The licensing agreement is a complex legal document beginning with the identification of contractors and the dates of the contract. It defines the object subject to license, including patents and trade secrets. The provisions or rights of the licence are also specified, for example. B if it grants exclusive rights or is subject to other agreements. Possible restrictions, such as . B territorial and quantitative restrictions will also be fixed. A final section may indicate the duration, termination and related provisions of the agreement. For a multinational, the advantage of licensing lies in the fact that the company`s products are manufactured and sold abroad (or in countries where the product or service is licensed). The multinational is not obliged to devote its resources to the production, market or distribution of products.
These low costs are obviously linked to lower potential returns, since revenues are shared between the parties. For example, a U.S. company would generally avoid the tariffs and taxes that a foreign country must pay on imported goods by having the products produced by a company in that country. The costs of shipping goods abroad are also eliminated and can help make products more affordable for consumers. In summary, a licensee in the country of origin provides limited rights or resources to the taker in the host country in this mode of entry into the foreign market. Rights or resources may include patents, trademarks, management capabilities, technologies and others that may allow the licensee to manufacture and sell in the host country a similar product that the licensee has already produced and sold in his country of origin, without the licensee having to open a new operation abroad. The licensee`s revenues are usually in the form of one-time payments, technical fees and royalties, usually calculated as a percentage of revenue. Licensing can also be done for the use of a trade name, for the distribution of imported products and for a service.
7-Eleven is considered the leader in licensing the convenience industry and signed its first licensing agreement in the United States in 1968. From a commercial point of view, the license is a contractual agreement in which a licensee allows a licensee to use patents, trademarks, trade secrets, technology or other intangible assets for royalties. Licensing can also be described as a technology transfer strategy and a concept of internationalization that requires less time or less participation in foreign markets than exports, joint ventures and foreign direct investment. From a tactical point of view, licensing is often seen as the tool that increases the value of intellectual property rights. Licensing gives the licensee certain rights or resources for the production and/or marketing of a particular product in a host country. Licensing is increasing as manufacturers and retailers work to expand their core business and change their strategies to include more licenses. For example, Merck and Upjohn have authorized organizations in other parts of the world to manufacture and sell their pharmaceuticals. Other companies using licensing agreements in this way are McDonald`s, Nestlé, Anheuser-Busch and KFC.
The effectiveness of a foreign licensing agreement often depends on the ability of the foreign company to meet the requirements of the agreement. Small businesses, which often do not have the resources to explore foreign companies on their own, can use the services of government agencies such as the International Trade Administration`s Strategic Partnership Program to help them find qualified partners in other countries.