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Licensing

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THE LICENSEE'S PERSPECTIVE
For licensees, the principal advantage of a license (typically referred to as a "license-in") is that it allows the licensee to use proven technology in its business in exchange for paying the license fee, rather than incurring the full cost of developing and maintaining the technology. If the licensee's business is relatively complex and involves a variety of different technologies, which would be difficult and costly for the licensee to develop on its own, then the licensee will probably need a number of "licenses-in."
The principal disadvantage of licenses-in is that they can cause the licensee to become technologically dependent on the licensor, which could lead to a variety of problems when the time comes to renew the license. The licensor could use its leverage to negotiate better terms. Or, if another party has offered the licensor more money in exchange for an exclusive license, then the licensor might refuse to license the technology to the licensee. Even if the license-in is a perpetual license, which does not need to be renewed, the licensee is still at risk. The licensor could license the same technology to one or more of the licensee's competitors, thereby giving them the same competitive advantage that the technology provides to the licensee. In addition, the licensor could fail to maintain or update the technology, thereby diminishing its value.
THE LICENSOR'S PERSPECTIVE
From the licensor's perspective, a license is referred to as a "license-out." The principal advantage of a license-out is that it allows the licensor to realize a return on its technology without incurring the expense involved in actually manufacturing, marketing, distributing, and selling a product. If a licensor has technology that is unrelated to its core business, then it can use a license-out to realize some value from the technology, without being distracted from its core business. Licenses-out can also be employed with technologies that have little value by themselves and must be combined with other proprietary technologies in order to create a complete product.
The disadvantages of licenses-out depend upon how they are being used. If the licensor is licensing the technology in exchange for receiving a royalty based on sales of the products that incorporate its technology, then the licensor is, to some extent, dependent upon the licensee to make the sales and to be honest in reporting the sales revenue. To protect itself, the licensor can establish certain sales goals that the licensee must meet in order to keep the license and can include special audit rights in the license agreement to ensure that the licensee is accurately reporting its sales revenue. The licensor is also dependent upon the licensee to make quality products with its technology. To the extent the public knows that the licensor's technology is in a product, the licensor will want to ensure that the licensee adheres to certain quality standards so that the licensor's reputation is not damaged. * The franchisor has a direct contractual relationship with the landlord. * The franchisor retains control over the premises (over the franchisee sublessee/licensee). * No risk of franchisee tenant terminating or varying the lease without the consent of the Franchisor. * Franchisor can terminate tenancy and take over premises or sublease/licence to a different franchisee – easier than forcing landlord/tenant to assign lease to you. * Harder for the franchisee to “walk away” from Franchise Agreement if franchisor controls the site. * Attractive ROI * Low cost to implement
Disadvantages of Licensing
The disadvantages of licensing typically relate to the person obtaining the license. Fees for obtaining and subsequently renewing licenses are sometimes high. Paperwork is often confusing. Tests to become licensed are often time-consuming, expensive and usually don't offer a refund of money if the person fails to pass the test or requirements. There may be stipulations attached to different licenses that must be followed exactly and according to a preset time schedule regardless of the life events experienced by a person. Failing to obtain a license or renewal can have costly monetary fines or job restrictions placed on the person allowing their license to lapse. * Limited participation * Return may be lost * You are primarily liable – the landlord will expect you to comply with the tenant’s obligations under the lease. * Follow up – because are the tenant, you will need to follow up to ensure the franchisee complies with the Tenant’s obligations under the lease. * Director’s liability – directors of the Tenant entity need to be aware of their liability for reckless trading – i.e. agreeing or allowing the business to be carried on in a manner likely to sustained risk of serious loss to the creditors (e.g. allowing termination of a sublease). * If franchisee absconds – you are left with the tenant’s obligations. * If the tenant entity has entered into more than one lease and doesn’t have funds to pay any amounts due under a lease – there could be a “knock-on” effect if the tenant is put in liquidation.

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