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IP LICENSING: 11
BUSINESS
IP AND
WIPO Magazine/May-June 2003
One of the key challenges for There are four main options open arrangements that involve “licens- What is a License? ◗ the payment or other econom- will. In fact, a trademark license
businesses today is to remain to a business wanting to use IP ing in” or “licensing out” of one ic or IP assets to be given in agreement is the heart of any mer-
profitable in a slowing but assets to gain and retain its com- or more types of IP. Often busi- The word “license” simply means exchange for the license must chandising program, because it
increasingly global economy. petitive edge; it can: (1) do every- nesses do both, engaging in permission – one person grants to be clearly stated. delineates the relationship
Businesses are under pressure to thing in-house to create the need- “cross licensing,” whereby both another permission to do some- between the owner of a trade-
create new opportunities and new ed IP in stand-alone mode, (2) parties license IP to each other. thing. A license agreement is a There are many different types of mark (the licensor) and the pro-
revenue streams from existing create a spin-off or a start-up formal, preferably written docu- IP licenses, such as technology ducer of the goods or services to
assets. They often need new or business to nurture its IP in a While the mechanism of licensing ment recording the circumstances licenses, publishing and enter- which the mark is to be affixed
original innovations or creative focused manner, (3) merge with provides enterprises with a wide under which a promise is legally tainment licenses and trademark (the licensee). While the licensor
expressions to create new prod- or acquire another business variety of possibilities for improv- binding on the person making it. and merchandising licenses. is not involved in the manufactur-
ucts, enhance existing products which has complementary IP or ing their market position, it has its There are at least two essential ing of the products, he must
and explore new markets. These (4) share or team up with others pitfalls and risks. Therefore, from parties: the licensor, the party Advantages of licensing for ensure that the licensee conforms
crucial innovations and expres- to share IP assets for mutually a business perspective, it is who owns the IP and is agreeing the licensor to all conditions concerning
sions, which are increasingly beneficial results. important to weigh the advan- to let it be used, and the licensee, maintenance of the quality of the
the party who receives the right to Many companies have a portfolio product in relation to which the
use the IP in exchange for pay- of patents, utility models, propri- licensed trademark is used.
ment. Therefore, a license agree- etary know-how, trademarks and
ment is a partnership between an other IP assets that can be Similarly, licensors with experi-
IP owner (licensor) and another licensed. There are many reasons ence in the field of research and
who is authorized to use such for a company to license out product development may find it
rights (licensee) under certain some or all of the IP rights in its more efficient to license out new
conditions, usually for monetary portfolio. products rather than take up pro-
compensation in the form of a flat duction themselves. A company
fee or running royalty that is often A company that owns rights in a that owns IP rights in a technolo-
a percentage or share of the rev- patent, know-how, or other IP gy that it cannot afford to manu-
enues gained from use of the assets, but cannot or does not facture could consider licensing
invention. Simply put, a license want to be involved in the manu- out the IP rights in that technolo-
grants the licensee rights in prop- facturing of products, could bene- gy for manufacturing and selling
erty without transferring owner- fit from the licensing out of such products embodying the technol-
ship of the property. IP assets and rely on the better ogy in a specific manner for a
valuable economic assets in Most businesses and entrepre- tages of licensing against its dis- manufacturing capacity, wider specific time and region. Thus,
today’s economy, need to be pro- neurs choose to share or team up advantages in comparison with For an IP license to be effective, distribution outlets, greater local the licensor continues to have the
tected by means of the tools of the with others for mutual benefit. other alternatives for commercial- three basic conditions must be knowledge and management IP rights in the technology and
intellectual property system This can be done in various ways izing products and services. This met: expertise of another company (the has only given a defined right to
before they are revealed or such as outsourcing, joint ven- article analyzes the main advan- licensee). Licensing out could the use of that technology. An
shared. Only then can a business tures, consultancy, arms-length tages and disadvantages of licens- ◗ the licensor must have owner- also help a company to commer- example of such a business mod-
leverage these economic assets as licensing or entering into strategic ing, primarily in the context of ship of the relevant IP or cialize its IP or expand its current el is a “fabless semiconductor”
intellectual property (IP) assets for alliances for one or more business technology licensing, which gen- authority from the owner to operations into new markets more company, where the company
gaining and retaining competitive purposes. Businesses enter into erally covers patents, patentable grant a license; effectively and with greater ease uses all its resources essentially
advantage. these types of partnership inventions, trade secrets, know- than on its own. If the licensor’s for doing research, design and
arrangements as part of their how, confidential information, ◗ the IP must be protected by law trademark is also licensed for use development work.
endeavor to do everything legally copyrights in technical material or at least eligible for protection; in the market along with other IP,
and ethically possible to improve and layout-designs of semicon- then the licensee’s marketing >>>
their bottom line and sustain or ductors. Trademark licensing is ◗ the license must specify what IP efforts essentially benefit the
increase profits. Many of these sit- included to a lesser extent. rights it grants to the licensee; licensor’s reputation and good-
uations require formal contractual
12 13
WIPO Magazine/May-June 2003
For more information on various practi- His device is now sold for just over eight dollars, not only on the
cal aspects of the IP system of interest to
business and industry, please visit the Peruvian market but also in a number of other countries. It is generat- Mr. Vidal has since licensed another company to manufacture the
website of the SMEs Division at ing substantial profits for those handling its distribution as well as product in some countries, but continues to search for specialized dis-
http://www.wipo.int/sme/en/case_stud
ies/index.htm.
those able to buy it and access the technology. tributors in the field of construction in order to ensure that his product
is commercialized worldwide. In his small business, with only six
What was the secret of his success? employees, he continues to look for ways of improving his products.
The next article in the IP and While the marketing and advertising will be the most difficult stage, he
Business series will deal with the There are a number of explanations, including the inventor-entrepre- is certain there will be great interest in his product at the fairs he
issue of trademarks and domain neur’s tenacity, enthusiasm and perseverance. There were other fun- attends. He has no doubt that many small businesses will agree that
names. damental decisions that helped the process along, however; a key one his product is more practical and less expensive than the alternatives
◆ being the decision to seek protection of his invention by patent. now available.
When asked why he became interested in intellectual property pro- In the meantime, he is already working on several new products for
tection, Mr. Vidal explains: “There’s no point in my making something patent.
new if I don’t protect it. It would be a matter of just days for others to
copy my product, and then my business would no longer make sense. (For more information visit http://www.brocasjvm.8m.com/)
Obviously big companies would be able to make my bits at lower
cost, distribute them better and leave me with nothing.” ◆