A Low Cost Way to License High Priced IP

Obtaining a license for an intellectual property such as a popular character can sometimes be an expensive process. If you lack the financial resources or the qualifications, there is another option you can use to get rights to that IP.

It’s called a designated distributor agreement. This type of agreement gives you the right to distribute, sell and advertise an existing licensed product in a territory where the product is not available from existing licensees.

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 buy 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 some 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 is 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 more 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 an expensive IP at a lower cost.

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Rand Brenner Author
Founder , Licensing4Profits
Rand Brenner is an IP professional whose passion is helping inventors, startups, and businesses of all sizes use licensing to turn their IP into income-producing products, services, and technologies. His decades of experience includes medical devices to food technology to consumer products. He’s licensed some of the biggest Hollywood entertainment blockbusters including the Batman Movies (1 and 2), and the Mighty Morphin Power Rangers. Rand is a featured speaker on licensing at investment conferences, trade shows, colleges and startup events. He’s a published writer with articles appearing in several prestigious trade magazines. Rand also mentors at Cal State Fullerton Business School and is a judge for their startup business plan competitions.

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