchisees


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Both the franchisor and the franchisee

share the overall aims and goalsofthe

franchise and work fortheir mutual benefit


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The franchisor maintains and updatesthe manuals,procedures and practicesofthe business model andtrains and assiststhe franchisee in itsuse and

implementation The franchisee maintains and promote the franchise and

conductsthe business as prescribed in the manuals andguidelines, including protecting the IP ofthe franchisesystem, and tooperate in accordance with territorialor

geographicalobligations agreed The franchisee hasthe obligation to pay the agreed fees.


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Why enterinto a Franchise Selfemployed

Lower risk offailure

Recognisable image

On going support

Easiertoobtain financing

Benefitfrom franchisors R&D

Ready made customer base

Why not enterinto aFranchise

All IPR owned by theFranchisor

Paymentoffees

Obliged tofollowthebusiness model

Innovations may beassigned back totheFranchisor

Depend on the successofthe Franchisor


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Summary Tosurvive and flourish in the global business

environmentwhere competition is acute and

product cycles are short, business have tofindnewwaysofbeing competitive.

Identifying IP assets and strategically using and

leveraging them is crucialin this environment.

Licensing is an efficientway ofmaximizing IP

assets


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