Licensing
Licensing is an agreement offering the right to use a manufacturer’s process, trademark, patent, or trade secret by a Licensee in a foreign market. Licensing arrangements are often considered in a company’s international expansion efforts, since it offers the opportunity to generate royalties without INVESTMENT in resources or the assumption of RISK associated with market development. For a licensee, a licensing agreement provides name-brand recognition, association with foreign products, and access to proprietary technology. Licensing agreements involve many business considerations, including
• royalty structure
• licensed territory
• length of agreement
• provisions for termination
• assignment rights to third parties
• extent and timeliness of support by the licensor
• currency of payment
• protection of INTELLECTUAL PROPERTY
Licensing agreements usually state either a fixed payment per unit sold or a percentage of revenues or operating PROFIT from the sale of licensed products. Fixed- payment agreements are easier to administer but do not increase royalties as prices or profits increase. Royalties based on a share of operating profit require careful definition of what costs are included and excluded in calculating profits from licensed products. Defining the territory in which the licensee is allowed to sell the product is another important consideration. Often licensing agreements result in the creation of GRAY MARKETS, where licensed products find their way back into the market of the licensor. One new licensing issue is the sale of licensed products over the INTERNET, crossing all geographic boundaries. The WORLD TRADE ORGANIZATION (WTO) passed the Agreement on Trade-Related Aspects of Intellectual Property in 1995 to increase protection of PATENTs, COPYRIGHTs, TRADE SECRETS, and TRADEMARKs by member nations. In the United States, brand-licensing agreements tend to fall into three categories: first-tier licenses for exclusive, limited distribution products such as Calvin Klein and Ralph Lauren; second-tier licenses for more widely distributed and lower (in category) priced products, such as Guess and Nautica; and third-tier licenses for mass market products such as Adolfo and Gloria Vanderbilt. In one of the widely quoted licensing disputes, Calvin Klein sued Warnaco, complaining that its high-end image was harmed by the appearance of Calvin Klein apparel in mass-market stores.
Licensing
Licensing is an agreement offering the right to use a manufacturer’s process, trademark, patent, or trade secret by a Licensee in a foreign market. Licensing arrangements are often considered in a company’s international expansion efforts, since it offers the opportunity to generate royalties without INVESTMENT in resources or the assumption of RISK associated with market development. For a licensee, a licensing agreement provides name-brand recognition, association with foreign products, and access to proprietary technology. Licensing agreements involve many business considerations, including
• royalty structure
• licensed territory
• length of agreement
• provisions for termination
• assignment rights to third parties
• extent and timeliness of support by the licensor
• currency of payment
• protection of INTELLECTUAL PROPERTY
Licensing agreements usually state either a fixed payment per unit sold or a percentage of revenues or operating PROFIT from the sale of licensed products. Fixed- payment agreements are easier to administer but do not increase royalties as prices or profits increase. Royalties based on a share of operating profit require careful definition of what costs are included and excluded in calculating profits from licensed products. Defining the territory in which the licensee is allowed to sell the product is another important consideration. Often licensing agreements result in the creation of GRAY MARKETS, where licensed products find their way back into the market of the licensor. One new licensing issue is the sale of licensed products over the INTERNET, crossing all geographic boundaries. The WORLD TRADE ORGANIZATION (WTO) passed the Agreement on Trade-Related Aspects of Intellectual Property in 1995 to increase protection of PATENTs, COPYRIGHTs, TRADE SECRETS, and TRADEMARKs by member nations. In the United States, brand-licensing agreements tend to fall into three categories: first-tier licenses for exclusive, limited distribution products such as Calvin Klein and Ralph Lauren; second-tier licenses for more widely distributed and lower (in category) priced products, such as Guess and Nautica; and third-tier licenses for mass market products such as Adolfo and Gloria Vanderbilt. In one of the widely quoted licensing disputes, Calvin Klein sued Warnaco, complaining that its high-end image was harmed by the appearance of Calvin Klein apparel in mass-market stores.