The history of licensing and patent are closely related, and a good start is to define these words. According to Webster’s Dictionary, license is the authority (formal permission) to forbear any business, and without such permission results in illegal business activities. A grant of permission acts as a license to practice medicine, to preach, sell intoxicating liquor. This therefore, is a document that grants such permission. Patents, on the other hand, are publicly open for concerned parties to inspect and peruse through, since they confer some privilege or right. If an individual is protected or appropriated by letters patent, individuals are secured by official authority to the exclusive, control, possession, and disposal of some party. As a result, they become patented. The word patent is related to a French word patente, but is derived from a Latin word patere, which means to open. In French, the word patente refers to delegated privilege by kings or powers, which gives individuals the privilege to exact acts in exchange of tangible things (Goldscheider 3).
Phoenicians, for example, used patents thousands of years ago, but later in 1974 in the Republic of Venice, patents were granted. In more recent history, the interface between patents and licenses dates and patent office’s established during the industrial world. For a specific time period, patents grant exclusion, whereas licensing as a developed system, allows someone else to remove the forbidden knowledge exclusion through special permission from the patent owner. Japan, after World War II, extensively and effectively used licensing. The aim was to rebuild its industry and for dominance development in fields like optics and consumer electronics. In addition, it was a base used to modernize Japan’s pharmaceutical, chemical and petrochemical industries. Today, Japan runs a large deficit in technology-related payment balance; however, its extensive licensing strategy allows it to jump start the rebuilding of the country. For consumer electronics, due to their innovations they are able to dominate worldwide markets (Goldscheider 4).
In the western world, licensing was not broadly used, but in Japan, Taiwan, Korea among other Asia countries, it was developed and embraced. The pharmaceutical industry in Western Europe and the United States are the earliest to use the systematic licensing. A global presence in 1970 was in very few companies because the cost of developing a drug was high and the probability was low of finding acceptable new products. Most of the new drugs were discovered through the screening process, which forced these industries to buy the screening library rights of chemical compounds, and included rights to possible pharmaceutical uses. Development for microanalysis technique and combinatorial chemistry contributed to the low probability. Consequently, maximum potential was exploited for discovery reaching commercialization stages. During this golden age, territorial swapping was enhanced, where companies exchanged rights to specific geographies (Goldscheider 4). Licensing was not practiced widely in the chemical industries, but for a few notable exceptions, it was considered an insignificant afterthought not central to a company’s strategy.
In today’s world, licensing has been embraced by many companies and individuals because of the hazards involved in managing a business or properties. It is evident that licensing has taken multinational publishers to untapped markets, which means they are cost-effective. In essence, international licensing is a fast way of globalizing (Furst 3). It is important to note that licensing strategies work for companies in different ways and thus, one needs to identify their strong brands when choosing licenses. Licensing as a market and brand extension tool is used widely by everyone, that is, from major corporations to small business owners. It is evident that the origin of licensing is Japan and other Asian countries followed. Asian countries are technologically empowered and with the risks involved they use licenses to curb the problems associated with breaking down of machines among other risks of production. The companies that used licensing agreements succeeded from those that did not have any license and hence, it is advisable to have licenses that will mitigate business owners from risks.
Types of Licensing
A license to manufacture, sell, and use: Most common that grants the licensee all your underlying patent and IP rights. It may be used with a single entry for both manufacturing and innovation marketing (Demattei 327). In addition, may be used with a manufacturing or marketing partner though the manufacturer will not be titled to marketing of the invention to the market, but through a dedicated partner of marketing. Here, both are licensed with separate responsibilities. Licensee pays royalties depending on the number of products licensed to sell. If both manufacturing and marketing are licensed then one pats the royalties.
A sales-only license: It is used by a sales partner not producing the innovation, though purchases products from the parent company or authorized manufacturer. At times, they decide to become exclusive sales manufacturer arm then work on a basis of commission. Licensee who purchases from an authorized manufacturer, a manufacturing-only license must be issued to the appointed producer. Royalty payment depends on the billing entity of merchandise to customers in the trade (Demattei 327-8).
A manufacturing-only license: This is a supplier to or though a sales-only licensee. However, if the manufacturer is billing the merchandise or made sales an exception is made to the licensee. In such a case, royalties are paid by the manufacturer. This license may also be used as a means to augment the production of another licensed manufacturer (Demattei 328). Here, the licensee is allowed to sell products.
A license to use: It is commonly granted in sales of computer software. Purchasing software automatically gets one into a contract upon installation of software. The agreement states that the license holds for personal use of software, thus no copying, manufacturing or selling is allowed. In addition, no other computer applicant can install the software in their machine (Demattei 328).
These four types are the most widespread and the one that is preferred by many people is the first one because it encompasses all fields of production.
Global Licensing Reforms
Regulatory reform agenda needs to have a continued strong commitment. In the current environment, implementation of reform in the banking sector is faced with challenges, which comprise of reduced probability amid persistent problems of legacy. The difficulty and timeliness of reforms has stimulated debates where many countries are struggling to implement full international agreements. The aim of the reform agenda is to be able to improve institution resilience because the recovery process has lagged behind.
According to many individuals, the reforms contribute positively to innovation, regulatory environment and investment climate. The success of technological strategies of adoption attribute to the investment climate and regulatory environment. The inception of competition policy reforms has contributed positively to the sector of innovation. This is because the competition from product market results in innovation outcomes that improve performance of an existing firm. Tariff liberalization led to imports of unavailable new goods (intermediate) and later increased the introductory rates of new products into the market (Aghion et al. 710).
Reforms brought about change in the market, which improved innovation thus resulting in enhanced performance. Before the reform, companies were required to acquire a license to establish a new factory, start a new product, expand capacity, or location change. Delicensing reform meant liberty from constraints on location, output, technologies, inputs, usage and easier access to industries that are delicensed (Aghion et al. 712). Freedom from the above constraints allowed firms the advantage of newer technologies, economies of scale and efficient input combinations. Domestic competition became greater due to the free entry into delicensed industries, which provided firms innovative incentives, improved quality of products and increased productivity.
Global licensing reforms have grown rapidly, and strategic planning shows that companies have succeeded by embracing the change effected in the environment. Research and development shows that, reforms have contributed greatly to the ownership of rights to foreign firms. From these people get employed and thus, their living standards are improved and this spills down to the expansion of the nation. This is as a result of average tariffs and non-tariff barriers broken down to enable individuals engage in international trade. Developing countries benefit from these reforms because they are able to engage in business that is not in existent in their mother land.
Aghion, Philippe Nicholas Bloom, Richard Blundell, Rachel Griffith, and Peter Howitt.
“Competition and Innovation: An Inverted U-Relationship.” Quarterly Journal of
Economics, 120.2 (2005): 701-728. Print.
Demattei, Bob. From Patent To Profit: Secrets & Strategies For The Successful Inventor.
Garden City Park, NY: Square One Publishers, Inc., 2004. Print.
Furst, Allen. Licensing and Partnering Internationally: A Guide for B2B Publishers.
International Licensing White Paper, 2004. Print.
Goldscheider, Robert. Licensing Best Practices: The LESI Guide to Strategic Issues and
Contemporary Realities. New York: John Wiley & Sons, 2002. Print.