A corporation is given permission to produce, promote, and sell another company’s products in a foreign nation through the procedure of international licensing. This kind of arrangement is required for 2 businesses that are located in different countries. A license to manufacture and sell goods internationally is granted by the company that owns the product or the intellectual property. Foreign entrepreneurs agree to pay royalties for each sold item to the property owner in exchange.
The fundamental benefit of international licensing is that, like financial services licenses, it has lots of benefits for the company: it enables entrepreneurs to access new markets, saving money needed for establishing their production and distribution facilities internationally. Moreover, this agreement enables businesses to benefit from foreign producers who might be able to produce goods with fewer costs. Companies must take into account numerous factors, including how much they will be paid and what restrictions would apply.
Types of Licensing Agreements
There are several types of licensing agreements:
- Patent licensing: Innovation and research are covered under patents. Patent owners license their inventions to get them produced and sold internationally. In most cases, those who can readily manufacture and market patented goods and those who create innovative products are different companies/individuals.
- Trademark licensing: Company names, logos, and slogans are examples of trademarks that indicate commercial origins. Trademark licenses enable owners to grant other parties access to their intellectual property. Often companies/individuals who own or trademarks provide licenses to those who produce different kinds of goods, such as apparel and food.
- Trade secret licensing: Being unregistered with the government makes trade secrets special. Non-disclosure agreements, often known as NDAs, are frequently included in these contracts. According to NDAs, the person obtaining certain secret information isn’t permitted to disclose it to third-party companies/individuals.
What’s more, licensing agreements can be exclusive and non-exclusive. The first type creates a unique relationship between parties because only one particular stakeholder has the right to access the provided intellectual property. Obtaining a non-exclusive alternative means that several companies/individuals are allowed to use the IP for commercial purposes.
Benefits of Licensing Agreements for Businesses
Both licensors and licensees access numerous benefits after issuing a licensing agreement.
The main benefits the licensor gets:
- Utilizing the licensee’s distribution network to swiftly expand into new regions and audiences located in different parts of the globe with no need to learn about the legal framework of other countries;
- Gaining access to the licensee’s knowledge and abilities brings a competitive advantage compared to companies working in a different way;
- Due to an agreement, it’s possible to generate passive income via royalties.
The main benefits the licensee gets:
- accessing the well-known intellectual property and being able to join the market much faster;
- no need to spend money on research and development to create goods and provide services via a franchise;
- the ability to generate income through selling high-quality IPs created by an expert team.
To ensure the technology transfer is smooth and all the benefits are met, contact Thales Capital professionals:
Email: [email protected]
Address: 2 Place de Strasbourg L-2562 Luxembourg
Risks and Challenges Associated With Licensing Agreements
However, both sides can also face risks while issuing licenses. Licensors should understand that selecting a partner who eventually lowers the IP value is a significant risk. For proper risk management, agreements frequently include warranties, morality clauses, and similar provisions.
A licensee also assumes risks. Understanding the IP value you just paid for is their primary goal. It means that the license’s scope is also essential to the licensee.
Key Factors to Consider When Negotiating a Licensing Agreement
During a negotiation, parties must consider:
- if the license is exclusive or not;
- how the licensee will ensure revenue sharing to pay royalties;
- how long the agreement will last.
To ensure all the contractual terms are negotiated, it’s better to work with experts who know all the details about licensing and how it works in international business.
Overall, licensing intellectual property is beneficial for both parties if it’s done with the appropriate partners and under the appropriate conditions. However, companies must always take into account probable negative consequences to prevent unpleasant surprises. So, if you need assistance in negotiating cross-border agreements or have any questions, don’t hesitate to contact experts.
Interesting Related Article: “The Cost of Ignoring Intellectual Property: A Small Business Perspective“