Licensing:

A strategy for technology transfer.

A contractual arrangement whereby the licensor (selling firm) allows the licensee (the buying firm) to use its - technology

- patents-trademarks- designs- processes- know-how- intellectual property

for a fee.

Note that this is not the same kind of licensing as for example when a governmentissues a license or gives permission for a bank to open a branch, or a firm tomanufacture a particular product, or to explore for gold or oil

Franchising is a particular kind of licensing, where basically you license a complete business plan

and maintain control over - standards of service- quality- product design- pricing- packaging- promotion- production techniques & stds- organization & control system

Reasons for Licensing - Exporters (sellers) Point of View

1. Lack capital, management resources, market knowledge to exploit directly by export or FDI, so license to a local firm

2. Use licensing as a way to test the market (but is this unfair to local licensee?)

3. We can get money for an invention or technology which is outside our corecompetence

4. Local market may be too small - problem of economies of scale

5. Avoid or minimize political factors/risks- restrictions on imports- restrictions on FDI- require majority foreign ownership- high risk of nationalization

6. Possible high rate of obsolescence / short product life cycle for new technology -maximize scope for exploitation

Caution:

1. Will the licensee become a competitor?

2. What about the licensee possibly developing the technology even further himself?

If a trademark or brand3. Will the licensee protect image/quality/service standards?

e.g. Zimbabwe garment factory and van Heusen shirtse.g. Pierre Cardin menswear in Canada, Africa, England

## May be necessary for licensee to monitor the output ##

Advantages for Licensee (buyer)

1. Quick2. Cheap3. Low risk

Gets marketing advantages - brand image, promotion

Problems for Licensor

1. What rate to charge?2. Does that maximize profits?3. What about getting feedback from customers on uses?4. What about getting feedback from customers on improving the technology?5. Lose control over use of the product

- sales into what markets?- what about sub-licensing?- how to monitor conformity to terms of license?- how to monitor maintaining quality standards?

Debate Over Intellectual Property Rights

- Patents - things and processes - 17 years- Copyright - words and pictures - Lifetime of author + 70 years

Question: Is software to be protected by patents - it can be embedded in a chip or by copyright - it can exist as freestanding

written lines of code.

Against For

Monopolistic- high cost- slows adoption

Discriminates against LDC’s(especially medical)- can’t afford it

- Reward for entrepreneurship- Recover cost of doing it - Stimulus to R & D

General appeal to property rightsbeing fundamental to a free enterprisesociety

The Third World tends to have weak to non-existent intellectual property laws - because it’s to their advantage.

A big bone of contention, especially with the United States, and also innegotiating free trade under WTO

On the other hand, has US patent law gone too far? They sometimes seemto be granting patents on extremely general “catch-all” kinds of propositions,or things which other countries regard as non-patentable

Should companies be able to patent DNA sequences?The human genome?

Does that mean some company without my knowledge or permissioncould in effect patent me?

Is patent law in effect acting as a barrier to the development of knowledge?

Major Elements of a License Agreement

I won’t go into details - that is a matter for lawyers

1. Always get yourself a good lawyer from the other jurisdiction

2. Specify what law (and language) governs

3. Specify how disputes will be resolved -which courts

4. Consider using arbitration rather than courtse.g. Islamic Sharia courts threw out a number of contracts because theyincluded interest payments. Interest is “ haram” and the contracts weretherefore “unconscionable contracts”.

## Know who you are dealing with ##

- Trust between the parties is better than 50 pages of boiler plate.