Exploiting IP Assets Overview of Licensing Franchising

Exploiting IP Assets Overview of Licensing, Franchising & Merchandising Wong Jin Nee

Roadmap l An overview of Licensing, Merchandising & Franchising l Benefits of these arrangements l Licensing ¡ Nature ¡ Types ¡ Key elements of a license agreement l Merchandising l Franchising ¡ An overview of the Franchise Act 1998 l Conclusion

An Overview

Licensing, Merchandising & Franchising l Licensing ¡ Permission to use IPR to improve profitability & expand opportunities, subject to contractually agreed terms & conditions l Merchandising ¡ Permission to use of brands/characters/events to promote sale l Franchising ¡ Permission to use “proven business system” (standard products/services, look & feel, signage, methods of preparation, inventory control) to replicate success

Why, Oh Why? l Show me the Money – Generate revenue$ l Recoup R&D expenses & investment l Vehicle for entry into: ¡ new geographic markets without major capital investment ¡ new product markets or product range l Form strategic alliance ¡ build relationship ¡ create new opportunities ¡ gain know how (new applications of old technology) l Strengthen market position l Incorporation of technology into industry standard

Licensing

Nature of Licensing l IP owner retains ownership l A tool to leverage & exploit IP rights ¡Entering a new business ¡Expanding an existing business (extending territory or nature of business) ¡Improving quality of goods/services ¡Improving market positioning ¡Settling legal suits

Exclusive, non-exclusive, sole License Exclusive Non-exclusive Sub-License Only the licensee Sole Owner and Licensee Owner and various licensees

Types l Licensing Out ¡ Grant right to 3 rd Parties to use IPR l Contract manufacturing l Distributorship/Dealership/Agency/Marketing l Expansion into new market, product range, brand, technology l Licensing In ¡ Use 3 rd Parties’ IPR l Technology transfer l Settlement of legal suits l Cross Licensing ¡ Exchanging of rights to use IPR l Co-branding l Collaboration, joint R&D , joint development l Co-existence

Stages of negotiations, execution & management l Negotiations ¡NDA, confidentiality agreement ¡Heads of Agreement/MOU/LOI l Due Diligence l Execution, Implementation & Management l Termination & Post termination

Key Elements of a License Agreement l Parties l Definitions l Grant of Rights ¡ ¡ Extent & Scope of licensed rights Right to sub-license Field of Use Territory l Term & Renewal l Payable fees ¡ ¡ ¡ Lump Sum Royalty Payment terms Overdue payment Taxes l Parties’ other rights & obligations ¡ KPI ¡ Quality control Confidentiality Accounts, records & audit Ownership & Enforcement of IPR Improvements Representations, Warranties & Indemnities l Termination l Consequences of Termination l Miscellaneous provisions l l l ¡ ¡ ¡ Entire agreement Compliance with laws Severability Notice Governing laws and dispute forum

Merchandising

Merchandising l Improve visibility and appeal l Licensing out ¡ Revenue generation (royalties, license fees) ¡ Expansion into new market, extending product range and business ¡ Invaluable marketing tool ¡ Risk free (relatively) and cost effective l Licensing in ¡ Increase brand visibility & recognition ¡ Reduce brand awareness cost ¡ Shape or reinforce perception ¡ Revenue generation (more sales) l Brand extension

Merchandising Character Source: http: //www. etawau. com/HTML/Air. Asia/Lat. htm Event Personality

Brand extension Source: http: //www. virgin. com/about-us/

Franchising

Franchise l Efficiencies, economies of scale, market penetration, increased sales and profitability l "Franchising means working for yourself, but not by yourself"

Foundation of Franchising l A method of growing a business where a franchisee is granted, for a fee, the right to distribute goods or provide services under a system determined by the franchisor l 3 critical components of franchising ¡Intellectual Property Rights (IPR) l. Include trade marks, confidential information, copyrighted manuals, trade dress (décor) and all intangible assets that create customer loyalty ¡ Operating system l. Delivers the promise of proven business format ¡ Ongoing support l. Tools and tips to expand growth of customer base and market share

Franchise Act 1998 l Franchise relationship, governed by: ¡ Franchise Act 1998 ¡ Franchise agreement ¡ Disclosure document ¡ Operation/Training manuals l Franchise Act 1998, in force since 8 October 1999 ¡ Provides for registration and regulation of the franchise industry in Malaysia ¡ Sets out the respective duties and obligations of franchisors and franchisees l Governmental agency responsible for the Franchise Act 1998 since April 2009 ¡Franchise Development Division of the Ministry of Domestic Trade, Co-operatives and Consumerism (MDTCC or KPDNKK) http: //www. kpdnkk. gov. my/index. php? lang=en

Application of Franchise Act 1998 l Applies to sale of any franchise in Malaysia l Sale deemed in Malaysia where ¡ Offer to sell or buy l is made in Malaysia and accepted within or outside Malaysia; or l is made outside Malaysia and accepted within Malaysia; and ¡ Franchised business is operated or will be operating in Malaysia l Starting point - determine whether the business arrangement is a “franchise”

Ingredients of a franchise l For a business arrangement to be considered a franchise under the FA, all of the following elements must be present: ¡ a right to operate business according to franchise system; ¡ a grant of license to use the intellectual property rights such as the brand names, confidential information and copyright; ¡ a continuous control over business operations in accordance with franchise system; ¡ assistance rendered to operate business (e. g. provision or supply of materials and services, training, marketing, and business or technical assistance); ¡ in return, there will be payment of fees or other form of consideration; and ¡ the business is operated separately.

Common elements l Protected IPR l Core brand identity l Shared connection or theme l Control over commercial use l Identified scope of license l Putting a value to the IPR

Conclusion

Take-Aways l IP Assets are business tools l Its use should not be limited internally or simply to exclude others l Many different ways to leverage, exploit, maximise & moneti$e your IP l Managing expectations ¡ clear communication to establish mutual trust and respect ¡ exercise sensitivity to relationships l After the deal has been struck, important to monitor and review for compliance ¡ Licensing management and enforcement l Development of strategies to manage, monitor and enforce l Compliance programs and audits l A need to continuously fine tune the license agreement

Thank you Email : wjn@wjnt-law. com (Wong Jin Nee) Tel : 03 20923322 Copyrights & Trade Marks of third parties in this presentation belong to the respective owners and are used solely for a non-commercial purpose Wong Jin Nee & Teo