Product licensing - Info entrepreneurs

Licensing involves obtaining permission from a company (licensor) to manufacture and sell one or more of its products within a defined market area. 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Print Licensinginvolvesobtainingpermissionfromacompany(licensor)tomanufactureandselloneormoreofitsproductswithinadefinedmarketarea.Thecompanythatobtainstheserights(thelicensee)usuallyagreestopayaroyaltyfeetotheoriginalowner. Whywouldacompanylookforproductsitcanproduceunderlicense? Whataretheadvantagesoflicensing?Whatarethedisadvantagesoflicensing?Whataretheadvantagesoflicensing? Howdoesacompanysearchandfindproductsthatmaybeavailableforlicensing? Whatistheprocedureifyouoryourcompanyhasaproducttolicensetoothers? Whywouldacompanylookforproductsitcanproduceunderlicense? Intoday'sworldofrapidtechnologicalchange,newtechnologiesarethekeytoeconomicgrowth.Today,manyproductshaveveryshortlifecyclesandarereadilyreplacedinthemarketplacebynewtechnology.Ifacompanywantstosurvive,itneedstocontinuallyaddnewproductstoreplacedecliningproducts. Also,acompanymaywanttogrowanddiversifybyexpandingitsproductlinetotakeupexcessmanufacturingormarketingcapacity,leveloutseasonalhighsandlows,orsimplyaddtoprofitabilitywithaprovenproduct.Companiesmaynothavetheinternalskills,time,ormoneytodeveloptheirownnewproducts,soobtainingaprovenproductquicklythroughlicensingmaybeveryattractive. Whataretheadvantagesoflicensing? Yougetaccesstotheexperienceandknow-howofthecompanythatdevelopedtheproduct.Thiscompanymaybemuchlargerthanyours,withdevelopmentcapabilitiesthatyoucannotafford. Yougettobreakintoanewmarketwiththisnewproduct,butwiththebenefitoftheexperiencegainedinanothermarket. itcostslessthanbuyinganentirecompany; youdon'tpayforexpensiveandtimeconsumingresearchanddevelopment; youdon'tpaydevelopmentcostsupfront;youpayroyaltieswhenyoustartmakingsales;and youwon'thavelargelossesiftheproductdoesn'tbecomesuccessfulinyourmarketarea. Itmakescompetitioneasierifyou'reasmallcompanywithlimitedresources.Youminimizeyourcostsandrisks: Whatarethedisadvantagesoflicensing? Thelicenseagreementisnormallyforaconsiderableperiodoftimeandtheremaybeanannualminimumroyaltyrequired. Newtechnologymaybecomeavailablemakingthelicensedopportunityobsolete. Theagreementmayforcethelicenseetoacceptrestrictionsonitsmarketing. Thelicenseemaylosethecapacitytodevelopitsowntechnologyinternally. Whatdoesatypicallicensingagreementcover? SubjectMatteroftheAgreement—maybe(1)patent,(2)copyright,(3)trademark,(4)industrialdesign,(5)tradesecret(know-how,technology,experience,etc.) GrantingofRights—defineswhatlicensoristransferringtolicensee Licensor'sObligation—setsouthowtransferistotakeplaceintermsofassistance,support,trainingandco-operation Licensee'sObligation—setsoutfinancialrequirements,guaranteesoflicensee,secrecy,costs,etc. LicenseFee—feepaidtolicensoronsigningagreement Royalty—ongoingshareofproceedspaidtolicensorfortherights.Maybealumpsum,orpercentageofproceedsoramountperunitsold,etc.,usuallyaminimumroyaltyisrequired. Term—howlongtheagreementistolast DesignatedAreaandExclusivity—definemanufacturingandmarketingareaoflicense Termination—describesrightsofbothlicensorandlicenseetoterminateagreement Guarantees—licensorwillnormallynotguaranteetheresultsofusingtherightsgranted.Thelicenseemayberequiredtoprovidewarranties,publicliabilities,etc. Howdoesacompanysearchandfindproductsthatmaybeavailableforlicensing? Stepstotake: Prepareaprofileofyourcompany nameofcontactpersonandtitle; reason(i.e.diversification,complementpresentproducts,efficiency);facilitiesformanufacturing/marketing; presentproducts/services; marketingareapresentlyserviced; salesvolume; descriptionofsearchrequirements(i.e.product/process,etc.); marketsdesiredforlicensedopportunitywithspecialnoteifdifferentfrommarketsnormallybeingserviced;and exclusivity,protectionrequirementsdesired. Searchsources Therearealargenumberofsourcesthatmaybeusedinsearchingforproducts/processes,etc.,underlicensethatcanbecontacted: licensingconsultantswithclientsofferingopportunities; internationallicensingexhibitions; publicationsofferinglicensingopportunitiesbysubscription; Canadianconsulatesinforeigncountries; provincialtradeofficesinforeigncountries; federal/provincial/stateagenciesinforeigncountries; tradedirectoriesofmanufacturersinforeigncountries; ChambersofCommerceinforeigncountries; bankswithinternationalbranches; universitieswithresearchfacilities; researchanddevelopmentcompanies; tradeassociations; tradepublications;and importreplacement. Providingaprofileofyourcompanyanditssearchrequirementstoanyoralloftheforegoingwouldresultinyoureceivingnamesandaddressesofprospectivelicensorsforyourdirectcontact.Whencontactingprospectivelicensors,youshouldencloseyourcompanyprofileandrequestassurancethattheyarepreparedtolicense. Itwouldbeimportanttoaskaswelliftheyhavelicensedothers,andifso,requestthattheyprovidethenames,addresses,etc.,andpermissiontocontact. Determinefeasibilityofopportunitiesfound Licensorshouldprovidelicenseesufficientinformationtodeterminefeasibilityoftheopportunityintheproposedarea. Licensorshouldprovide:productbrochure,billofmaterialsandspecifications,labourandtime,howlongmarketedandgrowth,otherlicensees(wherelocatedandrighttocontact),benefitsovercompetition,estimatedtotalmarket,warranties,marketing,trainingprovided,financialterms,etc. Prospectivelicenseedoesafeasibilitystudybasedonhisareaandthemarkethewillhave. LicensormayrequirethepotentiallicenseetosignaConfidentialDisclosureAgreementbeforeprovidingafullpackageofinformation.Ifnegotiationislengthythelicensormayrequestaletterofintentandsomepartialpaymentforkeepingtheopportunityavailableforaperiodoftimeuntillicenseedeterminesfeasibility. Negotiatingalicenseagreement Usuallyalicensingagreementwillbeprovidedbythelicensoronceithasestablishedthelicenseeisseriouswithregardtotheopportunity.Thetermsoftheagreementarenegotiable.Usingtheinformationobtainedfromyourfeasibilitystudyandconsideringthefinancialrequirementsofthelicensingagreement,youshouldbepositivethelicensingopportunitywillprovideanacceptableprofitandreturn.Minimumannualroyaltiesshouldbecarefullystudiedtoensuretheycanbereasonablymet. Alicenseopportunityfromaninventor,ifoneisthefirstlicenseeshouldbeveryreasonable,astheinventorislookingforcredibility,whichwillbeestablishedbythefirstlicensee. Whatistheprocedureifyouoryourcompanyhasaproducttolicensetoothers? You'veinventedsomething,ithasreceivedapositiveevaluation,andhasapatentpending.Ormaybeyourcompanydoesn'thavethecapitalorexpertisetomanufactureandmarketitsproducttoaglobalmarket.Inventorsoftenfinditisbettertolicensetheirtechnologyratherthantrytomanufactureandmarketitthemselves.Similarly,licensingmaybetheonlypracticalwayforacompanytomaximizethepotentialforitsexistingproducts.LicensingcompaniesinotherareasofCanadaorinothercountriesexpandsyourpotentialwhileminimizingyourriskbyusingcompaniesthathavethenecessarymanufacturingcapabilityandmarketingnetworksalreadyinplace. Licensingcanbedonebyasinglecompany,howeverifthisisnotpossible,analternativeistoconsideramulti-prongapproachtoyourlicensingwithseveralcomponentpartsbeingdonebydifferentmanufactures,finalassemblybyanother,andpossiblydistributionbyyetanother.Thismaydivideuptheriskifthemagnitudeoftheprojectisperceivedtoolargebyanyonelicensee. Licensingoutofaproduct,process,technology,etc.,willfollowmuchthesameproceduresaslicensinginorsearchingforopportunities.Youwillneedtoprepareaformalpresentationtoexplainthefunctionalityandmarketabilityoftheconceptcontainingthefollowing: letterofintroduction; picturesoftheproduct; productdescription; manufacturinginformation; productvariations; productbenefits; marketresearchresults; objectivesforyourproject;and pricingbreakdown. Yourpresentationshouldbesenttothesamesourceslistedpreviouslyinthishandout(seethepreviousheadingSearchsources),andyouwouldrequestthatnamesandaddressesoflikelylicenseesbeprovidedtoyou. Asalicensor,youwillbeexpectedtoprovidethelegalagreementthatwillensurebothpartiesarefullyawareoftheirrespectiverightsandresponsibilities,overandabovesimplydeterminingroyalties.Goodlegaladviceisusuallyrequiredtonegotiatesuchthingsas: exclusiverightstotheinvention;territoriesallocated; whatexactlyisbeinglicensed(technologytransfer,engineeringspecs,useoftrademark); whopaysforobtainingpatentsinlicensedterritories; arefutureimprovementstotheproductincludedunderthelicense; whatresourcesareavailableifthelicenseeislateonpayments; caneitherpartytransferrightsundertheagreementtoanotherparty; whobearsliabilityresultingfrominjuriessustainedfromtheproduct;and whatareterminationprovisionsoftheagreement. Determininganacceptableroyaltyrateforaproductisdifficult,asthereisnoquick-fixpercentagethatcanbeappliedasageneralmeasure.Althoughratesrangingfrom3%to8%ofnetsalesarecommon,eachlicensingagreementisuniqueandtheonlyconsensusthatmatterswithrespecttoroyaltyratesistheonethatoccursbetweenthelicensorandthelicenseeasaresultofnegotiations.Severalfactorsthatmayinfluencethepotentialroyaltyrateofalicensedproductinclude: iftheproductisalreadypatented;istheproduct"marketready";and doesthelicensorhaveatrackrecordofsuccessfulproducts. Ifyouareaninventorandwishtoapproachalargecompanywithyourinvention,youmayfindthattheyhaveveryspecificpoliciesonhowtheywillconsiderunsolicitedproposals.Yourfirstresponsefromthemwillusuallybetospelloutthetermsandconditionsoftheircorporatepolicyonsubmissions. Preparedby:GovernmentofSaskatchewan Shareon: Savethisdocument Youmustfirstbeloggedintosavethisdocument. 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