Inventors Need to Understand The Advantages and Disadvantages of Exclusive and Non-Exclusive Licensing

When many Inventors think about licensing their idea/invention they think of Exclusive and non-exclusive as the only options. What may be overlooked is the way these can be used to your advantage. Example, if I licensed my idea to a toy company and they wanted an exclusive contract it can say that I am exclusive to the toy industry but open to any non toy markets. So I can go to the pet industry and get an exclusive deal there and not violate the contract with the toy company.

This can work well in your royalty percentages because most companies want an exclusive deal for their industry to keep their competition at bay and will give a better royalty percentage for that deal. And this allows you to seek other markets that do not affect the company you already have a deal with. Now you can still go after multiple non-exclusive deals in a particular industry but the percentage is normally lower because they know they will possibly have competition. Going the non-exclusive route can also have its pitfalls.

Lets say you go to SpinMaster toys and get a non-exclusive deal for 3% royalty.But had it been an exclusive license they would have paid you 5% royalty. And now you approach Lego with the same non-exclusive deal and they have interest. You have to disclose to them you already have a non-exclusive deal with SpinMaster Toys. This information may cause Lego to pass on the deal because they know they already have competition in the market and SpinMaster already has a leg up getting to market since they are already in the process of making the toy. So does Lego take a chance they can still grab a large portion of the market or do they pass because of the competition?

This will be the challenge for every company you approach after getting the first deal.

If you sign a exclusive deal with a company that states they are the only licensee, you can not go after any other industry even if the other industry is not in their competition area.

If you have a technology that can jump to other markets make sure you indicate this once you have interest from a company. You do this for a couple of reasons. One to let them know you will be pursuing markets outside their area and it needs to reflect this in the contract and it also lets them consider it for other markets they may be in you are not aware.

There are many companies known to consumers for being in one market, but are also in a diverse multiple of markets. So, by doing your research and knowing the other markets they are in you can tailor your pitch to show how they can possibly get multiple market sales off of one product idea and grab a larger market share before the competition. And you can be prepared to negotiate the type of deal that works best for you and your idea/product.
Here is a good example. Look at the Newell company. Were you aware they are in all of these markets? http://www.newellbrands.com/OurBrands/Pages/our-Brands.aspx

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