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Chapter 12Chapter 12

LicensingLicensing

Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill/Irwin

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Introduction to LicensingIntroduction to Licensing

• Third Special Case of Sponsorship

• Licensing is a Value-Adding Process that Provides Revenue-Generating Opportunities Via the Conveyance of the Right to Use Another Organization’s Intellectual Properties for Commercial Purposes

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Intellectual PropertiesIntellectual Properties

• Intellectual Properties – Intangible Assets for Which an Organization Can Claim Ownership

• Trademarks – Registered Identifiers Which Can Be Protected Using Existing Laws

• Examples:– Brand Names - Nike– Slogans – “Just Do It”– Logos – the Nike “swoosh”

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Brief Historical PerspectiveBrief Historical Perspective

• 1930s - Walt Disney Characters

• 1950s – Television Personalities

• 1960s – Professional Sports in USA

• 1970s – Collegiate Sports in USA

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Key Concepts - ParticipantsKey Concepts - Participants

• Licensor – Owner of the Intellectual Property Who Conveys the Right to Use Select Intellectual Properties to the Licensee

• Licensee – Entity that Is Given Permission to Use the Intellectual Properties for Specified Marketing Activities

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Financial Perspective (2006)Financial Perspective (2006)

• Sales of Officially Licensed Merchandise Were Estimated at $187.4 Billion

• These Sales Resulted in Total Payments of Some $10 Billion to the Licensors

• Payments to the Licensors Generally Involve a Percentage of the Licensee’s Sales Revenue - Royalties

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Top 5 Licensing CategoriesTop 5 Licensing Categories

• Categories Royalties

• Characters from Entertainment $2,680• Trademarks/Brands 1,090• Fashion 830• Sports 825• Collegiate 203

– 2006 Royalties in Millions – US Dollars

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Establishing andEstablishing andMaintaining OwnershipMaintaining Ownership

• Drop in Box 12.1 Here

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Agreement TermsAgreement Terms

• Eligible Products

• Scope of Exclusivity

• Geographic Scope

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Eligible ProductsEligible Products

• Product Item – One Specific Product– i.e. – Rival brand crock pots

• Product Line– i.e. – Rival brand food preparation items

• Product Assortment– i.e. – All products produced by Rival

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Scope of ExclusivityScope of Exclusivity

• Exclusive – Rights for Specific Product(s) Granted to a Single Licensee

• Nonexclusive – Granting Rights to Use Intellectual Properties on Same Product(s) to Two or More Competing Companies

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Geographic ScopeGeographic Scope

• Regional– Small local region– Larger region but not national in scope– National– Multinational region

• Global

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Example of Actual AgreementExample of Actual Agreement

• Drop in Box 12.2 Here

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CompensationCompensation

• Fixed Fee

• Royalty

• Minimum Guarantee

http://www.clc.com/clcweb/publishing.nsf/Content/institutions.html

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Compliance ReviewsCompliance Reviews

• “Underpayments May Represent as Much as 50% of the Amount Due to the Licensor”

• Verify that All Payments Due to the Licensor Have Been Made

• Should be Performed Periodically

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Benefits for the Licensor (Owner)Benefits for the Licensor (Owner)

• Revenue Stream

• No Significant Investment Required

• Broader Product Assortment for Consumer

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More Benefits for the LicensorMore Benefits for the Licensor

• Create Consumer Awareness & Interest

• Control Standards of Quality

• Control Array of Products Available

• Protect Image

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Benefits for the Licensee (User)Benefits for the Licensee (User)

• Capitalize on Licensor’s Brand Equity

• Capitalize on Short-Term Phenomena

• Capitalize on Economies of Scale

• Reach New (Higher) Price Points

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Example of Selection CriteriaExample of Selection Criteria

• Drop in Box 12.4 Here

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InfringementInfringement

• Unauthorized Use of an Organization’s Trademarks and Logos

• Counterfeit Issues– Lost Revenues– Lower Quality

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Market SurveillanceMarket Surveillance

• Policing the Marketplace in an Effort to:– Locate counterfeit merchandise;– Locate other trademark infringements;– Take appropriate measures to end the

infringement;– Remove any illegal products, and – Discourage such efforts in the future

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Remedies for InfringementRemedies for Infringement

• Legal Restraints (Cease-and-Desist)

• Confiscate and Destroy Counterfeits

• Possible Time in Jail for Offenders

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Performance ReviewPerformance Review

• Evaluate Licensee’s Financial Performance

• Evaluate Licensee’s Production and Marketing

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Developing Licensing PlanDeveloping Licensing Plan

• Identify Licensable Intellectual Properties

• Establish Fee Structure

• Establish Selection Criteria

• Establish (Type) Terms of Agreement

• Engage in Compliance Review

• Market Surveillance

• Performance Review

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Examples of Licensing ContractsExamples of Licensing Contracts

• Drop in Table 12.3 Here

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Growth StrategiesGrowth Strategies

• New Target Markets

• New Up-Market Products

• More Traditional Advertising (Leveraging)

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Top American UniversitiesTop American Universities

• Drop in Box 12.8 Here

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Closing CapsuleClosing Capsule

• Licensing Is a Special Case of Sponsorship that Features a Win-Win Relationship for the Licensor and the Licensee

• Global Sales of Licensed Products Continue Steady Growth

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Closing CapsuleClosing Capsule

• Major Infringement Issues in Many Countries across the World

• Manufacturers and Retailers Are Being Encouraged to Produce and Sell Officially Licensed Merchandise

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Closing CapsuleClosing Capsule

• Insert Figure 12.3 Here