Licensing Agreement between Alarmz Ltd and Rio Inc - Essay Example

? FEASIBILITY REPORT OF LICENSING AGREEMENT BETWEEN ALARMZ LTD. (Britain) & RIO INC. (Brazil) Prepared for Senior Managers Prepared by XYZ d: 26 November 2011 Table of Contents Introduction Issues Related to Licensing Agreement with a Brazilian Company 1) Government Permissions 2) Cultural Differences 3) Legal Support and Protection 4) Employment and Labor Laws Differences 5) Customs and Tariffs, Excise Duties and other Taxes 6) Competition and Economic Barriers 7) Higher Barriers to Enter Market 8) Documentation Overcoming the Problems Advantages and disadvantages of entering into a licensing agreement with Rio Inc. 1) Expansion of Business without Investing More Capital 2) Capturing of a New Market Share 3) Brand Awareness and Goodwill Creation 4) Cost Effectiveness 5) Competitive Advantage 1) Intellectual Property Theft 2) Lack of Legal Enforcement Model Types of Intellectual Property Protection 1) Trademark 2) Patent 3) Copyrights Identification of Organisations Conclusion References Introduction Building strategic partnerships overseas provides ample opportunities to both companies. Alarmz Ltd plans to enter into a licensing agreement with a Brazilian company Rio Inc. for the purpose of manufacturing and distributing a new tamper – proof vehicle alarm. This report aims to explore the possible issues related to this licensing agreement. Issues Related to Licensing Agreement with a Brazilian Company A licensing agreement involves a number of issues that a British company needs to consider before finalizing the deal with a Brazilian Company. Prominent issues are: 1) Government Permissions A licensing agreement with a foreign company for manufacturing and distribution of a product requires initial permissions from the relevant government (Stamicarbon 2011). These permissions will authorize the licensing agreement and allow Alarmz Ltd. to transfer its technology to Rio Inc. for a definite consideration. 2) Cultural Differences Both of the participants in this licensing agreement have different cultures. These culture poses great challenges to the effective execution of the licensing agreement in its true spirit. 3) Legal Support and Protection Legal protection acts as a corner stone for a business. In the instance where legal protection is weak or unavailable, the business survival can be at high stakes. Therefore it is important to ensure that the protections available to Alarmz Ltd in Britain are also available in Brazil. Intellectual property protection is of greatest importance. Therefore, it is important to understand the protection that is provided to the intellectual property, the types that are protected and time taken to register the rights. 4) Employment and Labor Laws Differences The economy of a country keeps on fluctuating. The employment laws are also affected considerably (StartupOverseas 2011). Therefore, there is a risk of strike by labor unions against any government measure or legal changes. As a result of which Alarmz Ltd will have to suffer in terms of the license royalties which will be considerably varied. 5) Customs and Tariffs, Excise Duties and other Taxes The customs, tariffs, excise duties and other taxes define the scope of government intervention in a particular industry. In case Brazilian government has imposed higher taxes to discourage certain practices, it might affect the license agreement execution significantly. 6) Competition and Economic Barriers The existing competition in the established market can pose great challenges to Rio Inc. to undertake the license agreement successfully and make a profit. The old market players have a marked share of the market based on their hard earned goodwill and reputation. The customers recognize, accept and value the products of the established brand names in the country. They doubt any new entrants with a zero-track record of activities in their own country. When Rio Inc. will start the business of manufacturing and distribution of vehicle alarm in Brazil under the trademark of Alarmz Ltd, it may have to face problems in regard to the customer resistance in purchasing the new brand. In case of non-acceptance by a large number of customers can create problems for the company to sustain in the new market. 7) Higher Barriers to Enter Market Higher barriers to enter the market can also affect the potential business in Brazil (Compustream 2010). 8) Documentation In United Kingdom, the legal documentation helps in creating evidence for future challenging in the courts. This requirement is also present in Brazilian laws which require documentary proofs of existence of both companies, the licensor’s profile, financial documents and all other necessary taxation documents to verify that the business is legal. Overcoming the Problems In order to overcome these problems, Alarmz Ltd will have to undertake necessary steps to ensure that Brazilian market is a feasible market to enter. Undertake its PESTEL analysis to understand the macro-environment of Brazilian Automobile Manufacturers. Particularly, in reference to the economic factors that includes government intervention, support and subsidies provided to foreign companies that license local companies to manufacture on their behalf (UHY 2010). Advantages and disadvantages of entering into a licensing agreement with Rio Inc. There are numerous advantages of issuing licenses to other companies, namely: 1) Expansion of Business without Investing More Capital Licensing allows the company to expand the business and enter into other markets without itself investing more capital or developing the infrastructure (Brazil 2011). The licensee is an established business in that market and becomes authorize to use the technological knowledge, expertise, intellectual property that includes trademark, patents, copyrights, etc. to expand the business of licensor. 2) Capturing of a New Market Share Licensing allows capturing of a new market share without investing any capital. In return, the licensor is paid the agreed amount on each sale. 3) Brand Awareness and Goodwill Creation The licensing agreement helps in establishing goodwill in a new market of the licensor’s intellectual property through brand awareness, marketing and promotion activities (BIC 2011). The expense of these activities is purely borne by the licensee. 4) Cost Effectiveness The licensing agreements provides a cost effective method to expand into other parts of the world without investing a single penny. 5) Competitive Advantage The licensing agreement helps in creating value for the firm and therefore, the licensor achieves competitive advantage. There are also disadvantages of licensing: 1) Intellectual Property Theft The licensing agreement permits the licensee to use the intellectual property of the licensor. However, in most cases the licensees acquire the registrations of these intellectual property rights in their own name and revoke the actual agreement. 2) Lack of Legal Enforcement Model In case of weak legal protection and enforcement available in a foreign country can significantly affect the ownership of the intellectual assets of the licensor firm. Types of Intellectual Property Protection The new technology used in the vehicle alarm was invented in England by Alarmz Ltd. Whilst working with Rio Inc. following types of intellectual property protections will be required: 1) Trademark The trademark is any mark that distinguishes goods from one manufacturer to another. It protects the trade name, company name, brand names, slogan, smell, sound, color and combination of words and symbols (Brazil Patent). Trademark is a territorial right. That is a trademark registered in one country has to be applied for registration in other countries of interest. However, the trademark registered in one country does not guarantee its protection in the other countries also. The registration of a trademark is dependent upon the existing registered trademarks and those in use. Therefore, the first step to trademark protection is to conduct an initial search of the availability of the trademark in a particular country. Once available, the trademark has to be filed in the National Intellectual Property Office. The Office undertake a thorough examination of the applied mark in terms of its fulfillment of trademark criterion, qualifications and the existence of any similarities in the prior available trademarks. Every mark has to undergo thorough examination to qualify for the trademark protection. This protection initiates from the time the mark has been filed for registration once approved till 10-15 years. The life of a trademark varies from country to country. Before the expiry of the initial 10-15 years, the trademark can be applied for renewal of the trademark protection for another 5-10 years depending upon the legislation of a country. The renewal can be made before the expiry of the renewal protection period until desired. However, in case the trademark is found to be not in use by the owner and a complaint is lodged before the national intellectual property office of a country by a potential user, an inquiry is made into the affairs of that trademark’s owner. Upon satisfactory evidence, the trademark protection is cancelled and a fresh application is filed by the prospective applicant for that trademark. Alarmz Ltd should be registered as a trademark in Brazil. The brand name of the vehicle alarm that has to be manufactured and then distributed in Brazil should also be registered. Without filing for trademark registration can result in serious consequences. The unregistered trademarks can be stolen and used by the third parties. In such case, without registration records, the victim does not have any rights to take action against the infringers. Thus, lose the trademark and any associated goodwill or reputation. 2) Patent Patent is a right that is granted by the government to an inventor of an original invention that qualifies the three criterion of patentability. The patent protection has a life of 20 years from the date of filing and varies from country to country. Furthermore, patent is also a territorial right and requires individual registration in countries of interest. The patent protection, however, is disclosure sensitive. Therefore, the patent can only be granted for an invention that has not been disclosed to anyone but the co-inventor and cannot be made commercially available prior to the grant of protection. Otherwise, the invention becomes known and enters the public domain or prior art. Such inventions are not eligible for the grant of patent. Therefore, an inventor has to seek for patent protection prior to manufacturing and distributing the particular invention. Importantly, the patent protection will initiate from the date of filing of a patent application in that country. The courts of law consider the protection from the filing date and therefore, the inventor can continue its operations once the application has been filed. However, in case the invention does not qualify the criterion of patentability and subsequently refused patent protection. The inventor will have no rights over the invention and it will become public property and prior art. The patent protection is important to ensure that the invention of Alarmz Ltd is protected in Brazil also. Patent rights are territorial in nature. Therefore, it is important to apply for the patent protection in every country individually. Alarmz Ltd will lose the patent protection in Brazil if it initiates the licensing agreement prior to the filing of the patent application. 3) Copyrights Copyright is a right to refrain others from copying, translating, adapting, selling, using commercially any literary, artistic, cinematographic, records works of any copyright holder without prior permission and authorization to do so. In return, user has to pay royalties to the copyright holder for the use of that work in any manner authorized by the copyright holder. The copyright protection is inherent in the copyright work. However, it can be registered with the national intellectual property office. As a result, the copyright holder has a right over the work for 50 to 70 years after the death. This time varies with every country. In case of Alarmz Ltd, the copyrights will protect the literary work and the packaging materials associated with the distribution of the vehicle alarm. Also, it will protect the calligraphy or typography of the trademark. 4) Trade Secrets There are few limitations of the trademark, patent and copyrights. Firstly, trademark, patent and copyrights have a life that ends upon which the work enters the public domain. Secondly, each of them have a limited scope of work they can protect. There are many other instances and aspects of a business transaction that requires protection under intellectual property rights. However, they are not described in the Trade Related Intellectual Property Rights (TRIPS) Agreement. Therefore, all those aspects of a business including the trademark, patent and copyrightable works can be protected through trade secrets protection. There is no distinct law for trade secrets. However, it is the protection of any secret that cannot be disclosed to any one including the examiners in national intellectual property offices for an unlimited period of time. To become eligible for enforcement in the courts of law, it is important to show through implied and verbal manner that the owner of the trade secrets have taken full and reasonable measures to protect the secrecy of the trade secret. The most prominent example of a trade secret is the recipe of Coca Cola. The recipe is unknown to the entire world after a lapse of 100 years. The owners, employees, internal and external legal advisors are all unaware of the actual recipe of Coca Cola. It has not be protected under any type of intellectual property for the sake of its secrecy. Thus, it still enjoys unparalleled popularity and competitive advantage over all other Colas in the world. Identification of Organisations The primary organizations to get intellectual property rights protection and other related registrations are: 1) Brazil Patent 2) Intellectual Property Office of Brazil 3) Brazil Customs 4) Brazil Government 5) UK Patent and Trademark Office Conclusion The licensing agreement proposed to be signed between Alarmz Ltd and Rio Inc. has numerous advantages. However, it requires attention in regard to protection of its various legal rights including intellectual property rights. References BIC 2011, "Access to Brazilian markets-distribution, manufacturing, licensing", Blog of Intellectual Capital. Accessed 26 November 2011. Available at: http://boic.wordpress.com/2011/06/28/access-to-brazilian-markets-distribution-manufacturing-licensing-june-2011/ Brazil Patents Portal. Accessed 26 November 2011. Available at: http://www.brazilpatents.com/ Brazil 2011, "Getting a Siscomex License", The Brazil Business. Accessed 26 November 2011. Available at: http://thebrazilbusiness.com/article/getting-a-siscomex-license Compustream 2010, "Brazil: Market Entry Information", Compustream Consultoria Ltda. Accessed 26 November 2011. Available at: http://www.compustream.com.br/downloads/Brazil%20Market%20Entry%20information.pdf Stamicarbon 2011, "New Award in Licensing Business in Brazil", Stamicarbon. http://www.stamicarbon.com/news/NEW-AWARD-IN-LICENSING-BUSINESS-IN-BRAZIL.html StartupOverseas 2011, "Exporting", Brazil. Accessed 26 November 2011. Available at: http://www.startupoverseas.co.uk/starting-a-business-in-brazil/import-and-export.html UHY 2010, "Doing Business in Brazil", UHY. Accessed 26 November 2011. Available at: http://www.uhy.com/media/PDFs/doing_business_guides/Doing%20Business%20in%20Brazil.pdf Read More