ip strategy1

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Session-9IP in International Business Strategy

PCT, Madrid, Hague

Regional Systems


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Session-9 part:1

International Business: Strategy, Management, and the New Realities 2

IP in international business strategy

Licensing, Franchising and otherContractual Strategies


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Significance Indian context

As enunciated by FICCI, the IndianIndustry has today:

Increased Government Initiative

Enhanced IP awareness

State ofArt IP Offices

Numerous IP Training Institutes

Multitude of IP Consultancy Services Specialized IP Lawyers & a sensitizedjudiciary which is delivering landmarkjudgments


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What the Industry needs is: Trained Technology/IP auditors and Patent

Analytics experts

Capacity building for IP licensing and technologytransfer

Market mechanisms to Commercialize IP Improved enforcement machinery

Access to anti-counterfeiting / anti-piracytechnologies

y Creation of clusters based on Knowledge and IP

y Recognize IPRs as a Corporate SocialResponsibility

y Thus today there is felt need for IP strategists in theIndian industry.

y But, do we understand what is IP strategy?


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A nation's ability to convert knowledge into wealth and socialgood through the process of innovation will determine its futurein the present century

This Socio-economic growth depends increasingly on theinternational competitiveness of industry and businesses.

Such competitiveness is driven by knowledge basedtechnological progress which in turn is encouraged promoted andsubstantially helped through an appropriate IP system.

Ownership, trading and commercial management of IP is critical

in the digital age

Effective use of the IP system by the private sector and strictenforcement through a robust legal system is the need of thehour.

IP & Development


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Knowledge based sectors which include researchers,

innovators, business incubators are very IP intensive.

India has a very vibrant Micro & Small Enterprises (MSEs)Sector. There are an estimated 12.8 million such unitswhich is over 90 per cent of total industrial units and they

employ nearly 31 million people.

This sector contributes nearly 39 per cent of the totalindustrial production, manufactures over 6500 productsranging from traditional to high-tech items and accounts for

approximately 33 per cent of the total exports.

Local IP which includes copyright based industry, grass rootlevel innovations, geographical indications, traditionalknowledge and expressions of culture also provides anenormous scope for wealth creation and development


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IP & Competitiveness

IP Strategies for competitiveness would focus not only onIP recognition and management but also IP creation

Competitive IP strategies should be tailored such that

there is no misuse of intellectual property rights by rightholders or the resort to practices which unreasonablyrestrain trade or adversely affect the international transferof technology


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An IP Strategy for industry should

enable it to:

make better use of IPR system Integrate IP into the companys overall business

strategy identify intellectual asset portfolios and make informed

decisions about protecting their ideas as well as

business strategies; plan out an effective R&D and innovation policy effectively utilize IPR tools for technology up-gradation,

enhancing competitiveness and obtaining access tonew markets

valuate and commercialize IP through licensing,franchising or other IP-based contractual agreementsand improve its revenue streams and branding

comply as well as enforce IP rights to avoidunnecessary conflicts and litigations


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Foundation Concepts

Cross-border contractual relationships: Entering a

formal agreement with a foreign distributor, joint

venture firm or other partner abroad. Often involves

granting permission to use intellectual property to a

foreign partner.

Intellectual property: Ideas or works created by firms

or individuals, such as patents, trademarks, and

copyrights. Includes such knowledge-based assets ofthe firm or individuals as industrial designs, trade

secrets, inventions, works of art, literature, and other

creations of the mind.


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Two Types of Contractual Relationships

Licensing: an arrangement in which the owner of

intellectual property grants another firm the right to

use that property for a specified period of time in

exchange for royalties or other compensation.

Franchising: an arrangement in which the firm

allows another the right to use an entire businesssystem in exchange for fees, royalties or other

compensation.


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Contractual Relationships are Fairly Common

Pharmaceutical firms engage in cross-licensingpractices in which they exchange scientific knowledgeabout producing products and distribution rights.

Service firms in retailing, fast food, car rentals,television programming, and animation rely onlicensing and franchising agreements.

7-Eleven is the world's largest chain of convenience

stores, with about 26,000 stores in 18 countries.While the parent firm in Japan owns most of thestores, several thousand in Canada, Mexico, and theU.S. operate via licensing or franchising agreements.


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Unique Aspects of Contractual Relationships

Governed by a contract that provides the focal firm

moderate level of control over the foreign partner.Control refers to the ability of the focal firm to influencethe decisions, operations, and strategic resources of a

foreign venture. Typically involve exchange of intangibles (intellectual

property) and services. Examples include technicalassistance and know-how.

Can be pursued independently or in conjunction with

other foreign market entry strategies. Contractualrelationships may accompany and support FDI andexporting.


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Intellectual Property Rights

The legal claim through which the proprietaryassets of firms and individuals are protectedfrom unauthorized use by other parties.

Provide inventors with a monopoly advantage,for a specified period of time, so they can exploittheir inventions and create commercialadvantage.

Without legal protection and the assurance ofcommercial rewards, most firms and individualswould have little incentive to invent.


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International Licensing is Fairly Common

Peter Paul Mounds and Almond Joy are owned by theBritish food firm Cadbury Schweppes and produced inthe U.S. via a licensing agreement with Hershey Inc.

Planters, Sunkist, and Budweiser are owned by U.S.

firms and sold in Britain and Japan via licensingagreements with local firms.

Coca-Cola has a licensing agreement to distributeEvian bottled water in the U.S. on behalf of the brands

owner, French company Danone. A review of 120 of the largest multinational food

companies revealed that at least half are involved insome form of international product licensing.


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Main Advantages and Disadvantages of Licensing

Advantages for licensor

Low investment

Low involvement

Low effort, once license is established Low-cost initial entry strategy

Disadvantages for licensor

Performance depends on the licensee Licensor has limited control over its asset(s) abroad

Risks creating a future competitor.


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Franchising

Most typical arrangement is business formatfranchising, in which franchisor transfers to thefranchisee a total business method -- includingproduction and marketing methods, sales systems,

procedures, training, and the use of its name. More comprehensive and generally longer-term than

licensing.

Master franchiseris an independent company

authorized to establish, develop, and manage theentire franchising network in its market. E.g.,McDonald's in Japan.


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The Role of the Franchisor and the Franchisee

Franchisor:

provides vital assets

has economies of scale, a wealth of intellectual

property, and know-how about its own industryFranchisee:

performs local functions in foreign markets, such asmarketing and distribution, that the franchisor

usually cannot perform. has entrepreneurial drive, deep knowledge about

the local market and how to run a business there.


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Other Contractual Arrangements

Turnkey contracting: arrangement where a firm plans,finances, organizes, manages, and implements allphases of a project abroad, and hands it over to aforeign country after training local personnel. Typical

firms in the construction, engineering, and architecturalservices industries.

Under a management contract, a contractor suppliesmanagerial know-how to operate a hotel, resort, hospital,airport, or other facility, in exchange for compensation.

With International leasing, the lessor rents outmachinery or equipment to clients abroad, often forseveral years at a time. E.g., airlines lease aircraft.


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Safeguarding Intellectual Property

Contractual arrangements provide only moderatecontrol over foreign partners.

Laws that govern contractual relations are ofteninsufficient abroad.

Thus, it is critical to:

Have a strong contract;

Develop close, trusting relationships with foreign

partners; Provide foreign partner with superior resources and

strong support.


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Counterfeiting

Total value of counterfeit and pirated goods tradedinternationally exceeds U.S. $600 billion, which isroughly 5% of U.S. GDP.

Typical knockoffs include clothing, fashionaccessories, watches, medicines, and appliances.

While companies such as Rolex, Louis Vuitton andTommy Hilfiger are well-known victims,counterfeiting is widespread even in industrialproducts.

Other examples: pharmaceutical products, medicaldevices car parts.


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IP COMMERCIALIZATION

Strategies for Commercializing and Monetizing Intellectual Propertydepend on a comprehensive understanding of the skills and toolsrequired to transform an intellectual asset into a commercially viableproduct that generates financial returns.

There are many factors which affect the perceived value of an IPR

eg. type of technology protected by the IPR i.e. is it an incrementalinnovation, a simple technology or a highly complex technology; thestate of development of the technology i.e whether at prototypestage or production model stage; stage of by-products/wastemanagement; the level of IPR protection and the confidentialinformation status

There is a need to create efficient IP markets to reduce transactioncosts and facilitate trade in IP


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CORPORATE SOCIAL RESPONSIBILITY

Corporate IP owners, should build brand differentiation through

voluntary steps beyond legislative obligations which wouldsimultaneously help value maximization for shareholders as well asstakeholders. These activities could include:

Public awareness campaigns on why using pirated and counterfeitgoods are bad for consumers and the society at large and can even bea hazard to life and property

Educating schoolchildren on why intellectual property is importantand should be respected

Advertising technological measures to combat counterfeiting andpiracy being used in their products.

Making products such as books, educational software, medicines,computers etc. available at special prices for the economicallydisadvantaged sections of society.

Budgeting for capacity building for industry professionals andenforcement agencies on commercialization, compliance and

enforcement of IP.


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Case Studies - Using IP for a

competitive edge

Su Kam Power backup products-used IP as a barrier to entry for patentedSu-kam technologies; IP as a marketing tool for brand building; as a valueenhancer in valuations and even as a pride factor for employees

Maharani Paints-developed and patented an innovative and eco-friendly,Clean Technology for Recycling/Conversion of Paint sludge, a hazardouswaste into user friendly primers, undercoats, Floor Coatings, StructuralPrimers etc; as per customer's specification and is undertaking Paint SludgeRecycling as a service as well as providing Technical Consulting and Know-how to organizations keen to adopt this technology

Titan Industries developed Titan Edge, the slimmest commercially availablewatch in the world. Produced indigenously after four years of intensive

research and development, the Titan Edge has a total slimness of just 3.5mm and a wafer thin movement of 1.15 mm.


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Guidelines for Protecting Intellectual Property

Intellectual property laws are in the process ofgetting strengthened in many countries.

Key international treaties include:

Paris Convention for the Protection of IP Berne Convention for the Protection ofLiterary and

Artistic Works

Rome Convention for the Protection of Performersand Broadcasting Organizations

The WTO created the Agreement on TradeRelated Aspects of Intellectual Property Rights(TRIPS).


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Guidelines (contd)

It is critical for the firm to: Understand local IP laws and enforcement

procedures; Avoid countries with weak IP laws;

Register patents, trademarks, copyrights in eachcountry where the firm does business; Ensure that licensing and franchising agreements

provide for IP oversight; Pursue IP infringers in court; Train employees to

protect assets Monitor franchisees, intermediaries and partners

for asset infringements; take the help of industryand legal bodies eg., FICCI- National Initiative

against Piracy & Counterfeiting along with theBrand Protection Committee at Mumbai


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In conclusion - Implementation of

the IP Management Strategy

Phase I - Gaining control over IP portfolio i.e.analyzing intellectual asset portfolios anddeveloping and implementing programs for theirmonitoring and enforcement.

Phase II - Investing in the IP portfolio-involves a

review of the opportunities for investing inacquisition or creation of different forms of IP. Italso involves the application of corporateinvestment policies and practices to IPmanagement investments

Phase III - Maintaining control over the portfoliowhich involves, utilizing information technologytools to capture and manage critical intellectualasset portfolio information in order to sustain IPprofits and protect existing IP investments


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Bibliography

International Business - Strategy, Management & the New Realitiesby Cavusgil, Knight & Riesenberger

IP Strategies to Enhance Competitiveness: The Industry Perspectiveby Akash Taneja, Executive Director FICCI-IIPD

Intellectual property laws universals legal manual, 2009.



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