Drill-Bit Manufacturing Company, Inc

1140 Words3 Pages

Drill-Bit Manufacturing company, Inc. wants to license its product out to Mexico. Dill-Bit should take certain steps to protect its IPR. Within the Mexico licensing agreement, Drill- Bit manufacturing should lay out what its expectations are and how they should be met.

Drill-Bits success largely depends on the quality of its products. This has been apparent in both the home market and over seas. Its German manufacturer has kept the same standards as in the U.S. which has lead to a licensing agreement that has been completely satisfactory. Drill-Bit must emphasis the importance of this matter in the licensing agreement with Mexico. One problem that can arise is if the Mexican manufacturer does not comply with the integrity of the manufacturing process to maintain quality. This will lead to a gray market. This might happen if the Mexican manufacturer is not able to charge the same premium as in the home market. Since the U.S. licensor might have established such a good reputation of quality in the U.S. market it is able to command a substantial premium for its product there. In the licensing agreement with Mexico Drill-Bit’s should therefore make a provision that if its drill bits are not to standard, it will revoke its licensing agreement with Mexico.

Drill-Bits should also concern itself with protecting the company’s intellectual property/know-how. This could be done by Drill-Bit (licensor) if they demand that the licensee’s employees enter into a confidentiality and non-exploitation agreement in which the licensor could enforce in the event of a breach or threatened breach. Protecting the company’s intellectual property is crucial for the success of any business. One other thing that should be mentioned in the licensing agreement is what will happen if the licensee makes any improvements to the licensed product. Who will have control of the new technology?

Payment by the licensee is crucial to the business. It was noted in the facts that temporary shortages of hard currency and exchange controls have lead to delayed payments. Drill-Bit should try to control these risk. Drill-Bit should also concern itself with other currency risk. The two main currency risks are fluctuation risk, and inconvertibility risk. One way that Drill-bit could help control these risk is to include in the licensing agreement that the licensee will pay lump-sum, hard currency payments as soon as possible. Another possibility is to build currency adjustments mechanisms into contractual payment terms through profit margin preservation provisions or unitary index adjustment factors as stated on page 555.

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