Licensing Your Invention: The Good, The Bad, and The Incredibly Bad
If you think your invention might be a ticket to riches, you need to follow the advice below very carefully to avoid getting involved with the wrong licensee. In finding a licensee, as in finding an attorney (see Find The Right Patent Attorney For You! ), due diligence is a must!
- Pitch your invention to medium to large companies with product lines. Check out their reputations with consumers. You can do this by Googling the name of some of their products and the company names. Articles, as well as customer complaints about the product or the company will show up in your search. Look up product reviews as well.
- Check out the company's financial health. Order what is known as a D&B - a Dun & Bradstreet report , and find out what it's like to do business with the company. I would order the complete report for $140, because it's worth it!
- Get the names and contact information of other licensors of the company to find out their experiences. Ask general questions to learn if the company in question seeks the licensor's opinion, if it has held to its promises, paid on time, and the length license has been in force. Ask if the licensor is pleased with the terms his license (instead of "What percentage are you getting?") If at all possible speak to the licensor, rather than emailing him or her. Voice gives you a much better reading of the licensor's true feelings.
- Visit the company. It would be nice if the company pays you for your trip, but generally that does not happen. You make the trip to meet the people who will be in charge of your project as well as those handling the day-to-day aspects of it.
- Ask for the company's specific plans for your product. What are its sales projections? How will they promote it? Will it be showpieced or part of an established line of products? Make sure you share your business plan with company so it can discuss your findings.
- Get a letter of intent only if you feel the fit is right. Stipulate a two to four week period. I've had prospective licensees string me along for months; not a good sign.
- Avoid discussing specific terms of the license until you feel the company is a good fit for you and your product, and until you have a letter of intent. You should have utmost confidence that the company is capable of helping you fulfill you goals before you discuss money.
- Based on what you know of the company and what your needs are, make a list of what you would like to propose. Generally, I ask for an up-front minimum yearly fee based on a percent of expected sales. As the first year is start-up, consider those expenses to the company when making your request. If you will get a percentage, make sure it's a percentage of adjusted gross sales, (e.g., gross sales less returns, credit card company fees, any applicable taxes, and shipping and handling charges), and make sure your license stipulates what expenses can be "adjusted. Typical licensing fees are between four and seven percent of adjusted sales.
- Request that the company's budget allow a line item for your product. Make a monthly or quarterly line item report to you part of the license agreement. This measure could save you from hiring an accountant to review of the company's books, if anything is in question.
- The licensee generally draws up a contract agreement. While you can discuss terms with the company before a contract is drawn up, when it's actually in print, have it sent to your contract attorney and let her ague your cause. (Lawyers specialize just like doctors, and this lawyer is almost as important as your patent attorney.) If there is a controversy, let your attorney handle it; that way you and your licensee can keep a positive atmosphere between you and your licensee.
For some of us, it's really hard to take our invention reigns into our own hands; we tend to feel so beholden to a company that's interested in our product. But licensing is a business, and you have to behave like a business person in order to protect your interests. If a company is offended by you requesting the above information, consider yourself saved from a bad or incredibly bad licensee!
Please visit My Blog Page to read other columns on the invention process. The series starts at the bottom of the page.Myra Per-Lee Featured Bloggerwww.AmericanInventorSpot.com