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MINIMIZING THE LEGAL RISKS IN GLOBAL LICENSING OF TECHNOLOGY
A. Introduction
Advancements in technology are continuously occurring throughout the world as firms seek to develop new ideas for their products, services and markets. Companies wishing to expand into the international arena are finding that licensing or transferring their technology provides a low risk and highly profitable alternative to direct export, establishing a foreign branch, subsidiary or joint venture. A license is a contract which authorizes the use or exploitation ofthe subject matter of the license for a specified purpose and period of time, with all other rights maintained by the owner of the technology. Alternatively these rights may be transferred outright to a new owner.
The decision to license their technology to an established firm that can sell their technology or products is often motivated by a desire to penetrate markets which the licensing company might not otherwise be able to penetrate through export or direct investment. This is because the licensor does not have the resources to achieve full commercial exploitation of their intellectual property on their own. For instance, a computer software developer might license a computer manufacturer to distribute the developer's software to take advantage of the manufacturer's greater resources for marketing and product distribution. By adding the licensee's resources for specified business operations to its own, the licensor can serve markets it would otherwise not be able to enter. For example, IBM selected Microsoft's MS-DOS operating system software to build the PC-DOS operating system for IBM personal computers enabling Microsoft to obtain the benefit of IBM's extensive marketing and distribution system.
Also, few firms have the personnel or resources to market their product worldwide because of the need to deal with foreign language issues, customs and physical modifications of the products as required under local law. The use of a foreign concern with the necessary resources and familiarity with the foreign market, customs and needs often provide the licensor with the fastest route to the foreign market.
Licensing also presents certain risks. There may be loss of control over further exploitation of one's intellectual property, e.g. under a manufacturing license, the licensor surrenders direct control over the details of the manufacturing process and quality of the products. With regard to a...