Is Your Exclusive Licensing Deal Costing You Money?

I’m often asked what exclusivity means in a licensing agreement. I always like to say there’s no such thing as an exclusive, exclusive. Exclusivity should always be tied to performance.

Here’s an example of how this works. I was negotiating a deal for a client with oral health care technology. It was a large company, and they wanted global rights. I asked if they planned to launch the product in all the markets at the same time. Which, of course, they weren’t. They were going to start in certain territories. In that case, we discussed granting exclusivity when they started selling in each country.

Keep in mind even when you give exclusivity, it’s always performance-based, and your partner must continue to earn that exclusivity. Whether it’s sales activities, royalty payments, or development benchmarks, exclusivity should always be tied to a performance milestone. That gives you the ability to control the outcome of your license agreement better and make sure your partner will do everything possible to achieve those goals.

If you give a partner blanket exclusivity without any performance milestone tied to it, you can wind stuck in a deal going nowhere and costing you lost income opportunities. I consulted with a couple of inventors in this situation. They’d given their partner exclusivity, but they didn’t base it on performance. They had to wait until their agreement expired before they got their rights back, which took years, and you don’t want to be in that situation.

The key to remember is that exclusivity means just that: you are in partnership only with each other for the duration of that deal. Non-exclusive deals, on the other hand, obviously provide flexibility. They allow you to license other companies, if you choose, for the same products or same territories (although it’s not always advisable to do those).

Exclusivity is one of the most valuable rights. It can be negotiated in many ways, whether by territory, market application, distribution channel, or even from non-exclusive to exclusive. Most importantly, always remember to tie exclusivity to one or more performance milestones. Otherwise, it can wind up excluding you from making the most money on your licensing deal.

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