The companies you speak with may wish for an exchange of non-disclosure agreements, and it may take some navigating before you can finally speak with the person in charge of licensing deals for the given company.
You may be asked for photos, sketches, or prototypes of your product. Inventor coach Brian Fried even recommends preparing a short video ahead of time, and sharing the link via email. Always remember to remain professional, and be respectful of their decision in order to keep an open door for a future opportunity.
It may not be that your idea is terrible, it may just not be for them and their product line. Timing is also a factor.
If, however, the company you pitched to is interested in your product, the next step is to put together a licensing agreement, which outlines the relationship between you and your licensee. If the company you pitched to is interested in your invention, you will then sign a licensing contract, which will outline the agreement between you the licensor and your partner the licensee. Your licensing contract will also explain in detail the way in which you will earn your royalties, or the percentage of revenue that will be paid to you after your item is sold.
Some other common items that may be covered in your licensing agreement could be exclusivity, territories covered, guarantees of minimum sales, advances against your royalties, and more specific terms of the agreement itself. Based on the conditions of your licensing agreement, you may have additional responsibilities to uphold, such as your responsibility of protecting your intellectual property, in order to maintain the relationship between yourself and your licensee, but this will vary on a case by case basis.
Then comes the royalty payments, which are a percentage of the wholesale cost. Understanding where your potential licensee partner sells to can determine sales expectations. If you are considering an As Seen On TV direct response marketer, home shopping channel, like QVC or a company that sells direct to the consumer, you are eliminating the wholesale rate so there is a higher margin from product production cost to retail sale. How then does an inventor profit from his or her patents?
One way is through licensing. The patent owner still owns the patent and is merely extending certain limited rights to the other party, usually in exchange for fees or royalties of one form or another. An assignment, on the other hand, is a transfer of ownership interest in the patent.
Starting a business requires more capital since you'll need to develop, manufacture, and distribute the product. For inventors who are more interested in entrepreneurial pursuits, the idea of licensing an idea might not be very appealing.
A royalty is usually between two and 10 percent of the product's net revenue. Those who feel this way might prefer to maintain control over the idea by manufacturing, selling, and marketing the product. In order to succeed, starting a small business will require more financial assistance than licensing the idea. In a study conducted by Westrum and Zimmer, almost half of the inventors who chose to produce and market their inventions themselves claimed success in their endeavors.
An inventor with a strong drive to succeed tends to thrive on challenges and have more success in running a small business. Some of the challenges that might come up include:. As you consider how you want to move forward with your invention, compare the pros and cons of manufacturing and marketing the product yourself.
By starting a business, you have the potential to earn more financial rewards. For inventors with entrepreneurial spirits, the potential for larger gains is often the driving force behind this decision.
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