Exclusivity vs. Non-exclusivity
With the aim of keeping as many options open as possible and of taking advantage of opportunities as they arise, exclusivity is an important consideration when granting licensing rights. Most licensees will ask for it even if it’s not essential in achieving their goals. The theory is that with less competition, it will be easier to differentiate the product, control pricing and discounts, and take advantage of as many channel opportunities as possible. At the same time, licensees understand that exclusivity comes at a higher price. The buyer would have to be prepared to guarantee a certain amount of royalty revenue to the licensor to prevent the same product, or even other versions of the product, from entering the market from another source.
If licensors carefully define languages and/or territories and are able to obtain a large enough financial commitment, they may be willing to grant exclusivity. Instead of granting exclusivity broadly in an entire territory, a better idea may be to limit exclusivity to a specific format or technology (e-books or print, for example), or a clearly definable market, such as the school or library market. If the licensor grants the partner blanket exclusivity in a market and the partner is unable to take advantage of every channel and every format in the market, then the licensor has unnecessarily limited its ability to leverage its IP to its full potential. Non-exclusivity will result in smaller guarantees and minimums, but at least this leaves the licensor free to take advantage of other opportunities that the licensee couldn’t handle anyway. The licensor should never give away more rights than necessary, and the licensee shouldn’t ask for more rights than it can exploit with its own resources.
Although the conservative approach for the IP owner would be to make only non-exclusive deals, this may not always be the right strategy either. In some situations, the price of the freedom to license the property—or even a version of it—to someone else may be costlier than placing all chips on a single licensee. The most lucrative opportunity in some markets may be with a single, dominate player that requires an exclusive arrangement, which may be better in the long run than multiple non-exclusive deals. Because exclusivity comes with commitments and guarantees, the licensee who has an exclusive is highly motivated to succeed.
It boils down to understanding the market as well as possible and finding the right partner—maybe only one partner under an exclusive arrangement—or perhaps multiple partners, each with a clearly defined sales channel. Or maybe the right solution is to have an open market with everyone under the same non-exclusive arrangement. In any case, exclusivity should not be granted lightly and should be valued accordingly. It’s another tool—perhaps the most important one—that the licensor has to help make the right deal for the best possible results.
