Profiting from intellectual property requires a choice: license your patented invention for royalties, or produce it, market it, and sell it yourself.
Here are some licensing tips Scott has compiled from his experiences with inventors over the last 15 years.
Tip #1: License it or manufacture it yourself?
Unless you have the the time, money, and skill set required to manufacture, market and sell the product yourself, license it. Some of my clients still have thousands of product sitting in a storage shed because they thought they could do it all themselves.
Tip #2: Protect it!
Before licensing your invention you should protect it with a patent or a provisional patent. Your provisional patent application must be filed before even talking to potential licensors — or anyone for that matter. Why? If you’re unprotected and disclosing it publicly, you potentially become your own prior art. Most companies don’t like to talk to you if you don’t have patent-pending status. And a non-disclosure agreement (NDA) won’t do either. Companies rarely sign them. (See Howie’s story for why.)
Tip #3: How much will I get?
Licensing is the granting of the right to use, make or market your invention by another company. Most licenses are exclusive, i.e., granted to only one company. In exchange for this grant the inventor is paid a certain amount of money — usually a small percentage of the net amount that the licensee receives from each sale. How small? Typically, 1% to 9%. See Howie’s story for more.
Tip #4: Like a marriage, licensing depends on honesty.
As in marriage, both parties sacrifice something and both parties gain what they consider to be better than what is sacrificed. Licensing is an exclusive thing, and it depends on honesty.
If your product is sold exclusively through one company, then the retail price can be set by that company. If you were to also license or sell through other venues, you could start a price war on your own product. In that case, your commission would go down along with the price.
Tip #5: Shouldn’t I hold out for a better offer?
Have you done your homework to identify exactly what is a better offer? How do you know one is coming? See #3 above. Also, don’t attempt to get the upper hand by making the other party wait for your response. The licensee usually has the upper hand, and they can go elsewhere.
Tip #6: Negotiation: it’s not a boxing match.
Negotiating a price does not require aggression. Simply do your homework, and if possible, hire a contract attorney once you have something in writing.
Tip #7: Don’t get greedy.
We have seen more than one client hold out a better deal, only to find that it never comes. Recognize a respectable deal when it comes. Here is a success story.
Tip #8: Is your product ready to shop?
Potential licensors want to see a finished product, not an idea. They will ask about your sales volume.
Tip #9: Contracts are not carved in stone.
A successful licensor told us, “A contract is a fluid thing; it goes back and forth. Crossing out stuff is what a contract lawyer does; that’s the norm.”
Tip #10: The odds are against independent inventors. That means don’t give up.
If you know your product is worth it, double down. If you know it’s not going anywhere, move on to something else. The Shovelution took 20 years to become the top-selling snow shovel in the U.S. and Canada. Read our favorite success story about the inventor.
I will present my Licensing 101 talk at the Free Library of Philadelphia next month. Check the library’s events page and use the keyword “license.”
This original content is copyright Keeley DeAngelo LLP. Please cite or link back when quoting.