Okay continuing our discussion about alternative forms of finance, corporate sources of funds, and corporate entrepreneurship. We're going to talk about licensing agreements. Why do you want a license? Okay, well for one thing it enables you to exploit your IP, by transferring the right, IP name, intellectual property of course. Transferring the rights to use your product, your IP, to a third party. But you don't transfer the ownership. So almost any product or service can be licensed which makes it very flexible. And it involves weighing kind of the economic and strategic advantages of licenses verses other methods of taking your product or service to market. So, what are the benefits of licensing, if you're going to weigh the advantages and disadvantages? Well it helps to spread the risk of distribution and development because you have the IP and somebody else may have distribution and development already established, so you can license it and immediately have access to it. That gives you more rapid market penetration. You also earn a license fee and you earn the royalties around the selling of your IP. You generally generate a royalty agreement. And it preserves your internal capital, your capital budget for other sources, other uses of the project. And it's interesting that sometime when companies had disputes going on, they may be arguing that one company has violated another company's intellectual property, or infringed on the intellectual property of the company. Oftentimes license, well not oftentimes, but sometimes license agreements can be used to settle these disputes. And I think there's been a couple of notable examples of where companies that were being accused of violating someone else's intellectual property ended up doing a deal where everybody was happy at the end. The disadvantages are that you're basically giving somebody your IP and they have to have a complete working knowledge of how it all works in order for them to use it properly. So you're kind of increasing your risk of infringement by that person. Although I look at this as being, if you choose your right partner that should not really be an issue. We may also loose control of the quality of the IP, or the product that they develop from it because you're only giving them the IP, you're not getting involved in how they're exploiting it. You're also dependent upon that licensee for the revenue that you're generating. So if they don't do a good job of exporting your IP and getting it into the market you may find out that you end up with not very much value for your IP license. And if the licensee is not performing well, or they're developing services, or products that aren't very good that could reflect back on the company who provided the IP, and so you've gotta be aware of that. And there also tends to be additional administrative work involved in keeping track of the revenues and the royalty agreements and financial reporting requirements and that kind of thing. So the typical technology license agreement, and there'll be a scope of how much they're granting meaning geographic. This is only available in North America or it could be a worldwide license. They have a term and then a renewal agreement just as we talked about in the programming agreement. They have performance standards, they may have quotas that say okay, you have the right to the exclusive right to the license in the North America for this period of time. But, you have to have as minimum of two million in sales to keep your exclusive rights. So they may have performance standards in there. And so, then they'll establish how much of the payment's being made to the license, or meaning you licensing it to someone else. That would be an upfront payment probably, and then some type of a royalty fee. And you aught to factor into the agreement how that they maintain quality standards that are not less than what they would do for their own products. Which is kind of the standard warning I think. And then you may have agreements that have clauses related to indemnifying each other or one party indemnifying the other. Let's say, you have IP and the other party says, okay, if somebody comes and sues me because your IP infringes on their IP, I want you to protect me. So you, oftentimes, will be asked to give an indemnity agreement to say, if in fact that happens, we will defend the case. We will indemnify you against any potential lawsuits that may result from that. Assuming of course, and the way it's worded is that, assuming that it's nothing that you did to cause the infringement. So, those things are things that you should get lawyers to look at of course, when you're ready to write one of these agreements. They also always have, all these agreements have financial reporting requirements. They like ARCHDEF statements. They want to have protections to make sure that their licensee is not going to do something stupid with the IP. So you want to make sure that they protect your IP. You may have agreements that you provide technical assistance that you may train the employees how to use the IP. All sorts of things that you have to think about and this is a good list to start with. Again, if you're looking to put together a license agreement for IP you should really get a lawyer involved. And then there's going to be issues around infringement of the IP, what defaults may occur, how you remedy those defaults with the agreement. That kind of thing. So licence agreements can be very beneficial but they can also be very complicated. If you think that your product or service is worth looking at in the technology licensing perspective, then this is a good example and you can start thinking about that. Then make sure you always get your legal counsel involved in drafting these agreements.
