Forums: Discussions for entrepreneurs and small business.

I am wondering if anyone can give the downside to a non-exclusive license agreement.

My company has a nationally known product in which I invented a couple years ago.  We have broad distribution all over the country, however there are several retail giants that will not put in the effort to take on a one product company(which we are).  Due to this problem, I researched several ways to get it into these retailers, one being a license agreement with a company that already takes a product line into these stores.  I have everything set up, all I have to do is sign the agreement and we are in.  This will get me right into Autozone, Advance Auto, and O`reilly. 

The advantages that I see in this is that I have been unsuccessful in getting into these retailers, the free publicity of being in those stores, royalties for not doing anything, and with the quantities that we would be talking about would bring down my manufacturing cost substantially.  What I don`t know is the disadvantages.

This would be a non-exclusive agreement, meaning I can sell everywhere else besides the above mentioned retailers.

Does anyone have any input on the disadvantages of this type of agreement? 

Thanks in advance!

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Trent Rousey
President - 3R Products, Inc.

T

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Trent Rousey
President - 3R Products, Inc.

A nonexclusive license has few disadvantages, if you can get a licensee company to accept one. However, you may find that the licensee is not as motivated to distribute your product at a level that you may have envisioned. For that reason, you may consider proposing performance milestones in your license, allowing you to terminate upon insufficient performance.

Another disadvantage is that you may have lost out on a "big payday" that comes with an exclusive license. A nonexclusive license may seek to negotiate a somewhat low licensing fee, meaning that you may need to enter into a high volume of licenses in order to capture the value that you have placed on your product.

Best wishes in your venture!


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Independent Distributor of Nutronix International and The Berry Tree

http://income.wellnessguy.info
http://products.wellnessguy.info
http://bbb.wellnessguy.info

If I were faced with this certain type of situation, I would be more apt to put together a private label rather than a licensing agreement.  Unless, I have your information wrong, it seems to me you have your manufacturing and sales together but it comes down that the buyer does not want to invest in just one sku.  In my mind, I would look at a private label.  You still reap the benefits of being accepted into the mass retail sector as well as still making a profit. 

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Michael Bloom is President of Sinotech in Portland, Oregon, which has been engineering and supplying custom mechanical and electromechanical parts to clients across the globe for over 20 years. Michael is certified by the U.S. Small Business Administration as a Global Trade Counselor and by NASBITE International as a Certified Global Business Professional (CGBP). Michael received his B.S. in Electrical Engineering from the City College of New York, an M.S. in Counseling from Long Island University and has done doctoral work in Educational Administration at Hofstra University. He is the former President and current Board member of the Northwest China Council and an advisor to Portland’s Small Business Development Center. Michael is also a speaker for the Jewish Federation of Portland’s Hope for Peace project and a founder and officer of the Oregon-Israel Business Alliance. He has published more than 50 magazine articles and conference papers and has been quoted often in various media outlets on issues concerning China.

MichaelB,  Could you elaborate a little more on what a private label is? 

Thanks in advance.....Trent

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Trent Rousey
President - 3R Products, Inc.

I recently made a product (service) available on the web and a large company contacted me wondering about "tweaking" our program for their specific needs. I`m thinking that I would then need to license our product (it`s a web-based software program) to them, but am unfamiliar with the process of doing this.

Am I thinking correctly and, if so, what are my first steps?

Thanks!
Casey

You should be thinking about a license.  Do they want to adapt your program themselves or are they interested in you adapting the program to their needs?

Do you have any copyright protection on the program?  If not, I would recommend that you file a copyright application as soon as possible.  That way you can license them the copyrights to the program.  You can give them the right to use the program and modify the program, or you can modify the program for them and license the use. 

-Gene

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Gene Quinn
Patent Attorney & President of IPWatchdog, Inc.
http://www.ipwatchdog.com