Licensing

Licensing is a contractual agreement to use a brand name, patent or property that is owned by another business entity. A licensing agreement represents a legal agreement that gives a person or entity the right to make or market a product or service to which someone else owns the rights. A licensing agreement may permit the use of intellectual properties, such as trademarks, patents or designs. Licensor The party, who grants individuals or companies the rights, is the "licensor," usually has final approval on the quality of the product, service or other creation. Licensor is generally the parent company. It may require that a model of the product or packaging meet its standards before final production and marketing can take place. The contract may also contain provisions that deal with the quantity of items that the party may produce, sale territories, and requirements for disposing of excess or unsold merchandise. Licensee The licensee has the right to use, manufacture or sell the property in exchange for an agreed payment to the licensor. The licensee agrees to follow certain restrictions as outlined in the agreement Fees The licensee agrees to pay a fee or royalties to the licensor. Standard payments for rights run anywhere from 6 to 10 percent of sales. Generally, the consideration depends on the type of property involved and the licensee's understanding and sophistication in putting together licensing deals. Time Frame The duration of the agreement is an important element of a licensing contract. Contracts usually have clauses that outline the length of the agreements as well as options for renewing contracts or stipulations for terminating licensing agreements.

Difference between the franchising and licensing: To some extent licensing and franchising is same. Someone may think that licensing and franchising is same, but, both two have some difference. These differences are observed in the following area: 1. Initial Payment: In case of franchising initial payment is much higher, but, in case of licensing initial payment is lower. 2. Parents controls: in case of franchising parents have more control over business, but, in case of licensing parents company has lesser control over the licensee business. 3. Parents supports: in case of franchising parents provides more support to the franchisor. Parent company provides training to the employee and provides operational helps to the franchisee. On the other hand, parents company of licensing business provides less helps to the licensee. 4. Territorial rights: in case of franchising franchisee gets the right to operate in a particular area within which any other can not franchise the same business. That means, franchisee has the monopoly power in a particular area. But, licensee do not enjoy this facility, any other organization can take license to do the same business from the parent company. Example:

Coca-Cola:
Coca-Cola is the popular beverage in the world. It is a US based company registered in March 27, 1944. It has unique formula, thats why it has got much popularity in the whole world. Seeing its popularity Tabani Beverage, a state own company of Bangladesh got the license to bottle the coco-cola and marketed in Bangladesh. Then the coca cola also become popular in Bangladesh. But, because of the inefficiency of the Tabani beverage, it incurred huge loss in the business. Abdul Monem Limited (AML) has taken the advantage of the inefficiency of Tabani beverage. AML has become success in convincing the Coca-Cola parent company and got the license to bottle the Coca-Cola in Bangladesh. Then, the Abdul Monem Limited has become the successful bottler company in the Bangladesh and the Tabani beverage is out of market. Now, what Coca-Cola beverage we are drinking, it is bottle by Abdul Monem Limited.

With coke, it is also bottling the other Coca-Cola product like Fanta, Sprite, Sunfill Mango Juice & Kinley Drinking Water. PHILIPS: Bangladesh Electrical Industries (BEIL) a subsidiary of Transcom group limited, is a producer of televisions and radios in Bangladesh and is the official licensee of PHILIPS Electronics N.V. Holland. The company was incorporated in 1960 as a subsidiary of PHILIPS, Holland. In March 1993, PHILIPS sold its entire shares to TRANSCOM.