Importance of Licensing in International Business

Licensing is a way to bring a brand into new lines of business, new geographic markets, and new distribution channels that would otherwise not be available without major investments in new manufacturing processes, machinery or equipment, while retaining control of the brand image. A well-known fashion brand that introduces its name in natural extensions such as leather accessories, shoes, perfumes or home textiles. Expansion of a corporate brand into new categories, areas of a store or into new stores. Licensing is a way to bring a brand to new businesses without making significant investments in new manufacturing processes, machinery or equipment. In a well-managed licensing program, the owner retains control of the brand image and its representation (via the approval process and other contractual restrictions), but ultimately benefits from additional revenue (royalties), but also exposure in new channels or store aisles. Here are some examples: When deciding whether or not to license intellectual property to another company, it`s important to weigh the pros and cons. If the licensee has a good reputation and effectively markets your product, the risks are lower and a licensing agreement could be beneficial. Your company`s intellectual property is one of its most valuable assets, and it`s important to protect it. However, there may be instances where it is advantageous to let other companies use your patents, trademarks, and other intellectual property rights. Licensees lease the rights to a particular property for incorporation into their assets, but traditionally do not share ownership. Nevertheless, licenses offer them a number of important features. A licensee can benefit from this type of agreement because they need less money to open a business opportunity.

You can buy a license instead of direct ownership and then make a profit immediately. It takes less upfront money to pay for a license. If a licensee can improve a product, they can make even more money from their business. Even if the item you want is a brand or brand name, the new business benefits from consumer reputation and information awareness. Since this type of entry involves a strong transfer of knowledge between the parent company and the licensee, the decision to enter into an international licensing agreement depends on the respect shown by the host government for the IP and the ability of the licensor to select the right partners and avoid them competing in each other`s market. Licensing is a relatively flexible working arrangement that can be tailored to the needs and interests of both the licensor and the licensee. Here are the main benefits and reasons for using international licenses for international expansion: Bottom line: Well done, there are many advantages to international licensing and I invite you to read Aaron`s full article here. Licensing allows people to become self-employed. You`ll experience all the benefits of being self-employed, such as setting your own hours, while having the benefits of having someone invest in your intellectual property. From a licensee`s point of view, it is possible to obtain a monopoly on a product or service in a given territory at a lower investment interest rate than the single one.

From the licensor`s perspective, personal intellectual property has the same benefits. Licensing is intended to reduce the risks associated with commercial activities for all parties involved. From the licensee`s perspective, there is less risk in product development, market testing, manufacturing and distribution. From the licensor`s perspective, there is less risk in selling and managing supply. Neither side is forced to throw their own money into these areas to make a profit, creating a win-win situation for everyone involved. The pros and cons of licensing can be managed if both parties do their due diligence before agreeing to anything. A licensing agreement can be beneficial because both parties have the opportunity to make a profit. It can also be detrimental if a license is overapplied or if one of the parties acts in bad faith. Intellectual property has an easier time crossing national borders than physical products, making licensing an excellent way to penetrate foreign markets. You don`t have to worry about tariffs or other hurdles because you don`t ship products overseas.

You only let foreign companies use your IP. 6. The Licensor is protected against product liability if the license agreement is correctly drafted. Aaron then lists a dozen (!) Blog posts about Chinese law “as a useful resource” for those considering licensing technology to China. Out of this dozen, I suggest you take a look at the following five most recent: Although they focus on China, almost everything written in the five articles above directly relates to any international licensing transaction. One of the biggest problems licensors face with licensing agreements is the licensee`s refusal to validate license statements. They may not let you verify the accuracy of their statements. This allows you, as the licensor, to take legal action, but it usually becomes very expensive, very quickly. For this reason, arbitration clauses become a common part of licensing agreements. Some even require ongoing audits of license billing as a condition of licence continuance. 4. What conditions justify the premature termination of the license agreement? In order to maximize the outcome, each participant in the licensing process has certain responsibilities.

Each agreement between the parties to the license is unique in its specificities, so even these responsibilities vary to some extent. 5. License fees and other payments. Most licensing agreements involve upfront payments, which are generally non-refundable royalties used to compensate the licensor for the licensee`s investigation and documentation costs, and which may or may not be deducted from future royalties.