9

LICENSING OF
INTELLECTUAL
PROPERTY
 WHAT IS INTELLECTUAL PROPERTY?

 Intellectual property (IP) is a form of intangible property

in ‘creations of the mind’.
INTRODUCTION

 Law grants intellectual property rights (IPR) over only

certain kinds of ‘intellectual creations’: e.g.

 technology (e.g. computer code)

 artistic works (graphic, musical, performance, etc)
 technical schemes and drawings e.g. circuit layouts
 scientific inventions
 business processes.

2
 WHAT IS INTELLECTUAL PROPERTY?

 Owners of IPR may:

 use
INTRODUCTION

 make income from

 sell

 license

all or part of their interest in the IP.

 Transfer of IPR is the most rapidly growing form of

international business.
3
 INTERNATIONAL CONTEXT

Transfer of technology across national borders is intensely

debated:

1. advanced developing countries (e.g. China, India, Brazil)

want access to (expensive) technology usually owned by
INTRODUCTION

companies in developed/industrialised countries) to

produce products which are competitive on the global
market.

2. ‘stealing’ leading edge technology is common among

industrialised countries -
e.g. attempted theft of IBM computer technology by
Japanese companies (Mitsubichi, Hitachi): allowed
Soviets to use the technology to make quieter submarine
propellers.
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 IPR UNDER NATIONAL LAW

 IPR are created and regulated under national law

 Legal protections apply within a national territory

INTRODUCTION

How do you protect your IPR when you are doing

business internationally?

5
 IPR UNDER INTERNATIONAL LAW
 Some national IPR are recognised – and protected -
under international law: e.g.

 Berne Convention on Protection of Artistic and

INTRODUCTION

Literary Works (1886)

 Paris Convention for Protection of Industrial

Property (1967)

 Agreement on Trade-Related Aspects of Intellectual

Property 1995 (TRIPS)

 World Intellectual Property Organisation (WIPO):

facilitates international IPR protection e.g. maintains
international register of IPRs and single application
process. 6
 TRIPS
GATT 1994 extended GATT principles to trade-related
intellectual property rights under TRIPS:

 increased transparency: countries to make clear and

INTRODUCTION

stable rules for foreign parties to protect their IPRs

 most favoured nation principle: TRIPS countries must

ensure that holders of IPRs of any other country are
given no less favourable treatment than IPR holders of
any other country

 national treatment principle: TRIPS countries must treat

foreign holders of IPRs in the same way as domestic
ones.

7
2
FORMS OF IP
PROTECTION
 TYPES OF INTELLECTUAL PROPERTY

What are the 4 main types of intellectual property?

FORMS OF IPR

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 TYPES OF INTELLECTUAL PROPERTY

1. Copyright protects creator’s rights in creative works

(artistic, literary, musical, technical)

Patent: protects ‘new’ invention

FORMS OF IPR

2.

3. Trademark: protects words, images or symbols used in

commerce to identify and distinguish products in the
market.

4. Trade secrets / know how: limited protection for

‘secret’ commercially valuable information.

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 WHAT IS COPYRIGHT?
 Protects:
 original works
 in a tangible (recorded) form
from unauthorised use (copying, distributing or
COPYRIGHT

modifying).
 Copyright is recognised on creation of the work – but
 can also be registered in many countries
 in some countries registration is mandatory.
 No international copyright protection – copyright
owners must apply for registration in each country
where they want protection.
11
 COPYRIGHT UNDER INTERNATIONAL LAW
 TRIPS requires all GATT-WTO member states to sign the
Berne Convention:

 Berne Convention grants copyright protection for

minimum 50 years
COPYRIGHT

 Covers literary, dramatic, musical, choreographic, pictorial,

motion picture and architectural works, including:
 literary works (including computer software,
programs, databases) protected until 50 years after
death of author
 Audi-visual works (photos, cinema, sound
recordings) protected until 50 years after
publication.
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 COPYRIGHT UNDER INTERNATIONAL LAW cont’d

Universal Copyright Convention (1952):

 grants right of ‘national treatment’ to copyright
owners
 no need for foreign copyright owners to register
COPYRIGHT

copyright if they give adequate notice of their rights:

e.g.
© 2019 Big Bird Inc.

Note: some member states have opted-out of this

provision e.g. in the US, registration of copyright is
required.

13
 WHAT IS A PATENT?

 An exclusive right granted for an invention which is:

 a product or a process

 a new way of doing something or a new

PATENTS

technical solution to a problem:

i.e. it is not ‘prior art’ (part of the body of

knowledge in the field )

 Patents are protected once registered.

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 REGISTERING A PATENT

 The first person to register a product or process is given

monopoly rights under patent law.

 To register a patent:
PATENTS

 submit application to national Patents Office

 include technical details about the invention
 details are put on public register so anyone can
see it and can challenge the application if they
consider the knowledge:
1. already exists and/or
2. has already been patented.
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 NATIONAL PATENT PROTECTION
 Under Paris Convention, member state laws must protect:
 new, inventive products and processes capable of
industrial application in any field of technology,
including pharmaceuticals and agricultural products
PATENTS

 for at least 20 years (subject to payment of

maintenance fees – if not paid, patents will lapse).

 Patents grant exclusive rights within a national territory

– i.e. a monopoly which prevents others from
commercially exploiting the patented invention in that
country.

 Note: EU has created a Unitary EU Patent - an

alternative to registering 27 member state patents.
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 INTERNATIONAL PATENT PROTECTION
 No international recognition of national patents:
separate patent applications required for each country.

 Paris Convention: rules for treatment of foreigners

under patent laws of member states:
PATENTS

 ‘right of national treatment’ prohibits discrimination

against foreign holders of local patents

 ‘right of priority’ are granted to foreign patent

holders who file a patent application in the foreign
country within 12 months of their home country
application.

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 WHAT IS A TRADEMARK ?
 A word, expression, symbol, logo, image or design used to
identify and distinguish the products of one business
from others.
 Trademark law also protects other types of distinctive
TRADEMARKS

marks:
1. Service marks: same as a trademark but for services

2. Certification marks: identify goods or services that

meet a particular standard (quality, content,
manufacturing method, etc)
3. Geographical mark (country of origin): identifies
goods originating in a specific region (attributed with a
particular reputation, quality, etc)
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 TRADEMARK PROTECTION
 Not limited to a specific period (cf. copyright, patents):
duration of protection depends on actual commercial use:
it can last forever.

 Trademarks can be registered – not usually mandatory.

TRADEMARKS

Animal Crackers ™ = unregistered

Apple ® = registered
 Advantages of registration:
 gives notice to the public of the mark
 get exclusive rights to use the mark for specific
categories of products or services
 get priority over other non-registered or later
registered marks 19
 TRADEMARK PROTECTION

 Advantages of registration:

1. gives notice to the public of the mark

TRADEMARKS

2. registered owner gets exclusive rights to use the

mark for specific categories of products or
services

3. registered owner gets priority over other non-

registered or later registered marks

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 INTERNATIONAL TRADEMARK PROTECTION
 TRIPS: trademark protection for minimum of 7 years-
renewable indefinitely
 Paris Convention:
1. unused trademarks expire after 3 years (unless non-
TRADEMARKS

use is due to events outside the holder’s control e.g.

import restrictions or government regulations)
2. grants holders a right of priority to register their
trademarks in foreign countries (but must apply
within 6 months after registration in home country)
3. owners of ‘well-known’ trademarks can block or
cancel unauthorised registration in another country.
 WIPO facilitates registration in multiple countries through
a single registration form under the Madrid Agreement.
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 INTERNATIONAL TRADEMARK PROTECTION

 Paris Convention:

1. unused trademarks expire after 3 years (unless due

to events outside owner’s control e.g. import
TRADEMARKS

restrictions or government regulations)

2. gives holders a right of priority to register their

trademarks in foreign countries (if they apply in the
foreign country within 6 months after registration
in their home country)

3. owners of ‘well-known’ trademarks can block or

cancel unauthorised registration of a mark in
another country.
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 TRADE SECRETS and KNOW-HOW

 TRIPS: member states must give perpetual protection to:

1. trade secrets (scientific/technical information)
TRADE SECRETS

2. know-how (general commercial expertise)

only as long as they are kept secret.

 Know-how is also a form of commercially valuable

knowledge which can be protected under:

 national trade secret laws or

 private contract (confidentiality clauses).

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 REMEDIES FOR BREACH OF IPRS

 REMEDIES for breach of copyright, trademarks and

patents vary from country to country.

 Include:
REMEDIES

 Injunctions (order to prevent someone doing

something e.g. using a protected product,
mark,work, process, etc)

 damages (compensation)

 seizure of counterfeit or pirated goods (e.g. by

customs officials)

BUT in some countries, little practical enforcement of

IPR.
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3
LICENSING OF IPR
 LICENSING OF IPR

Commercial use of IPR covers a range of transactions –

e.g.

 research and development in a foreign country

LICENSING

 giving rights to use technical information to a

foreign subsidiary or joint venture for a specific
project

 commercial licensing arrangements: owner gives

rights to a foreign licensee to manufacture, market
and/or sell owner’s products.

26
 LICENSING OF IPR

 Most common legal mechanism involving the transfer

of IPR to another party:

 licence agreement (contract)

LICENSING

e.g. to use IPR in manufacture and/or sale of

goods or services

 for a licence fee – payable as:

 a lump sum, or

 royalties calculated on volume (% of the

number of products manufactured or sold).
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 LICENSING

 Advantages of licensing: fewer legal and financial

risks than direct foreign investment – e.g.

1. avoid tariffs and customs duties

LICENSING

2. avoid obligations under tax, employment and

environmental laws

 Disadvantages of licensing: IPR holders may lose

control over confidential information – risk of losing
their competitive advantage if a licensee/transferee
discloses the information.

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 REGULATION OF LICENSING

 Regulation of licensing varies from country to country

 Especially in developing countries: national laws try to give

more rights to the licensee and therefore benefit the local
economy (e.g. promote local technological development).
LICENSING

 Regulations can include:

 government review and approval of licence terms
 registration of licence agreement
 prohibition of certain terms considered to be:
- anti-competitive (e.g. EU)
- disadvantageous to the licensee or local economy
(especially in developing countries) 29
 LICENSING REGULATION IN EU
EU competition laws restrict some licence terms e.g.

 a licence cannot prohibit the licensee accepting passive

(unsolicited) sales from a customer outside the
exclusive territory.
LICENSING

 a licence cannot prohibit a licensee selling parallel

imports: i.e. where the licensee exports licensed
products to a customer within the licensee’s exclusive
territory who then on-sells them to customers in (a) the
licensee’s exclusive territory, or (b) the licensor’s or
another distributor’s exclusive territory, at a lower price.

 tying clauses: a licensor cannot require the licensee to

buy materials only from specific suppliers (except to
ensure quality control of the products).
30
4
SAMPLE LICENCE
TERMS
 COMMON LICENCE TERMS
 Grant clause (defines licensee IP rights; exclusivity; grey
market/parallel imports; reservation of rights)
Best efforts clause (minimum sales and/or marketing spend)
LICENSING AGREEMENTS


 Payment (calculation of royalties; guaranteed consideration)
 Grant-back (licensee improvements– title and right to use)
 Term (duration; option to renew)
 Termination (mutual - both parties; unilateral – licensor only)
 Post-termination (non-compete: duration and territory)
 Confidentiality (including licensee’s key personnel)
 Intellectual property rights (
 Compliance with laws (usually licensee’s obligation)
 Limitation of liability (e.g. product liability; breach of third
party IP)
 Boilerplate (standard) clauses (entire agreement, applicable
law, dispute resolution, etc) 32
 1. Royalties
1.1 Guaranteed Consideration: The sum of $ ____ is
payable upon the following dates: _________. These
sums as set forth above shall be applied against such
SAMPLE LICENCE TERMS

royalties as become due to the Licensor. No part of

such Guaranteed Consideration shall be repayable to
the Licensee.
1.2 Royalty Payments: The Royalty Rate shall be five
percent (5%). The Licensee shall pay a sum equal to
the Royalty Rate of all Net Sales by the Licensee of
the Licensed Product.
1.3 Net Sales shall mean gross invoice price billed to
customers, less actual quantity discounts and actual
returns (actual returns are not to exceed 5%).

33
 2. Accounting and Record-keeping
2.1 Within 30 days of the end of every month, the Licensee
shall furnish to the Licensor complete and accurate
statements certified by an officer of the Licensee with
SAMPLE LICENCE TERMS

respect to the number of units sold, their gross sale prices,

and itemized deductions from the gross sale prices.
2.2 The Licensee shall maintain and preserve records relating to
the Licence at its principal place of business for at least 2
years following termination or expiration of the Licence
Term or any Renewals. These records shall include, without
limitation, purchase orders, inventory records, invoices,
correspondence, banking and financial records, and any
other records pertaining to the Licensed Products. Such
records and accounts shall be available for inspection and
audit at any time during or after the Licence Term during
reasonable business hours and upon at least three business
days’ written notice by the Licensor.
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 3. Indemnification
3.1 The Licensor shall indemnify the Licensee and hold it
harmless from any loss or liability arising out of any claims
brought against the Licensee by reason of the breach by
SAMPLE LICENCE TERMS

the Licensor of the warranties and representations stated

within this Licence Agreement.
3.2 The Licensee shall indemnify the Licensor and hold it
harmless from any loss or liability arising out of any claims
brought against the Licensor by reason of the Licensee’s
breach of any provision of this Licence Agreement including
any unauthorised use by the Licensee, any improper use of
trademarks, copyright, patent, design, or process not
specifically granted or approved by the Licensor, any non-
compliance by the Licensee with laws or regulations, and
for any defects attributable to the Licensee’s production of
the Licensed Products.
35
 4. Quality Control
The Licensee agrees to strictly comply and maintain
compliance with the quality standards, specifications, and
SAMPLE LICENCE TERMS

rights of approval of the Licensor in respect to any and all

usage of the Licensed Property. Any modification of the
Licensed Product must be submitted in advance for the
Licensor’s written approval as if it were a new product.

36
 5. Warranties
5.1 The Licensor warrants that it has the right to licence the
Licensed Products, including any patents, copyrights, or
trademarks, in accordance with the provisions of this Licence
SAMPLE LICENCE TERMS

Agreement. The making of this Licence Agreement does not

violate any agreement or rights of any other person, firm or
corporation.
5.2 The Licensee warrants that it will not harm, misuse, or bring
into disrepute the Licensed Property. The Licensee will
manufacture, sell, and distribute the Licensed Products in
accordance with the terms of this Licence Agreement, and in
compliance with applicable government regulations and
industry standards. Upon reasonable notice, the Licensee shall
permit the Licensor to inspect testing records and procedures
with respect to the production and sales of the Licensed
Products for compliance with applicable quality standards and
for compliance with applicable governmental, regulatory,
industry and certification standards. 37
 6. Confidentiality
The Licensee warrants that it will use its best efforts to
maintain the confidential nature of all proprietary
SAMPLE LICENCE TERMS

information and to prevent unauthorised access,

reproduction, use or disclosure of that information. It will
restrict access to key employees on a need-to-know basis.
In furtherance of this obligation it shall:
(a) maintain all copyright notice, trademark notice and
other proprietary markings; and
(b) not copy or reproduce the proprietary information
except as authorised under this agreement.

38
 7. Copyright and Trademark Protection (Infringement)
7.1 The Licensee shall cause to be imprinted on each Licensed
Product sold under the Licence Agreement, and on all
advertising, promotional, and packaging material, the proper
SAMPLE LICENCE TERMS

copyright notices and trademarks as instructed by the

Licensor.
7.2 The Licensee shall promptly notify the Licensor in writing of
any infringements by others of the Licensed Property.
7.3 The Licensee shall assist the Licensor at the Licensor’s
expense in the procurement, protection and maintenance of
the Licensor’s rights in the Licensed Property.
7.4 The Licensee agrees to cooperate with the Licensor in
connection with any claims or suits relating to infringements
on the Licensor’s property rights.

39
 8. Assignment and Subletting
This Licence Agreement is personal to the Licensee. The
Licensee shall not sublicense, franchise, assign, or delegate to
third parties any of the right acquired hereunder. Neither this
SAMPLE LICENCE TERMS

Licence Agreement nor any of the rights hereunder hall be

sold, transferred, or assigned by this Licensee.
9. Independent Contractor
The Licensee is an independent company. Nothing in this
Agreement is intended to represent that the Licensee is to
act as an agent or partner of the Licensor. The Licensee is not
granted any rights or authority, express or implied, to bind
the Licensor in any manner.

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 10. Termination
The Licensor shall have the right to terminate this Agreement
without prejudice to any rights which it may have upon the
occurrence of any of the following events:
SAMPLE LICENCE TERMS

(a) The Licensee fails to deliver or maintain the required product

liability insurance policy;
(b) The Licensee is late in any payments due under this
Agreement;
(c) The Licensee fails to provide access to the premises or the
records required to be maintained under this Agreement;
(d) The Licensee fails to comply with applicable laws, regulations,
or industry standards;
(e) The Licensee does not commence in good faith to
manufacture, distribute, or sell the Licensed Products in the
Licensed Territory,
(f) The Licensee delivers or sells Licensed Products outside the
Territory or knowingly sells Licensed Products to a third party
who the Licensee knows intends to, or reasonably should
suspect intends to, sell or deliver such Licensed Products
41
outside the Licensed Territory.
10. FOREIGN DIRECT INVESTMENT
Required reading:
Textbook ch 20 pp 581-5955

Group presentation:
Case study on FDI in emerging economies

NEXT CLASS – 22 APRIL