Okay, continuing our discussion about alternative forms of finance, corporate sources the fund, the corporate entrepreneurship. We're going to talk about licensing agreements. Why do you want to license? Okay well, for one thing, it enables you to exploit your IP, by transferring their rights, IP meaning intellectual property, of course, transferring their right to use the product of 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. But it involves weighing the economic and strategic advantages of licenses versus other methods of taking your product or service to market. So, one of the benefits of licensing, if you're going to weigh in the advantages and disadvantages. Well, it helps to spread the risk of distribution and development because you have the IT. And somebody else may have distribution and development all ready 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 also earn a royalty for them around the selling of your IP you generate a royalty. And it preserves your internal capital your capital budget for other sources other uses for other projects. And it's interesting that sometimes when companies had this deed going on. They may be arguing that one company has violated another company's intellectual property or infringed on the intellectual property. 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. 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 the right partner that should not really be an issue. You may also lose control of the quality of the IP or the product that's been developed from it because you're only giving them the IP. You are not getting involved in how they're exploiting it. You also dependent upon the licensee for the revenue you're generating so they don't do the job of exploiting IP and getting in the market. You may found out that you end up with not very much value in your IP license. And if the licensee is not performing well or their developing services or products that aren't very good, that could reflect back on the company who provided the IP. So you gotta be aware of that. And there's also tends to be additional administrative work involved in keeping track of the revenues and agreements and financial reporting requirements and that kind of thing. So the typical technology license agreement, there will be a scope of how much they're granting, meaning geographic. This is only available in North America or it could be worldwide license. They have a term and a renewal agreement just as we talked about co-branding agreement. They have performance standards. They may have quotas that say, okay, you have a right to the exclusive right to the license in North America for this period of time, but you have to have a minimum of 2,000,000 in sales before you keep your exclusive rights, so they may have performance standards in there. And so they'll establish how much of the payments being made to the license or meaning you, licensing it to someone else. That would be an up front payment probably and then some equitable royalties to. And you ought to factor in the agreement how they maintain quality standards that are not less than what they would be for their own products which is kind of standard wording I think. And then you may have agreement that have clauses related to indemnifying each other or one party indemnifying the other. Let's say you have IP. The other party says okay well 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. And we will indemnify you against any potential losses that may result from that. Assuming of course, and the way it's worded, it says, assuming that it's nothing you did to cause the infringement. So those things are things that you need some good lawyers to look at of course, when you're ready to write one of those agreements. They also have always have, all these agreements have a financial reporting requirement. They like audit statements. They want to have protections to make sure the licensee is not going to do something stupid with the IP. So you want to make sure 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 at putting together a license agreement for IP, you should go 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 under the agreement, that kind of thing. So license 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 a technology licensing perspective, then this is a good example if you've been thinking about that. Make sure you always get your legal counsel involved for help drafting these agreements.
