Licensed production

{{Short description|Production under license of technology developed elsewhere}} '''Licensed production''' is the production under license of technology developed elsewhere.<ref name=Bitzinger>{{cite book|last=Bitzinger|first=Richard|title=The Modern Defense Industry: Political, Economic, and Technological Issues|date=2009|pages=313–315|publisher=Praeger Security International (ABC-CLIO)|location=Santa Barbara|isbn=978-0275994754}}</ref> The licensee provides the licensor of a specific product with legal production rights, technical information, process technology, and any other proprietary components that cannot be sourced by the licensor.<ref name=LAC>{{cite book|last1=Maldifassi|first1=Jose|last2=Abetti|first2=Pier|title=Defense Industries in Latin American Countries|year=1994|pages=116–119|publisher=Praeger Publishers|location=Westport|isbn=0-275-94729-7}}</ref>

This is an especially prominent commercial practice in developing nations, which often approach licensed production as a starting point for indigenous industrial development.<ref name=Bitzinger/> While licensed production in developing nations provides stimulus to the production and technical capabilities of local industry, in many cases it remains at least partly dependent on foreign support.<ref name=Bitzinger/>

== History ==

[[File:Licensed production of arms1.png|thumb|300px|An example of global licensing agreements: national governments which have purchased foreign licenses to manufacture arms and ammunition are depicted in blue.<ref name="Survey">{{cite web|title=Multiplying the Sources: Licensed and Unlicensed Military Production|author=|url=http://www.smallarmssurvey.org/fileadmin/docs/A-Yearbook/2007/en/full/Small-Arms-Survey-2007-Chapter-01-O-EN.pdf|location=Geneva |publisher=Small Arms Survey|date=2007|access-date=21 September 2016|url-status=dead|archive-url=https://web.archive.org/web/20161223193229/http://www.smallarmssurvey.org/fileadmin/docs/A-Yearbook/2007/en/full/Small-Arms-Survey-2007-Chapter-01-O-EN.pdf|archive-date=23 December 2016}}</ref><ref name=trade>{{cite web|url=http://armstrade.sipri.org/armstrade/page/trade_register.php |title=Trade Registers |publisher=Armstrade.sipri.org |access-date=2015-11-03}}</ref>]]

The four most common applications of licensed production have historically been automotive engines and parts,<ref name="GM">{{cite book|last1=Billstein|first1=Reinhold|last2=Fings|first2=Karola|last3=Kugler|first3=Anita|last4=Levis|first4=Nicholas|title=Working for the Enemy: Ford, General Motors, and Forced Labor in Germany during the Second World War|date=2009|page=64|publisher=Berghahn Books|location=New York|isbn=978-1845450137}}</ref> weaponry,<ref name=Bitzinger/> aircraft,<ref name=Seyoum>{{cite book|last=Seyoum|first=Belay|title=Export-Import Theory, Practices, and Procedures|date=2008|pages=245–236|publisher=Routledge Books|location=Abingdon-on-Thames|isbn=978-0789034205}}</ref> and pharmaceuticals.<ref name=Drugs>{{cite book|last=Byrd|first=William|chapter=8|editor1-last=Loayza|editor1-first=Norman|editor2-last=Keefer|editor2-first=Philip|title=Innocent Bystanders: Developing Countries and the War on Drugs|date=2010|pages=330–331|publisher=The World Bank|location=Washington DC|isbn=978-0821380345}}</ref> During World War I, it was more common for licensing agreements to take place between companies in the same country; for example, Opel was granted a license to produce BMW-designed aircraft engines for the German war effort.<ref name="GM"/>

During the 1920s, European economists began advocating licensed production of foreign goods as the cure for "industrial particularism"<ref name="GM"/>—it allowed countries to bypass the costly research and development stage of acquiring products with which their own industries were unfamiliar, and refocus on the domestic manufacture of preexisting overseas designs.<ref name="UKArms">{{cite book|last1=Croft|first1=Stuart|last2=Dorman|first2=Andrew|last3=Rees|first3=Wyn|last4=Uttley|first4=Matthew|title=Britain and Defence 1945-2000: A Policy Re-evaluation|date=2001|pages=118–120|publisher=Routledge Books|location=Abingdon-on-Thames|isbn=978-0582303775}}</ref> This allowed for a much higher rate of production,<ref name="GM"/> and was considerably cheaper than national sourcing and off-the-shelf acquisition.<ref name="UKArms"/> European automobile manufacturers were the first to adopt this practice, producing a number of specialized American components for their passenger cars under license.<ref name="GM"/> The United States not only supplied European factories with the necessary blueprints and licenses, but also sourced American-made tooling equipment accordingly, which allowed the automobile companies to optimize their production lines.<ref name="GM"/> By the 1960s it was not uncommon for an entire specialized industry—such as the manufacture of rotary aircraft in the United Kingdom—to be dependent wholly on foreign-licensed components.<ref name="UKArms"/>

A number of countries began making improvements to foreign products manufactured under license, and were even able to re-export them successfully.<ref name="Landgren">{{cite book| first = Signe| last = Landgren| title = Embargo Disimplemented: South Africa's Military Industry| date = June 1989| edition = 1989| pages = [https://archive.org/details/embargodisimplem0000land/page/83 83–88]| publisher = Oxford University Press| isbn = 978-0-19-829127-5| url = https://archive.org/details/embargodisimplem0000land/page/83}}</ref> This trend resulted in some technology suppliers imposing additional conditions on the licensee.<ref name="Survey"/> The United States began inserting ''pro forma'' statements into licensing agreements known as ''"side letters"'', which required the free sharing of any improvements made to American technology.<ref name=Lorell>{{cite book|last=Lorell|first=Mark|title=Troubled Partnership: A History of U.S.-Japan Collaboration on the Fs-X Fighter|date=2009|pages=27–28|publisher=Transaction Publishers|location=New Brunswick|isbn=978-1-56000-891-0}}</ref> Other attempts were also made to control the destination of licensed products, particularly with regards to the arms industry.<ref name="Survey"/> For instance, France stipulated that military vehicles manufactured in South Africa under a French license were not to be exported to other foreign nations without its express approval.<ref name="Portugal-ZA">{{cite web |title=Political relations between Portugal and South Africa from the end of the second World War until 1974 |last=Correia |first=Paulo |editor-last=Verhoef |editor-first=Grietjie |url=http://152.106.6.200/handle/10210/2544 |location=Johannesburg |publisher=University of Witwatersrand |year=2007 |access-date=27 February 2015 |url-status=bot: unknown |archive-url=https://web.archive.org/web/20150228011723/http://152.106.6.200/handle/10210/2544 |archive-date=28 February 2015 }}</ref> Yet another form of common licensing restriction related solely to the licensing activity, regulating whether the specified product was fully produced or partly assembled, and whether entire products or their individual components were manufactured.<ref name="Survey"/> The governments of Germany and Switzerland imposed similar restrictions on military vehicles manufactured in Argentina and Chile under license.<ref name=LAC/>

In some cases, the original technology supplier did not need to manufacture the product itself—it merely patented a specific design, then sold the actual production rights to multiple clients.<ref name="Landgren"/> This resulted in different companies separately manufacturing identical products licensed from the same licensee.<ref name="Landgren"/> For many licensee companies, licensed production by other firms provides a continuous outlet for their proprietary technology, increasing their return on investment and prolonging the economic life of the product.<ref name=LAC/>

Developing nations began accounting for a significant percentage of licensed production during the late twentieth century.<ref name="Survey"/> Governments of developing nations often sought to encourage rapid industrialization, reduce dependence on foreign imports, and combat high levels of unemployment by creating and retaining local jobs.<ref name="Survey"/> However, in many of these nations there was not a strong tradition of technology-based industrial development, and local firms were seldom active participants in creating indigenous technology through research and development.<ref name=LAC/> Since their research capacity was typically too limited to meet their goals, adopting licensing agreements for foreign technology was an especially attractive option.<ref name="Survey"/> Manufacturing licensed products generated employment and empowered local industry while reducing dependence on imports.<ref name="Survey"/> It also avoided the risks inherent in the development of new products by taking advantage of the proven reputation of products which had already achieved success in foreign markets.<ref name="Survey"/> The economic life of many products, namely in the automotive and defense sectors, have been prolonged by overseas licensed production long after they were considered obsolete in their countries of origin.<ref name=LAC/>

Developing nations such as Pakistan and Singapore which built important segments of their industry on licensed production have now themselves become licensors of technology and products to less developed states.<ref name=Bourne>{{cite book|last=Bourne|first=Mike|title=Arming Conflict: The Proliferation of Small Arms|date=2007|pages=66–67|publisher=Palgrave-Macmillan|location=Basingstoke|isbn=978-0230019331}}</ref>

==Theoretical basis== [[File:MHV Polski-Fiat 508 1933 01.JPG|thumb|left|220px|1933 Fiat 508 manufactured under license in Poland by Polski Fiat.]] Licensed production is defined as an overseas production arrangement, usually as a direct result of inter-state trade agreements, that permits a foreign government or entity to acquire the technical information to manufacture all or part of an equipment or component patented in the exporting country.<ref name=Seyoum/> According to the World Intellectual Property Organization (WIPO), it must constitute a partnership between an intellectual property owner and a licensee who is authorized to use such rights under certain conditions.<ref name="Survey"/> The licensee is manufacturing a product for which it has been granted production rights under specific conditions, while the licensor retains ownership of the intellectual property thereof.<ref name="Survey"/> In some cases the licensor will supply the necessary technical data, prototypes, and/or machine tools to the licensee.<ref name="Survey"/>

While licensed production is often dependent on the appropriate technology transfers, it does not necessarily entail ownership and management of the overseas production by the technology supplier.<ref name=Seyoum/> However, the licensor does retain the right to continue to use the licensed property, and to attribute further licenses to third parties.<ref name="Survey"/> Occasionally, licensees may themselves sub-license a third party with or without the agreement of the intellectual property owner.<ref name="Survey"/>

Licensing agreements determine the form and scope of compensation to the intellectual property owner, which usually takes the form of a flat ''licensing fee'' or a running royalty payment derived from a share of the licensee's revenue.<ref name="Survey"/> The licenses can be terminated by the licensor, or may expire after a set date; however, the technology and knowledge, once transferred, cannot be rescinded, so even if the licensing agreement expires they remain in the licensee's possession.<ref name="Survey"/>

Two related commercial practices are foreign subcontractor production and the proliferation of knock-down kits. Foreign subcontracting occurs when a product's original manufacturer contracts the production of its individual parts and components to a second party overseas.<ref name=Seyoum/> Such arrangements are not considered examples of licensed production because they do not involve the explicit licensing of technological information.<ref name=Seyoum/> Knock-down kits are regarded as a prerequisite to licensed production; they consist of products assembled locally from imported, pre-manufactured parts.<ref name=Bitzinger2>{{cite book|last=Bitzinger|first=Richard|title=Towards a Brave New Arms Industry?|date=2003|pages=17–21|publisher=Routledge Books|location=Abingdon-on-Thames|isbn=978-0198528357}}</ref>

==Quality control and unlicensed production== {{see also|Public domain#Patents}} {{see also|Counterfeit consumer goods}} Some licensors find it difficult to regulate the quality of their products manufactured under license.<ref name="Survey"/> It is not always made clear to consumers where exactly a particular good originated, and a poor quality licensed product may damage the reputation of the original licensor.<ref name="Survey"/> However, this is not considered a form of consumer fraud unless the product is unlicensed or counterfeit.<ref name="Ersatz">{{cite web|title=Counterfeit products|author=|url=https://www.unodc.org/documents/data-and-analysis/tocta/8.Counterfeit_products.pdf|location=New York |publisher=United Nations Office on Drugs and Crime|date=2010|access-date=20 December 2016|archive-url=https://web.archive.org/web/20161223230500/https://www.unodc.org/documents/data-and-analysis/tocta/8.Counterfeit_products.pdf|archive-date=23 December 2016}}</ref>

Unlicensed production is the utilization of foreign manufacturing technology without a license, achieved through industrial espionage or reverse engineering.<ref name="Survey"/> Products in high demand on the international market can be reproduced, based on the same or similar design, and branded in ways to make them indistinguishable from the original.<ref name="Ersatz"/> When copied and reproduced without a license, certain items are sometimes recopied in a similar manner by a third party.<ref name="Survey"/> The manufacturers responsible may also grant legitimately registered sub-licenses for their unlicensed products, profiting at the expense of the real intellectual property owner.<ref name="Survey"/> The quality of unlicensed goods varies greatly; the United Nations Office on Drugs and Crime has noted that while licensing companies often provide quality control measures, and there is some incentive for licensees to comply or risk legal action and the ensuing damage to their own profit, manufacturers who engage in unlicensed production are under no such obligations.<ref name="Ersatz"/>

Another method of circumventing the need for a license involves a manufacturer making slight modifications in the design or function of an existing product, before reproducing it.<ref name="Survey"/> The manufacturer could then argue that the resulting product is not an unlicensed copy, but a new product not subject to license.<ref name="Survey"/>

Also need to be noted that once the terms of the patent for the particular technology or invention has expired, any manufacturer could legally reverse-engineer and reproduce said technology without needing to negotiate license agreements with former patent holder. However, even after patent terms have lapsed some manufacturers do opt for licensed production, since such agreements also confer transfer of full manufacturing plans and expertise which may prove to be cheaper than acquiring those via reverse engineering.{{fact|date=January 2021}}

== Examples ==  Industrial products which have been built under license include:

*The Belgian FN FAL battle rifle by FN Herstal, produced under license in fifteen countries.<ref name=Bourne/>

*The German G3 battle rifle by Heckler & Koch, produced under license in eighteen countries.<ref name=Bourne/>

*The Italian Aermacchi MB-326 trainer aircraft, produced under license in Australia, Brazil and South Africa.<ref name=Bitzinger2/>

*The British Folland Gnat trainer aircraft, produced under license in India.<ref name=Smith>{{cite book|last=Smith|first=Chris|title=India's Ad Hoc Arsenal: Direction Or Drift in Defence Policy?|date=1994|pages=157–159|publisher=Oxford University Press|location=Oxford|isbn=978-0198291688}}</ref>

*The American Northrop F-5 light fighter aircraft, produced under license in Taiwan.<ref name=Bitzinger2/>

*The Soviet Mikoyan-Gurevich MiG-21 multirole fighter aircraft, produced under license in India.<ref name=Smith/>

*The American General Dynamics F-16 multirole fighter aircraft, produced under license in South Korea.<ref name=Bitzinger2/>

*The British Canberra bomber aircraft, produced under license in the United States as the Martin B-57 Canberra.<ref name=Canberra>{{cite book|last=Tucker|first=Spencer|title=Encyclopedia of the Vietnam War: A Political, Social, and Military History|date=2001|pages=17–18|publisher=Oxford University Press|location=Oxford|isbn=978-0195135251}}</ref>

*The French Aérospatiale Alouette III helicopter, produced under license in Romania, Switzerland, and India.<ref name=Alo>{{cite book|last=McGowen|first=Stanley|title=Helicopters: An Illustrated History of Their Impact|date=2005|page=[https://archive.org/details/helicoptersillus00mcgo_0/page/227 227]|publisher=ABC-CLIO Publishers|location=Santa Barbara|isbn=978-1851094684|url=https://archive.org/details/helicoptersillus00mcgo_0/page/227}}</ref>

*The American Bell UH-1 Iroquois helicopter, produced under license in Germany, Japan, and Italy.<ref name=Bell>{{cite book|last=Pattillo|first=Donald|title=Pushing the Envelope: The American Aircraft Industry|date=2000|page=208|publisher=University of Michigan Press|location=Ann Arbor|isbn=978-0472086719}}</ref>

*The French Panhard AML armored car, produced under license in South Africa as the Eland Mk7.<ref name="Landgren"/>

*The French CM60A1 mortar, produced under license in South Africa.<ref name="Moukambi">{{cite thesis|title=Relations between South Africa and France with special reference to military matters, 1960-1990|last=Moukambi|first=Victor|editor-last=Grundlingh|editor-first=A.M.|url=http://scholar.sun.ac.za/handle/10019.1/1228|location=Stellenbosch|publisher=Stellenbosch University|date=December 2008|access-date=27 September 2016|type=Thesis|archive-date=5 November 2016|archive-url=https://web.archive.org/web/20161105231804/http://scholar.sun.ac.za/handle/10019.1/1228|url-status=dead}}</ref>

*The Italian Fiat 125 passenger car, produced under license in Poland as the Polski Fiat 125p.<ref name=Eastern>{{cite book|last=Mieczkowski|first=Bogdan|title=East European Transport Regions and Modes: Systems and Modes|date=1980|pages=322–342|publisher=Martinus Nijhoff Publishers|location=The Hague|isbn=978-94-009-8901-6}}</ref>

*The Soviet GAZ-M20 Pobeda sedan, produced under license in Poland as the FSO Warszawa.<ref name=Eastern/> *The Finnish Patria AMV armoured personnel carrier, produced under license in Japan, Poland, South Africa, and Croatia.<ref>{{Cite web |date=2023-09-01 |title=Patria and Japan Steel Works Ltd. signed manufacturing license agreement for Patria AMV XP vehicles |url=https://www.patriagroup.com/newsroom/news/2023/patria-and-japan-steel-works-ltd-signed-manufacturing-license-agreement-for-patria-amv-xp-vehicles |access-date=2024-11-27 |website=Patria |language=en}}</ref><ref>{{Cite web |date=2013-08-01 |title=Patria and Poland signed a new Rosomak manufacturing licence agreement |url=https://www.patriagroup.com/newsroom/news/2013/patria-and-poland-signed-a-new-rosomak-manufacturing-licence-agreement |access-date=2024-11-27 |website=Patria |language=en}}</ref><ref>{{Cite web |last=ESD |date=2024-01-24 |title=The 6×6 armoured vehicle market |url=https://euro-sd.com/2024/01/articles/36095/the-6x6-armoured-vehicle-market/ |access-date=2024-11-27 |language=en-US}}</ref><ref>{{Cite web |title=Patria AMV {{!}} Full info on specifications, history, operators & variants |url=https://fighting-vehicles.com/wheeled-afv/patria-amv/ |access-date=2024-11-27 |website=FightingVehicles.com |language=en-US}}</ref>

== References == <references />

Category:Production (economics) Category:Licensing Category:Development economics Category:International trade Category:Industrial policy Category:Intellectual property law *