Product of intellectual property

Assets created by an intellect can be considered as intellectual property. It can be a work of music, a painting or other visual work, even the concept, appearance, form and method of making a product or service. The history of intellectual property goes back to the times of feudalism, when the government granted the right to peasants to engage in one or another activity or craft, such as brewing and selling beer, or working furs. By granting permission to engage in activities, the ruler controlled not only the scope of various crafts in his possessions but also collected fees for the granted right. Thus, in a general sense, granting permission to produce a product or provide a service in exchange for a fee is considered as a sale of intellectual property, or a temporary lease. In ancient times, it was associated with the government’s function of regulating business and collecting taxes. Nowadays, this function is performed by the governments of various countries, but the idea has also been adopted by business structures. A government permit is sufficient to brew any beer, but if to brew not just any beer, but the same beer that someone else already brews, and also named as someone else has already named, an additional permission is required, and this permission is given by the original brewer.
That someone would want to make a beer everyone buys is without any apprehensions. People often buy a known product. To increase product awareness, companies invest in increasing brand awareness in their country and around the world. Billions of dollars are spent on brand awareness and advertising. Brand loyalty is determined by a person’s psychological ability to seek security, safety and belonging. What a person knows and has experienced, he perceives deep in his subconscious as safe, and if there is a choice between the known and the unknown, it turns into a question of “safe” or “unsafe” without the person himself sometimes even consciously realizing it. A person who is in unfamiliar environment in another country, when a person is hungry, he or she will usually choose a restaurant with a well-recognized product, a drink with a well-recognized name. The power of a brand when choosing a product for a consumer is enormous. The world’s most expensive product brands are valued at tens of billions of US dollars. So, organizations that have invested in brands and created markets of loyal consumers don’t want someone else to take and name their product or service.
Initially, it may appear that the owner of a brand, a technological solution, a recipe or a way of providing services will never permit others to use his hard-earned value. However, if this is done with quality control, reputation protection and a monetary reward, it becomes an attractive idea for the intellectual property owner as well. Suppose there are people in the market who want to use the intellectual property belonging to another by paying money for it to its owner, in that case there is an opportunity for a business model. Basically, three are three intellectual property-based business models:

• Licensing.
• Patent selling.
• Franchising.

Ex. 4‑1 International business models based on the transfer of intellectual property

Keywords: paten, licence, franchise, intelectual property

All three business models (Exhibit 4-1) are mostly applied in international business, as they are very easily replicated, but the laws of different countries, business traditions, and consumer needs create additional obstacles that must be tackled, as well as risks that need to be managed.
Selling the right to use intellectual property in foreign markets is a very good alternative compared to exporting. Dunning’s OLI paradigm is broadly described in chapter 7 and include such groups of criteria for business internationalization based on ownership, location and internalization. With ownership advantages there is an incentive for export. With location advantages licensing becomes an option. With internalization advantages there is reason to do a wholly owned subsidiary. In the case of export, the entire production risk is borne by the exporter. An exporter hoping for high sales volumes in global markets may make the mistake of investing in excess production capacity. For example, if the sales forecasts do not come true and the product does not become available for purchase in other countries for various reasons, then investments in production capacity expansion may turn into losses. Selling not the product itself to foreign markets, but the right to manufacture that product or provide a service greatly reduces the investment risk for the owner of the product. Thus, this risk is transferred to the buyer of the intellectual property. Even if it does not succeed in foreign markets, the losses are likely to be borne by those who have invested in the building of infrastructure and capacity for production or service provision. The opportunity to generate income and reduce risk is very attractive to multinational organizations, so the intellectual property-based model of penetrating foreign markets is becoming increasingly popular around the world. In order to further delve into the nuances of this business model, the advantages for both partnering parties of the business model, three models have been separately defined for the beginning, which, although they have common similarities, are slightly different in their essence.
One of the biggest risks in all international business models based on intellectual property is the deceitful actions of business partners and the illegal use of intellectual property. In different countries, due to differences in cultures, traditions, and legal systems, intellectual property is respected and protected by law quite differently. Nowadays it is getting common that new technology or recipe is copied in another country leading to the creation of similar product based on that. However, legally protecting intellectual property when its illegal user is located in another country is quite challenging, and sometimes impossible. Note, that it is also a lopsided deal. The seller of intellectual property has knowledge, the buyer is paying but doesn’t really know what it is paying for. Part C of the book explains in detail about cultural differences that have a huge impact on business.
The International Trade Organization is designed to ensure common rules for business conditions. One of the functions of WTO is to ensure the protection of intellectual property worldwide. However, despite these efforts, this area remains quite vulnerable, especially when it comes to illegal copying and use (Bouchoux, 2016).