SHARING IP ASSETSSHARING IP ASSETSFranchising – LicensingFranchising – Licensing

Technology TransferTechnology Transfer

PRESENTATION for WIPOJuly 2005July 2005

Suriname & St. LuciaSuriname & St. Luciabyby

WILLY MANFROYWILLY MANFROYPresidentPresident

Licensing Executives Society InternationalLicensing Executives Society International andand Bornivall Bornivall LLCLLC

Jamaica & Dominican RepublicJamaica & Dominican Republicbyby

LAWRENCE J. UDELLLAWRENCE J. UDELLExecutive DirectorExecutive Director

Intellectual Property InternationalIntellectual Property International, Ltd., Ltd.

22

DEFINING THE DIFFERENCEDEFINING THE DIFFERENCE

• FRANCHISING –FRANCHISING – Is a huge business worldwide.Is a huge business worldwide.

However, to be in a position to franchise your However, to be in a position to franchise your business, product or service, you must be business, product or service, you must be successful. successful.

You cannot convince anyone to buy a franchise You cannot convince anyone to buy a franchise unless you can show and prove that your unless you can show and prove that your

business business is providing sales and profits and greater is providing sales and profits and greater potential potential growth in the future. growth in the future.

Without a track record, how do you even decide Without a track record, how do you even decide what what to charge for a franchise? to charge for a franchise?

33

DEFINING THE DIFFERENCEDEFINING THE DIFFERENCE

• LICENSING –LICENSING –Is over $150 billion a year worldwide Is over $150 billion a year worldwide

Successful licensing requires very secure IPSuccessful licensing requires very secure IP

from issued and pending patents to trade-from issued and pending patents to trade- marks, copyrights and proprietary infomarks, copyrights and proprietary info

It can be an extremely profitable opportunity It can be an extremely profitable opportunity for an SME with the right IP portfolio, for an SME with the right IP portfolio, especially with proven products or marksespecially with proven products or marks

44

DEFINING THE DIFFERENCEDEFINING THE DIFFERENCE

• TECHNOLOGY TRANSFER –TECHNOLOGY TRANSFER –Is the process that moves a technology or Is the process that moves a technology or

IP from one entity to another IP from one entity to another

This can be from company to company or This can be from company to company or from university to company or from a from university to company or from a national lab to a company national lab to a company

In so doing, there has to be a perceived In so doing, there has to be a perceived value value that is agreed upon by both parties that is agreed upon by both parties

In almost every case, it includes royalties In almost every case, it includes royalties based upon successful commercialization based upon successful commercialization

55

Types of FranchisingTypes of Franchising

• Franchising is a highly regulated Franchising is a highly regulated industryindustry

• Rules and regulations are important Rules and regulations are important in in order to protect both partiesorder to protect both parties

• There exist franchise associations There exist franchise associations aimed aimed at protecting the interests of at protecting the interests of their their constituenciesconstituencies

66

Types of FranchisingTypes of Franchising

Franchising

Manufacturin

g

Franchise

s

Service Franchise

Busines

s For

mat

Fran

chise

Distribution Franchise

77

IP Issues in FranchisingIP Issues in Franchising• Clarity on IP issues is Clarity on IP issues is

paramount paramount

- Identify IP rights involved- Identify IP rights involved – Check national IP lawsCheck national IP laws– How secure are the IP rights How secure are the IP rights

(no infringement case)(no infringement case)– What is the value of IP assets & What is the value of IP assets &

is it worth the investment?is it worth the investment?– Contact existing and past Contact existing and past

franchisees and ask them about franchisees and ask them about IP related costsIP related costs

88

IP Issues in Franchising-IP Issues in Franchising-cont.cont.

– Check the duration of protection of Check the duration of protection of involved IP assets (don’t want to be involved IP assets (don’t want to be tied by the agreement while IP tied by the agreement while IP

protection has expired)protection has expired)– Are there any competing IP Are there any competing IP

protected protected comparable comparable products in the market products in the market (are they (are they also franchised)also franchised)

– Study the effect of the arrangement Study the effect of the arrangement to your future growth? Do you to your future growth? Do you

intend intend to develop your own IP to develop your own IP assets? assets?

99

IP Issues in Franchising cont.IP Issues in Franchising cont.• Check whether previous Check whether previous

business relationships business relationships have IP related have IP related obligations/constraintsobligations/constraints

• Check on methodology of Check on methodology of certifying products, certifying products,

involves additional costsinvolves additional costs

• Are you ready to take IP Are you ready to take IP responsibilities?responsibilities?

1010

Role of Technology Transfer in Role of Technology Transfer in Economic DevelopmentEconomic Development

Increase in physical stock of productive andIncrease in physical stock of productive and innovative resourcesinnovative resources Further exploitation of economical resourcesFurther exploitation of economical resources

- natural resources- natural resources

- manpower- manpower- innovation- innovation- physical resources- physical resources

Productivity increaseProductivity increase- labour- labour- capital- capital- natural resources- natural resources- innovation capacity- innovation capacity

1111

Continuum from purely internal to Continuum from purely internal to purely external …purely external …

Seizing tacit knowledge

Internal R&D

Internal R&D with networking

Reverse engineering

Technology transfer and absorption

Contract R&D

R&D strategic partnership

Licensing

Purchasing

Joint venture

Acquisition of company with technology

1212

Choosing the best source option Choosing the best source option for your company …for your company …

Assess the advantages and disadvantages Company technological growth

Exclusivity/competitive advantage

Company capability

Time to market

Risk of failure

Costs/affordability

Consider all and choose the

best overall option

1313

Stage-gate ProcessStage-gate ProcessIDEAIDEA

GENERATIONGENERATION

Initial Screening

Preliminary MarketAssessment

Preliminary TechnicalAssessment

PR

OJE

CT

G

RA

VE

YA

RD

PR

OJE

CT

G

RA

VE

YA

RD

Concept Generation(technical)

PreliminaryEvaluation

Concept IdentificationMarket study

Concept TestMarket study

Development ofMarketing plan

Concept Evaluation Product Development

(engineering designAnd prototypes)

NO GO

GO

GO

GO

NO GO

NO GO

1414

Stage-gate Process (continued)Stage-gate Process (continued)

Evaluation

Prototype TestWith Customers

Prototype TestingIn-House

PR

OJE

CT

G

RA

VE

YA

RD

PR

OJE

CT

G

RA

VE

YA

RD

FinalizationOf Design

Evaluation

Finalization ofMarketing Plan

Test Market

Market Launch

Pre-CommercialBusiness Analysis

FullProduction

NO GO

GO

GO

GO

NO GO

NO GO

Trial Production

Post-Launch Evaluationand Control

1515

Problems in the implementation of Problems in the implementation of technology development projects technology development projects

Understanding costs, risks, benefits

Protect the trade secrets

Understanding the application

Lack of appropriate measures

GO/NO-GO decision making

Communications

Management commitment

Slipping schedule

1616

Tech Transfer Concepts Tech Transfer Concepts

Technology implementation is a PROJECT with a

beginning and an end

Effective, cross-functional CORE TEAMS are needed

to direct and empower teams

Action-oriented PHASE REVIEWS are needed to

direct and empower teams

Concisely documented STRUCTURED DEVELOPMENT

PROCESS is needed to provide teams with a

common road map

Integrated set of DEVELOPMENT TOOLS and

TECHNIQUES improve project speed and

efficiency

1717

Why are you Licensing?Why are you Licensing?

Optimize Intellectual Assets return Optimize Intellectual Assets return Optimize R&D resourcesOptimize R&D resources Strategic decisionStrategic decision Establish standardsEstablish standards Entering or exiting a businessEntering or exiting a business Freedom of actionFreedom of action Compulsory licenseCompulsory license Protect a business positionProtect a business position

1818

Licensing Process StepsLicensing Process Steps

InputInput Need identificationNeed identification

SourcingSourcing

AssessmentAssessment

NegotiationNegotiation

FinancingFinancing

Transfer of Transfer of TechnologyTechnology

ImplementationImplementation TerminationTermination

OutputOutputInventionInvention

Secrecy agreementSecrecy agreement

Option agreementOption agreement

AgreementAgreement

Management approvalManagement approval

Review of documents, Review of documents, Intellectual PropertyIntellectual Property

Amendment - Royalty Amendment - Royalty reportsreports

1919

Types of Agreements involved in Types of Agreements involved in LicensingLicensing

Preliminary agreements

IP rights agreements

Developments and collaboration

agreements

Implementation agreements

2020

General Principles of AgreementsGeneral Principles of Agreements

Take the business perspectiveTake the business perspective Define the issuesDefine the issues Prepare before you negotiatePrepare before you negotiate Communications internal & externalCommunications internal & external Negotiate before you draftNegotiate before you draft Use a mirrorUse a mirror Plan before you signPlan before you sign Use appropriate resources when neededUse appropriate resources when needed Be flexible and fairBe flexible and fair Take your timeTake your time

2121

The WIN-WIN ApproachThe WIN-WIN Approach(Principled negotiation)(Principled negotiation)

Contract should be correct, fair and balanced

Play role reversal

What could reasonably go wrong

Minimize litigation potential

Establish close post agreement cooperation

Contract is only as good as the parties

are willing to implement it

2222

Licensing StepsLicensing Steps

Identify and define technologyIdentify and define technology

Evaluate potentialEvaluate potential

Identify targets ( in or out )Identify targets ( in or out )

Plan and prepare approach to targetsPlan and prepare approach to targets

Negotiate the agreementNegotiate the agreement

Transfer the technologyTransfer the technology

Monitor the licenseMonitor the license

Terminate the dealTerminate the deal

2323

Grant Grant andand Exclusivity Exclusivity

Scope and Field of useScope and Field of use

ExclusivityExclusivity

ExclusiveExclusive

Non exclusiveNon exclusive

Rights of licensorRights of licensor

2424

Commercial ConsiderationsCommercial Considerations

Terms - Running royalties ( fixed,sliding,capped)

- Minimums

- Down-payments/milestones/installments/

options (creditable or not)

- Basis of computation of payment calculations

( net sales , volume)

- Penalties and effects for late or insufficient payment

2525

General Commercial TermsGeneral Commercial Terms

Duration - Limited

- Life of patent(s)

- Multiple countries

- Know-how

- Restrictions by European Union

Scope - Territory

- Quantity

- Make, have made, use, sell

2626

Valuing The TechnologyValuing The Technology

CostsCosts - Avoidance- Avoidance - Development- Development

MarketMarket - Comparables- Comparables

BenefitBenefit - Share of future benefits- Share of future benefits - Avoidance of payments- Avoidance of payments

2727

Valuation by Technology typeValuation by Technology type

Market

Cost

25%Rule

NPV

Early stage

X

X

Process

X

X

X

Product

X

X

X

Cost savings

X

X

2828

Valuation of Intellectual PropertyValuation of Intellectual Property

Objectives Market Cost 25%Rule NPV

InternalValuation X X X

Licensing(voluntary) X X X

Licensing(coercive) X

Alliances X X X

Costsavings X X X X

2929

Technical and Engineering Technical and Engineering AssistanceAssistance

Scope

Cost

Duration

Training issues

Liabilities and performance guarantees

Personnel

3030

ImprovementsImprovements

Grant back

Grant forward

Cost/Reward

Impact of future IP

Ownership of future IP

Limitations by governments

3131

Criteria

Strategic Fit

Competitive Intelligence (Gap Analysis)

Due Diligence

Negotiations

Final Due Diligence

Integration

Objectives

Initial Review

Opportunity

Corporate Development

R & D Marketing

Approval to Proceed

External Partner

Confidentiality Agreement

Business Development

Management Approval

Business, Corporate, Legal

Stakeholder Review & Approval

Tech Transfer Team

Contract Signing

Implementation Team

Corporate Development

Internal Opportunity Assessment

External Fact Finding

Assessment

Letter of Interest

Contract

Tech Transfer

Monitoring

3232

ADVANTAGESADVANTAGES

• FRANCHISING:FRANCHISING:Can be extremely profitable if you have all Can be extremely profitable if you have all

the right ingredients to start the right ingredients to start

• LICENSING:LICENSING:Greater opportunity for sales and profits Greater opportunity for sales and profits

with with the right licensees the right licensees

• TECHNOLOGY TRANSFER:TECHNOLOGY TRANSFER:If the IP has good success potential, then If the IP has good success potential, then this is a profitable way to go this is a profitable way to go

3333

DISADVANTAGESDISADVANTAGES• FRANCHISING:FRANCHISING:

Without the proper preparation and accurate Without the proper preparation and accurate records, you have no reason to attempt it records, you have no reason to attempt it

• LICENSING:LICENSING:If the IP portfolio is significant and free of any If the IP portfolio is significant and free of any

potential litigation, the SME could make a lot potential litigation, the SME could make a lot more more money over a long period of time with far less money over a long period of time with far less riskrisk

• TECHNOLOGY TRANSFER:TECHNOLOGY TRANSFER:Without the right research, you may be giving Without the right research, you may be giving

away away the future and profits the future and profits