          
          
                           Licensing
          
          Licensing product technology is an alternative with 
          considerable appeal.  A firm can immediately contribute to 
          its bottom line with little investment or direct cost.  
          What is often overlooked, however, is the missed 
          opportunities and indirect costs of licensing.
          
          Licensing is a very limited form of market participation.  
          High potential returns from marketing and manufacturing 
          efficiencies are lost, and very little market information 
          is gained.  Often licensing agreements prove to be 
          short-lived as the licensee develops the ability to become 
          a competitor to the licensor in all markets.  Indirect 
          costs of managing and policing the licensing agreement are 
          also often overlooked.  There are many cases of licensees 
          under-reporting sales and under-remitting royalty payments.
          
          The key to success in a licensing agreement is having a 
          partner whose goals coincide with your own. Indirect 
          expenses should be anticipated, and the contract should 
          provide for a cross-technology exchange between licensor 
          and licensee.  Important to the management of a licensing 
          agreement is having a well-qualified individual assume 
          responsibility over the management of the contract.  This 
          individual should maintain close contact with the licensee 
          and stay abreast of the Japanese market by visiting Japan 
          periodically.  A carefully constructed and executed 
          licensing agreement can prove beneficial, but the risks and 
          costs should be anticipated.
          
          Until recently, according to the Foreign Exchange and 
          Foreign Trade Control Law, nonresidents who planned to 
          execute or amend any agreement with Japanese nationals for 
          the import of technology had to give prior notice to the 
          Ministry of Finance through the Bank of Japan and any other 
          ministry exercising jurisdiction over the affected 
          industry.  In practice, the investor was notified that the 
          Japanese Government had no objection within one hour 
          following notification, if the proposed investment was in 
          unrestricted industries.  However, as part of an SII 
          commitment, this prior notification requirement has been 
          replaced by ex post facto notification for investment in 
          unrestricted sectors.  Technology transfer agreements may 
          normally be executed except in those cases involving the 
          transfer of specially regulated and/or designated 
          technologies, in which case a report must be filed with the 
          Ministry of Finance and the appropriate Japanese 
          ministries.
          
          Special regulations apply to the following sectors based on 
          the U.S.-Japan Treaty of Friendship, Commerce, and 
          Navigation and the Code of Liberalization of Capital 
          Movements of the Organization for Economic Cooperation and 
          Development (OECD):  broadcasting; telecommunications; 
          electric power generation; domestic rail and air 
          transportation; arms; gun powder; atomic energy; aircraft; 
          space development; narcotic manufacturing; vaccine 
          manufacturing; security guard services; agriculture, 
          forestry, and fisheries; petroleum refining and marketing; 
          leather and leather product manufacturing; and mining.
          
          Moreover, the Japanese Government has specified the 
          following 12 areas as the designated technologies which 
          have significant influence on the security of the nation 
          and the interest of the national economy:  aircraft, arms, 
          gun powder, atomic energy, space development, electronic 
          computers, electronic parts for electronic computers for 
          next generation, appliances for laser processing and light 
          communication, innovative materials, salt electrolysis by 
          nonmercurial methods, petroleum production at sea bottom, 
          and leather and leather products.
          
          In addition to the regulations mentioned above, 
          international technology assistance contracts are subject 
          to screening by the Japanese Fair Trade Commission (JFTC).  
          The licensor and licensee are required to file jointly the 
          report of the licensing agreement with the JFTC within 30 
          days after the conclusion of the contract.  The JFTC is 
          authorized to act if the contract may be interpreted to 
          constitute unreasonable restraint of trade or unfair 
          business practices.  The U.S. Government has sought the 
          removal of this discriminatory filing requirement in the 
          SII.
          
          
