Licensing Your Invention: The Good, The Bad, and The Incredibly Bad

Unless you're into licensing for the thrill of it or for 15 minutes of fame on one of the invention shows, take your time and get to know the company. Here's what can happen; I know; I've been through it!

The Good Licensee: This company makes a good agreement with you - a percentage of adjusted gross on your product. Your advice is requested on all aspects of manufacture, packaging and marketing. Your product is handled by professionals in the company; it is showcased and well-financed with a budget line item of its own. You are paid on time and the company's accounting records are transparent. You have complete access to the product managers and the accounting department. (I've been fortunate to have this kind of licensee. The company even hired me to run the sales for my invention! This was an awesome experience!)

The Bad Licensee: Generally the bad licensees are not mal-intentioned; they just don't know what they are doing. They really like your brand new invention, but they market it on the bottom shelf of their display under their old standards. Their packaging is dull; your ideas are not considered. They agree to meet your financial considerations, but they pay you "what they can," as they've overspent on their new display, the one where your new product is on the bottom shelf. Bottom line is you're lucky to get anything from this but a major headache; and a year later, others have ripped off your invention.

The Incredibly Bad Licensee: If these guys were not tremendous sales people, you would not even be talking to them. During your courtship, they sell you a fantastic bill of goods about how great your product is and how they are going to make you a multimillionaire. They agree to all your terms. They manufacture your invention, then try to market it in ways you advised them against. They hire unnecessary new people, move into larger offices, and suddenly... You are not paid! Hmm. You can't even reach the person who sold you on this licensing deal; he's "very busy." Your attorney sends letters, and they claim bankruptcy. You have received no money, or far less than the licensee agreed to, but you get the first option to purchase their inventory and production tooling while they disappear... Am I painting a clear picture?