The key difference between a designated distributor agreement and a direct licensing agreement is a provision limiting the source of the licensed products. The distributor is required to negotiate and purchase the licensed product only from a specific licensee, not the licensor. Most important, the agreement also specifies that the distributor does not have any rights to manufacture, distribute or sell any other products using the licensed IP.

There are a number of advantages of this type of agreement. For the IP owner, this type of agreement allows you to maximize your royalty revenues from increased sales and a higher royalty payout. The distributor licensee will typically pay the same royalty but it will be based on a higher net sales price to their customers (as opposed to the manufacturing licensee which pays the royalty based on net sales directly to the distributor).  

For the manufacturing (traditional) licensee, they get the rights to sell to the designated distributor, and generate additional sales without having to spend the time and resources to expand into a new territory. Because the distributor licensee does not incur the product development costs, they benefit from higher profit margins.

A designated distributor arrangement offers the IP owner a way to expand the licensing program into new channels and territories. For the licensee, this is a good option to license a popular IP at a lower cost and get into the market quickly.

Acquiring intellectual property can be a great strategy to expand your business. The best approach is to understand what type of IP you are searching for, such as a new patented product or technology that is ready to commercialize, or a big brand that can be added to your product line.

Simply owning rigsht to an IP does not mean it will be a successful product. It has to be the right fit for your business.  The first step is determining what type of IP to license. Some aspects to consider include the licensor (can you work with them), the market (is it growing), ease of commercialization (what does it take to get it to market), does it offer a competitive advantage (will it be exclusive), does it solve a problem (will it help others to be successful) and a bit of luck.

I often work with clients who are looking for entertainment brands to license. The first thing I do is help them determine what types of entertainment IP make sense for their products (if they have a toy, then we focus on kids IP). Knowing what you are looking for makes the search process more efficient and improves the chances for finding the right intellectual property.

The next step is knowing where to find the intellectual property. For example, if you are searching for a new patented product, a good starting point are the IP government databases. Some examples include the US Patent and Trademark Office, and the European Patent Office. There are also many on-line private IP databases including Google Patent Search, IP Exchanges, such as Yet2, IP brokers, auctions and hundreds of non-government organizations and directories.

Many big IP licensing opportunities are found using inside sources such as industry trade events, investment conferences, and trade shows. If you are new to licensing, or don't have the expertise (or relationships), this is where licensing agents and consultants (such as myself) can help.

In today's challenging marketplace, it's worth the time to find a good intellectual property. Not only does it provide a competitive advantage, it can reduce internal product development costs, launch a new product in less time, and increase the stature of a business based on its association with the licensor.

Negotiating a licensing deal the right way is the key to a successful partnership. During this webinar, you will learn:  

• How to negotiate the key terms 
• The pros and cons of using someone else to negotiate on your behalf
• 4 real world negotiating strategies

Click here to view the webinar. 

Ask Rand Brenner