Welcome to class of Licensing by Dr. Satyendra Singh uwinnipeg/~ssingh5

1. Welcome to class ofLicensingbyDr. Satyendra Singhwww.uwinnipeg.ca/~ssingh5

2. Outline • What is licensing • When is it employed • Risks of licensing • Costs of licensing • Elements of licensing agreements

3. What is Licensing? • It is a strategy • Contractual arrangement • Licensor allows licensee to use for fee • Technology • Patents • Brands • Design • Process • Intellectual property • …

4. When is it Employed? • If licensor has strategic advantage • Host country restricts import or FDI or both • Additional $ with minimum effort • Test through licensing then  FDI • Does not relate to core competency • Licensee is unlikely to become competitor • Tech. change is fast, so ahead of licensee • Prospects of technology feedback is high

5. When is it Employed? • If licensee has strategic advantage, too • Licensee gets existing technology • Cheaply • Faster • Less risky than their own R&D • Product design for diversification • To complement production or marketing capability

6. Risks of Licensing… • Licensee may be future competitor • Or may act opportunistically • That’s why firms do it internationally to avoid future competitor in domestic markets • So limit the licensee’s market • Introduce clauses… • Licensor loses reputation if quality ↓ • Usually after the fact • So spend time to understand licensee before negotiations • dfr • Research and Development (R&D) • Configured and Coordinated • Sustainable Competitive Advantage (SCA) across countries

7. Risks of Licensing… • Profit may not be maximized • Licensor has indirect access to market • Exchange rate change • Repatriation restrictions • So, ensure • Guaranteed feedback of actual improvement • Sublicensing, if applicable • Quality control • Contracts are honored

8. Risks of Licensing • Intellectual Property (IP) rights • Some countries do not have IP legislations • Infringement of IP is common • So lose $ • So necessary to license to offset IP piracy • I.e., if licensed, licensee will take action to stop this • It is also called “Reluctant Licensing” • Quick internationalization is another reason for licensing

9. Costs of Licensing • It is costly for licensor • Protection of Industrial/intellectual Property • May defend IP in the court of law • Establishing the license agreement • Searching for suitable licensee • Communications • Training • Equipment testing • Maintaining the license agreement • Back up services for licensee • Auditing • Ongoing marketing research • Opportunity costs?

10. Unattractive Markets for Licensing • In some countries • licensing must be approved by governments • France, Ireland, Spain… • Limit duration of agreement • Exclusive licensing is not permitted • It limits competition • Foreign exchange controls • Restriction on royalty payment (withholding tax) • In EU, withholding tax + VAT = 50% • Limits on royalty fee (3-10%) • Governments can change it anytime

11. Elements of Licensing… • No standard form • It is based on licensor’s experience • Reasons for licensing • No ambiguity  market, profit, product… • Schedules • Promotion methods, trade secrets, drawing, photos… • Geographical limitations • Right to sublicence • Flow back clause  improvements made by licensee is communicated to licensor

12. Elements of Licensing • Usually licensor aim for 25% of profit  convert this level to a certain royalty rate • Royalty and periodic payment • Royalty escalation clause • Currency of payment • Minimum performance requirement • Minimum royalty • Minimum promotion expenditure • Sales • Number of personnel