innovation and technology transfer msc. engineering policy and management of technology...

Innovation and Technology Transfer

MSc. Engineering Policy and Management of Technology

“Techniques for Obtaining and Analyzing External Licence Agreements”

Michael J. Merwin and Colleen M. Warner

Hugo Valente

Pedro Torres(Março 2003)



Resume:

Provide a guide to using unrelated licence agreements to develop a framework for negotiating a new agreement, focusing on:

- Sources of Information

- Advantages vs. Disadvantages

- Search Strategies

- Analysis Methods

Case Study

►

►



Context

Licensor

Patent, trade mark, formula…

Licensee

Manufacture

Licence Agreement



The Problem ?

Negotiating a Licence Agreement

Strategies ?

Doing a background work and being prepared.

Understanding of previous contracts: how deals are structured.

►

►

How ?



Getting Background Information

Means:

Internal Agreements

Financial Analysis

External Agreements

Past agreements modified to meet new circumstances.

To focused on the payment terms.

Based on existing agreements, including those involving other contracting parties



The Problem ?

Obtaining copies of competitor’s licence agreement

Solution ?

SEC – Security and Exchange Commission

“ any franchising or licence agreement or other agreement to use a patent, formula, trade secret, process or trade name upon which [the] registrant’s business depends to a material extent ” must be incorporated in the firm’s public filings.



Channels to access this information

DIS – Disclosure Information Services►

On-line and CD-ROM data base►

Public Filings at the SEC (Chicago, New York and Washington)►



Advantages vs. Disadvantages

. Requires fewer company resources . Can be expensive

. Available everywhere . Requires an understanding of what is available

. Requires fewer company resources . References only the most current 10-K

. Available everywhere . "Full Text" does not include exhibits

. Most thorought and comprehensive source

. Only available in a limited number of areas

. Full text copies of actual agreements . More time intensive

Advantages Disadvantages

SEC

On-line & CD-Rom

DIS

Source



Framework for Analyzing Licence Agreements

TechologyRight to use worldwide patented technology to make,use and sell FM stereo receivers and turners and FM radios.

Right to use worldwide patented technology to make and sell CD players and certain other products.

TermEffective January 1, 1988Expires January 1, 1993

Effective January 1, 1988Expires after 5 years - renews automatically for 5-year terms

TerritoryLicensor is a US corporation and Licensee is a Japonese company - no specific market area is given

Licensor is a French company and Licensee is a Japonese company - worldwide market

Exclusivity Nonexclusive Nonexclusive

Sublicence Nontransferable and nonassignableNontransferable, licensor can assign; licensee cannot assign or sublicence without consent

TerminationC lauses

Licensor can terminate for default, bankruptcy, reorganization, takeover of licence, or major force

Licensor can terminate at the end of each 5-year term; either party can terminate for default, bankruptcy, or major force

Standarts Agreement 1 Agreement 2



Framework for Analyzing Licence Agreements

Trademarks of Trade Names

No No

TechnicalAssistence

None None

Lump Sum None Equivalent of 1,1 billion yen in French Francs

Royalty

0,2% of net sales in US $ - credits given for apparatus sold in certain combination

1,3% of Net Selling Price in Francs or other currency acceptable to Licensor

Minimum None None

Relationships No other relevant agreementsLicensor waives all claims it may have against Licensee for prior use of the products

PaymentTerms

Standarts Agreement 1 Agreement 2



Case Study

- Involves a company in Mexico that manufactories casual sportswear for women and Children;

- Involves a president trip to the United States;

- Involves NAFTA (North American Free Trade Agreement) and 1996 Olympics;

- Determine the costs and conditions of negotiating a trademark licence agreement with U.S. Athletic footwear company

Business Manager



- Marketing company experienced in licensing

-Required estimates of projected sales volume, manufacturing and licensing costs

Search of public sources to identify the terms of similar license agreements(determine the royalty payments and other associated costs)

14 Agreements Analyzed

Marketing plansBasics of licensing arrangementsLegal considerationsFinancial model

?



Socks, leg and ankle warmers, head and wrist bands

Sunglasses and optical frames

Sandals and beach thongs

Men’s shirts, shorts, and sweat clothing

Skateboards

Plastic headwear, excluding children’s toy market

Adult exercise equipment

Footwear, apparel, and fashion accessories

Women’s and children’s shoes, socks, hosiery, purses, and bags

Fashion dolls, doll clothing, and accessories

Girl’s woven and knit sportswear and active wear

Junior sportswear, including fashion active wear

Socks and women’s legwarmers

T-shirts, sweat shirts and pants, and active type shorts

10

7 on multipack socks

7

10

10

10

10

10

3.5

6

10

5

6

10

10

1

2

3

4

5

6

7

8

9

10

11

12

13

14

Royalty Rate (%)Product#

Fourteen Agreements and their Royalties as Percentage of Sales



#

7

10

10

10

10

10

10

7 on multipack socks

10

3.5

6

5

6

10

10

Nontextile Agreements

Sunglasses and optical frames

Sandals and beach thongs

Skateboards

Plastic headwear, excluding children’s toy market

Adult exercise equipment

Fashion dolls, doll clothing, and accessories

Textile Agreements

Socks, leg and ankle warmers, head and wrist bands

Men’s shirts, shorts, and sweatclothing

Footwear, apparel, and fashion accessories

Women’s and children’s shoes, socks, hosiery, purses, and bags

Girl’s woven and knit sportswear and activewear

Junior sportswear, including fashion activewear

Socks and women’s legwarmers

T-shirts, sweat shirts and pants, and active type shorts

2

3

5

6

7

10

1

4

8

9

11

12

13

14

Royalty Rate (%)Product

Royalty Rate Comparison of Textile and Nontextile Agreements

~ 10% {



Five Key Factors of Various Agreements



Agreements per Royalties, Dates and Markets

# MarketDateRoyalty Rate (%)

First Time Period

Second Time Period

8

9

12

11

13

14

4

1

Indonesia, Hong Kong, Singapore

Malaysia and Philippines

Canada

Canada

Canada

U.S.

U.S.

Canada

U.S.

9/1/83

4/1/84

12/1/85

1/1/86

4/1/86

6/1/86

11/15/86

7/1/87

3.5

6

6

5

10

10

10

10 , 7



Agreements per Licensor Services and Advertising

Requirements

MarketingMerchandising Samples etc

Existência de assistência Pagamento de quantia para anúncio do produto



Report for the Company President

- Because Mexico has only a limited amount of U.S. Media exposure, the company should only be willing to pay between 5 and 6 % of sales for the use of the athletic footwear logo;

- The company should negotiate any lump-sum payments to serve as prepayments of the royalties based on net sales. In addition, the licensor will require guaranteed minimum payments; however is recommended that the company negotiates either a grace period or a low minimum for the first year;

- The company should anticipate an agreement that will have a one to three year duration with renewal options that might extend the agreement another two to six years;

- It would be possible for the company to pursue a certain level of marketing assistance and know-how from the licensor; however, it would have to be prepared to accept requirements pertaining to advertising expenditures. A cost/benefit analysis be performed (Expected advertisement payments VS Expected return from assistance)

innovation and technology transfer msc. engineering policy and management of technology...

Documents

technology transfer

engineering policy

unrelated licence agreements

washington slide

licence agreement strategies

existing agreements

new agreement

trade mark