Johann, a German, is an inventor who has invented a new device called a Magna-Hickey. Johann owns a company, TekWunder, that will manufacture and distribute this device. It is estimated that the device will generate world sales of $20 million per year. At some point within the next three years, Johann plans to have the device manufactured in China, because he can produce it in China at half the cost of German production.
Johann encounters a manufacturer in Shenzhen, China that would like to enter into a licensing agreement with TekWunder to produce Magna-Hickey devices. This manufacturer would produce the device for sale in Asia and would pay Magna-Hickey 5% royalties on sales. It would also sell Magna-Hickeys back to TekWunder at a price that is half of TekWunder’s German production costs.
a. What intellectual property concerns should Johann have in regard to entering into a licensing agreement with the Chinese manufacturer?
b. What challenges will Johann likely face in managing the licensing arrangement if he were to enter into a licensing agreement with the Chinese manufacturer (identify at least four).