Intellectual property such as inventions, software, and trademarks often become more valuable when licensed to other parties. The licensing method, whether “exclusive” or “non-exclusive”, greatly affects both the value of the IP and the royalty revenue generated.
What is an Exclusive License?
An exclusive license allows one licensee (a company or individual) to use the intellectual property within a specific territory or for a particular product category. In this arrangement, the IP owner agrees not to license the same rights to anyone else for the duration of the agreement. In an exclusive license even, the owner needs to refrain from using the IP itself in the licensed territory. This is contrasted with an exclusive license with a sole license in which the owner gives a license to only one person in a given territory and the owner & licensee both sell the licensed products in that territory but the owner cannot give license to any other party to sell the products in that territory.
Trademark Example:
For instance, ‘Glam,’ a luxury skincare brand, may grant FreshFace Pvt Ltd an exclusive license to use the ‘Glam’ trademark for facial wipes in India. This means only FreshFace is permitted to sell facial wipes under the ‘Glam’ trademark in that region. Additionally, Glam cannot license this right to any other company for the same product in India, nor use the trademark itself for facial wipes in that territory.
Patent Example:
Consider Aman, who invents a water-saving tap and grants SplashTap Co. an exclusive right to manufacture and sell the tap in Maharashtra. Consequently, only SplashTap can use the invention in that state, and Aman cannot license it to any other company for the same purpose in Maharashtra.
A sole license also exists, under which both the sole licensee and the licensor are entitled to use the trademark.
For example, if ‘Glam’ grants FreshFace Pvt. Ltd. a sole license to use the ‘Glam’ trademark for facial wipes in India, FreshFace may sell wipes using the ‘Glam’ trademark in that region, but Glam itself also retains the right to do so. However, Glam cannot grant this right to any other third party for the same product in India.
What is a Non-Exclusive License?
A non-exclusive license allows the IP owner to license the same rights to multiple parties simultaneously and to continue using the IP themselves. This approach provides a broader market coverage.
Trademark Example:
“Glam” may choose to give non-exclusive trademark licenses to six different companies for using its brand on hair brushes across India. All six licensees, plus Glam itself, can use the trademark for this product category nationwide.
Patent Example:
Aman can grant license rights for his tap invention to five different manufacturers across India, allowing each of them to produce and sell the taps, alongside Aman himself.
How Licensing Type Affects IP Value
Exclusive License
Higher Per-License Value: Because the licensee enjoys unique market access, an exclusive license usually commands a premium price.
Improved Brand Control: For trademarks, an exclusive partner helps maintain consistent product quality and brand reputation.
Example:
Glam licenses its trademark for wipes only to FreshFace. This exclusivity makes the brand more distinguished and can raise Glam’s reputation and perceived value, especially if FreshFace performs well.
Non-Exclusive License
Multiple Revenue Streams: The owner receives payments from several licensees, which may collectively deliver more revenue than a single high-value exclusive deal.
Broader Market Reach: Multiple companies can use the IP simultaneously, increasing exposure and consumer access.
Example:
If Glam gives non-exclusive rights for facial wipes to six companies, the trademark appears in more stores and regions. Glam earns royalty payments from each licensee, quickly growing its brand presence and revenue.
Impact on Royalty Revenue
Exclusive License
Larger, Single Payment: Royalties or fees are typically higher but depend on only one licensee.
Greater Risk: If the exclusive partner underperforms, the IP owner’s potential revenue is reduced.
Example:
FreshFace agrees to pay Glam ₹10 lakh each year for five years to use the “Glam” brand exclusively for wipes in India.
Non-Exclusive License
Smaller, Multiple Payments: Each licensee pays a lower fee, but total royalty income can be higher with more licensees participating.
Lower Risk: The IP owner stays protected; if one licensee struggles, others still provide revenue.
Example:
Each of six facial wipes manufacturers pays Glam ₹2 lakh per year. Glam earns ₹12 lakh annually, and has the opportunity to add more licensees in the future.
Hypothetical Trademark Scenarios
Exclusive Trademark License:
“SpeedLion,” a well-known bike brand, licenses its logo exclusively to a helmet maker for North India. Only this company can use the branding, allowing it to market helmets as the “official” SpeedLion product in that region.
Non-Exclusive Trademark License:
“SpeedLion” grants five helmet and gear makers across India permission to use its trademark. Consequently, SpeedLion helmets and jackets are available through multiple companies, increasing visibility and total royalties, but no single gear maker claims an “official exclusive” partnership.
Which Strategy Is Best?
Exclusive:
Ideal for building committed partnerships, ensuring consistent brand quality, and maximizing revenue from one partner. However, it can be riskier if the licensee does not succeed in the market.
Non-Exclusive:
Best when rapid market growth, reduced risk, and reaching multiple customer segments are priorities. Though each license may be worth less, the overall revenue and market reach can be much greater.
Exclusive licenses concentrate value, control, and trust in one partner, while non-exclusive licenses provide broader reach, diversified income, and faster brand growth. Trademark and patent owners should choose the licensing mode that aligns with their business strategy, goals, and risk tolerance.
