PRESENTATION for WIPO July 2005 Suriname & St. Lucia by WILLY MANFROY President Licensing Executives Society International and Bornivall LLC Jamaica & Dominican Republic by LAWRENCE J. UDELL Executive Director Intellectual Property International, Ltd.

2 DEFINING THE DIFFERENCE FRANCHISING – FRANCHISING – Is a huge business worldwide. Is a huge business worldwide. However, to be in a position to franchise your business, product or service, you must be successful. You cannot convince anyone to buy a franchise unless you can show and prove that your business is providing sales and profits and greater potential growth in the future. Without a track record, how do you even decide what to charge for a franchise?

3 DEFINING THE DIFFERENCE LICENSING – LICENSING – Is over $150 billion a year worldwide Successful licensing requires very secure IP from issued and pending patents to trade- marks, copyrights and proprietary info from issued and pending patents to trade- marks, copyrights and proprietary info It can be an extremely profitable opportunity for an SME with the right IP portfolio, especially with proven products or marks

4 DEFINING THE DIFFERENCE TECHNOLOGY TRANSFER – TECHNOLOGY TRANSFER – Is the process that moves a technology or IP from one entity to another This can be from company to company or from university to company or from a national lab to a company In so doing, there has to be a perceived value that is agreed upon by both parties In almost every case, it includes royalties based upon successful commercialization

5 Types of Franchising Franchising is a highly regulated industry Franchising is a highly regulated industry Rules and regulations are important in order to protect both parties Rules and regulations are important in order to protect both parties There exist franchise associations aimed at protecting the interests of their constituencies There exist franchise associations aimed at protecting the interests of their constituencies

6 Types of Franchising Franchising Manufacturing Franchises Service Franchise Business Format Franchise Distribution Franchise

7 IP Issues in Franchising Clarity on IP issues is paramount Clarity on IP issues is paramount - Identify IP rights involved - Identify IP rights involved –Check national IP laws –How secure are the IP rights (no infringement case) –What is the value of IP assets & is it worth the investment? –Contact existing and past franchisees and ask them about IP related costs

8 IP Issues in Franchising- cont. –Check the duration of protection of involved IP assets (dont want to be tied by the agreement while IP protection has expired) –Are there any competing IP protected comparable products in the market (are they also franchised) –Study the effect of the arrangement to your future growth? Do you intend to develop your own IP assets?

9 IP Issues in Franchising cont. Check whether previous business relationships have IP related obligations/constraints Check whether previous business relationships have IP related obligations/constraints Check on methodology of certifying products, involves additional costs Check on methodology of certifying products, involves additional costs Are you ready to take IP responsibilities? Are you ready to take IP responsibilities?

10 Role of Technology Transfer in Economic Development Increase in physical stock of productive and Increase in physical stock of productive and innovative resources innovative resources Further exploitation of economical resources Further exploitation of economical resources - natural resources - manpower - manpower - innovation - physical resources Productivity increase Productivity increase - labour - capital - natural resources - innovation capacity

11 Continuum from purely internal to 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

12 Choosing the best source option 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

13 Stage-gate Process IDEA GENERATION GENERATION Initial Screening Preliminary Market Assessment Preliminary Technical Assessment PROJECT GRAVEYARD Concept Generation (technical) Preliminary Evaluation Concept Identification Market study Concept Test Market study Development of Marketing plan Concept Evaluation Product Development (engineering design And prototypes) NO GO GO NO GO

14 Stage-gate Process (continued) Evaluation Prototype Test With Customers Prototype Testing In-House PROJECT GRAVEYARD Finalization Of Design Evaluation Finalization of Marketing Plan Test Market Market Launch Pre-Commercial Business Analysis Full Production NO GO GO NO GO Trial Production Post-Launch Evaluation and Control

15 Problems in the implementation of 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

16 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

17 Why are you Licensing? Optimize Intellectual Assets return Optimize Intellectual Assets return Optimize R&D resources Optimize R&D resources Strategic decision Strategic decision Establish standards Establish standards Entering or exiting a business Entering or exiting a business Freedom of action Freedom of action Compulsory license Compulsory license Protect a business position Protect a business position

18 Licensing Process Steps Input Need identification Need identification Sourcing Sourcing Assessment Assessment Negotiation Negotiation Financing Financing Transfer of Technology Transfer of Technology Implementation Implementation Termination TerminationOutputInvention Secrecy agreement Option agreement Agreement Management approval Review of documents, Intellectual Property Amendment - Royalty reports

19 Types of Agreements involved in Licensing Preliminary agreements IP rights agreements Developments and collaboration agreements Implementation agreements

20 General Principles of Agreements Take the business perspective Take the business perspective Define the issues Define the issues Prepare before you negotiate Prepare before you negotiate Communications internal & external Communications internal & external Negotiate before you draft Negotiate before you draft Use a mirror Use a mirror Plan before you sign Plan before you sign Use appropriate resources when needed Use appropriate resources when needed Be flexible and fair Be flexible and fair Take your time Take your time

21 The WIN-WIN Approach (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

22 Licensing Steps Identify and define technology Identify and define technology Evaluate potential Evaluate potential Identify targets ( in or out ) Identify targets ( in or out ) Plan and prepare approach to targets Plan and prepare approach to targets Negotiate the agreement Negotiate the agreement Transfer the technology Transfer the technology Monitor the license Monitor the license Terminate the deal Terminate the deal

23 Grant and Exclusivity Grant and Exclusivity Scope and Field of use ExclusivityExclusive Non exclusive Rights of licensor

24 Commercial 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

25 General Commercial Terms Duration - Limited - Life of patent(s) - Multiple countries - Know-how - Restrictions by European Union Scope - Territory - Quantity - Make, have made, use, sell

26 Valuing The Technology Valuing The Technology Costs Costs - Avoidance - Avoidance - Development - Development Market Market - Comparables - Comparables Benefit Benefit - Share of future benefits - Share of future benefits - Avoidance of payments - Avoidance of payments

27 Valuation by Technology type Valuation by Technology type

28 Valuation of Intellectual Property

29 Technical and Engineering Assistance Scope Cost Duration Training issues Liabilities and performance guarantees Personnel

30 Improvements Grant back Grant forward Cost/Reward Impact of future IP Ownership of future IP Limitations by governments

31 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

32 ADVANTAGES FRANCHISING: FRANCHISING: Can be extremely profitable if you have all the right ingredients to start LICENSING: LICENSING: Greater opportunity for sales and profits with the right licensees TECHNOLOGY TRANSFER: TECHNOLOGY TRANSFER: If the IP has good success potential, then this is a profitable way to go

33 DISADVANTAGES FRANCHISING: FRANCHISING: Without the proper preparation and accurate records, you have no reason to attempt it LICENSING: LICENSING: If the IP portfolio is significant and free of any potential litigation, the SME could make a lot more money over a long period of time with far less risk TECHNOLOGY TRANSFER: TECHNOLOGY TRANSFER: Without the right research, you may be giving away the future and profits