Archive for the ‘Licensing’ Category

Patent Licensing – The Ultimate Guide

Monday, July 7th, 2014

Patent Licensing Info Guide

Patent licensing is considered one of the most viable means of commercializing a patent. In short, a patent holder seeking to license his patent will not exploit it himself. That is, he will not try to create, market, and sell anything based on the patent. Instead, he will market the patent itself to those who do wish to take those steps. Any variation of this is known as “licensing a patent.” However, it is best to know some facts about licensing patents before one rushes to do so, or assumes that licensing is a “set it and forget it” means of cashing in on their intellectual property.

What is Patent Licensing?

Legally speaking, you have licensed your patent when you (the licensor) grant exploitation rights over your patent to a licensee (the person you are licensing it to.) “Exploitation rights” simply means the right to create, market, and/or sell something based on what that patent protects. A license of this nature is also a legal contract, and that contract is what will spell out in concrete terms precisely which exploitation rights are being granted. These include any performance obligations the licensor might demand of the licensee. This means that if any performance obligations are included in the contract (ie, “You must produce X number of sales by the year X.”), and they are not met, this could lead to the patent licensing being terminated in its entirety. In this context, a license is also revocable – ie, cancellable – if certain terms and conditions are not met. This is a common characteristic of legal contracts in general, with special ramifications for patent licenses. The only way to grant someone irrevocable exploitation rights, it should be added, is to assign them the patent. Assignments, however, are permanent. They entail the sale or outright transfer of the patent by the assignor to the assignee. An in-depth exploration of patent assignments is beyond the scope of this article, but just know that they are an option if irrevocable exploitation rights are something you seek.)

Patent Licensing: How to Capitalize

Now that you know what patent licensing is and what it involves, we can move on to a discussion of how to capitalize on them financially. The primary means of doing this is to seek royalties from the licensee in exchange for using your patent. Royalties, typically, are paid over the life of the patent. The amount and frequency with which royalties are paid from licensee to licensor must also be spelled out in the license agreement. In this way, the licensor is protected. If the licensee fails to pay the royalties that were agreed to, the licensor can revoke the patent license and retain sole exploitation rights over it.

Patent Licensing Structures

Here is an example of how this might work in practice. Let us say you licensed your patent to someone in exchange for royalties amounting to 20% of all sales resulting from your patent on a yearly basis. If your licensee creates something from the patent that results in a profit of $100,000, you would be entitled, by the terms of your license agreement, to $20,000 of that profit. If the licensee failed to disburse those funds to you, he/she would be in violation of the agreement and you could then proceed to revoke the license. (Again, the danger with using patent assignments over patent licenses is that failure to pay royalties will not revoke the rights you have already assigned. You will be free to litigate for the lost royalties, but this is often an expensive and lengthy process. With a patent license, the matter is more or less open and shut. Failure to pay royalties means revocation of the license.) Now, some more elaboration on performance options is in order as well. Performance options are a form of protection for the licensor. They are a way to ensure that the licensee does not “sit on” the patent, ie, do nothing with it and thereby starve the licensor of the ability to capitalize on it elsewhere. There are two basic types of performance options that can be written into a patent license agreement.

Patent Licensing Performance Options

The first kind is pre-market entry milestones. In short, these are obligations that the licensee is expected to achieve or meet. They could include things like bringing the invention under a trial or validation process, creating a working prototype, satisfying pertinent regulations, progressing through any clinical trials that exist, and so forth. These performance obligations ensure that things move along at a steady pace without any income-killing lag in activity. It prevents the licensee from become inactive as a rights holder. The second kind of performance obligations are post-market entry sales targets. These take effect once the invention is out of the development stage and available for sale on the market. Very simply, such obligations include sales targets, profit margins, or any other measurable goal tied to the performance of the idea in the free marketplace. These obligations give the licensee concrete goals that he must attain and give the licensor a bare minimum of royalties that he can expect to reap.

Other Recommended Patent Licensing Articles:

In closing, licensing a patent is one of the most reliable ways to capitalize off of one’s intellectual property. By working with a patent lawyer to draft a patent license agreement and choosing your licensee(s) carefully, you will greatly increase your chances of successfully licensing your patent. If you have any questions, feel free to email me at ericcorl@ideabuyer.com.

Royalty Rates Made Easy – The Guide

Tuesday, July 1st, 2014

Royalty Rates Chart

One of the most important steps in licensing a patent or idea is establishing the royalty rate you will receive in return for granting a licensee the right to manufacture and sell your invention. In this article we will explain what royalty rates are, how to calculate the proper royalty rates, elements that effect royalty rates, protections to put in place, and other important things to consider when licensing an idea.

What are Royalties?
Royalties are payments that are provided to a licensor by a licensee in exchange for the right to operate under your idea.

Royalty rates are affected by several criteria:

Criteria Description
Exclusive or Non-Exclusive Exclusive idea licensing will result in a higher royalty rate than non-exclusive licenses.
Upfront Sum The higher the up-front sum being paid to the licensee, the lower royalty rate the licensor will likely receive as it is an element of the overall compensation.
Industry Standard Royalty Rates Each industry tends to have an ‘industry standard’ royalty rate. See the end of this article for a list of industries and their average royalty rates.
Company Standard Rates Companies that have a good amount of experience in licensing ideas tend to have a standard package that they offer inventors. The larger the company is and the bigger their track record, the more leverage they will have in negotiating your royalty rate.
Intellectual Property Stage The further along the intellectual property is to commercialization, the less risk the licensee will face, and the higher the royalty will be paid to the licensor.
Market Potential The royalty rate will heavily depend upon the market potential of the idea you are looking to license. This can be difficult when you are trying to license an invention that is developing a new market or is part of a new market that has not yet shown it’s full potential.
Licensing to an Infringer If a company has been infringing on your idea, you can be entitled to damages, a % of past profits, and typically command a higher royalty rate.
Related Intellectual Property Included Packaged intellectual property can command higher royalty rates.
Testing/Certification If your intellectual property requires testing or certification prior to being brought to market, having these milestones completed will lead to higher royalty rates.
Investment Required All things being equal, the higher the investment required to getting a product to market, the lower the royalty rate that will be paid.

Exclusivity is when a licensor gives a licensee the exclusive right to market and sell a product by intellectual property.

Non-Exclusivity is when an intellectual property holder provides the right to market and sell a product to a licensee but retains the right to license it to others as well.

Exclusivity can be further broken down to regions or specific locations as is the common practice with franchises. The proper route often depends upon how a product will be delivered to the customer, the demand for the intellectual property, and the market size.

Protections for Idea Licensors:

  1. Performance Obligations
  2. Void Agreement
  3. Exclusive to Non-Exclusive

Performance obligations protect an inventor from getting stuck with a dud of a licensee. You will want to include these provisions in your idea licensing agreement that ensure certain milestones are being met. These milestones can be distribution in a number of stores, sales targets, royalty totals, or best efforts being made. If performance obligations are not met, an agreement can direct for a number of actions to occur. Such actions could include but are not limited to a voiding of the agreement, financial compensation, or for the licensee to switch from exclusive to non-exclusive license.

Licensing to a Company Infringing on Your Idea:

Often times, idea licensing takes place after it has become apparent that intellectual property is being infringed upon. This can be a sticky situation given that if the parties do not come to an agreement, it can often end in costly and lengthy litigation. As a note to inventors, it is important to keep in mind the overall short term and long term costs to litigation. While it may seem like a card to play, be careful not to send willing parties away from the table without giving negotiation a good faith effort.

Note:  It is important to note that royalty rates and damages determined by the court are generally higher. However, avoid litigation if you can – it often ends up ‘costing’ you much more than you anticipated.

If you do get into a position where a company that is infringing upon your intellectual property is unwilling to talk or to come to a reasonable agreement, you may want to consider partnering with a idea licensing law firm that may be able to command more respect at the negotiating table.

How to Command Higher Royalty Rates and Upfront Idea Licensing Fees:

These are several factors that lead to higher invention royalty rates.

– High tech invention ideas.
– Inventions that solve costly problems.
– Inventions that provide large benefits.
– Has already met industry testing requirements.
– Has already met industry certification requirements.
– Commitment for purchase orders.
– Existing sales.
– Lack of suitable substitute products/technology.

We will be continually updating this article with information on royalty rates. If you have any questions, feel free to contact us by submitting your contact information here. As always, we ask that you sign up for our newsletter for ongoing tutorials. If you are interested in an outright sale, read our article on Selling a Patent.

Sample Patent Licensing Agreement

Thursday, June 12th, 2014

Patent Licensing Agreement

Patent licenses can seem confusing or scary. Therefore, one helpful way of clearing up the confusion is to dive right in and examine what a real, actual patent license looks like and consists of. In this article, we’ll look at the most vital elements of a patent license and explain what each section means in plain, non-legalese English.

 

A Sample Patent Licensing Agreement in Plain English

Here is the URL to the full text of the patent license we are referencing: http://contracts.onecle.com/occulogix/brunner.lic.2004.10.25.shtml.

 THIS AGREEMENT (the “Agreement”) is made by and between OccuLogix, Inc.

(formerly Vascular Sciences Corporation), a Delaware Corporation (the

“Licensee”), and Prof. Dr. Richard Brunner (“Brunner”) living in Germany and

listed as inventor along with Prof. Dr. Helmut Borberg (“Borberg”) in US patentapplication 09/000,917, which is the parent application of US letters patent 6,245,038 issued June 12, 2001 (the “Patent”).

 

This is what every patent license starts out with: a clear identification of the people who are making this agreement and who will be bound by what it says. This paragraph names OccuLogix as the “licensee” (the person or entity the patent is being licensed to) and Prof. Dr. Richard Brunner, who is normally called the “licensor.” The licensor is the person or entity who holds the patent and choosing to license it to the licensee. This opening paragraph is the bedrock of any patent license, and vagueness here will only spell problems for later, “high-stakes” clauses like royalty requirements or performance obligations.

1.   Patent Rights. Shall mean any and all of Brunner's rights, title, 
ownership and interests in and to US letters patent 6,245,038 and any and all
inventions, modifications, continuations-in-part, extensions, divisions,
improvements, etc. made by Brunner or his agents, in any and all areas that
relate directly to the Patent, regardless of whether such inventions or
improvements are patentable or may become patented; all inventions,
modifications, continuations-in-part, extensions, divisions, improvements,
etc. shall automatically be incorporated herein without the payment of any
additional fees, royalties or any other compensation or considerations of
any kind.


A vital aspect of patent licenses (and all legal documents) is defining what you mean when you say things like “patent rights.” For this reason, terms that are likely to be used over and over throughout the license are defined early on. In this case, the license defines “patent rights” to basically mean all the rights granted by law to patent holders. It goes on to specifically define the patent in question as patent 6,245,038 and anything created as a result of it. By spelling all of this out up front, in crystal-clear detail, the term “patent rights” will be interpreted without confusion if the agreement ever needs to be enforced.

 

2.   License Grant. Brunner confirms that he has exclusively licensed, 
and does hereby continue to exclusively license, in accordance with the terms set
forth below, unto Licensee, Brunner's entire undivided right, title,
ownership and interest in and to the Patent and the Patent Rights,
throughout the Territory, to be held and enjoyed by Licensee the same as it
would have been held and enjoyed by Brunner if this Patent License and
Royalty Agreement had not been made and entered into. The exclusive license
granted herein also includes an exclusive right for the Licensee to grant
expressly or implicitly, directly or through its subsidiaries or
affiliates, sublicenses to the Patent and the Patent Rights without the
requirement to pay any additional royalty fee or sublicense fee to Brunner,
to end users of the patented method including medical practitioners and
medical clinics.

This clause specifies that the licensee will be receiving a complete, unclouded interest in the patent and the ability to do with it what he sees fit, within the conditions of this license agreement. It means that unless something has been explicitly forbidden of him, he is free to capitalize on the patent in a manner of his own choosing without seeking permission from the owner/licensor of the patent – in this case, Professor Brunner. This prevents Brunner from trying to drag the licensee into court after the fact demanding additional royalties or sublicense fees that are not provided for in the license.

 

5.   Advance Royalty Payments. Licensee agrees to pay Brunner Fifty Thousand
     Dollars ($50,000 USD) annually as an advance and credited against any                
     and  all Royalty Payments paid in accordance with this Agreement. 
Such Advance Royalty Payments shall be non-refundable and be paid to Brunner 
and in equal payments of Twelve Thousand Five-hundred Dollars ($12,500 USD), 
made quarterly, on or before the expiration of Forty-five (45) days after the
reporting close of each prior calendar quarter.

 

This clause begins to define the royalty payments that will change hands – from the OccuLogix to Professor Brunner – as a result of this agreement. Note the unmistakable specificity of the clause. It specifies how much is to be paid ($50,000), in what increments it is to be paid (equal payments of $12,500), and when it will be paid (45 days after the close of each prior calendar quarter.) This is exactly what you want to shoot for in your patent license, as it eliminates any confusion or dispute about the size and frequency of royalty payments.


7.   Sublicense Fee. In instances where Brunner has consented to a 
sublicense t0 the Patent and the Patent Rights from Licensee to a third 
party who is not an end user of the patented method, Licensee agrees to 
pay to Brunner a sublicense fee constituting a non-refundable cash payment 
equal to Twelve-and-a-Half Percent (12,5% in USD) of any: 
     (i)   Upfront cash payment made to Licensee in consideration of the
           sublicense;
 
     (ii)  Sublicense fees received by Licensee in consideration of the
           sublicense;
 
     (iii) Premium over the fair market value of equity investments in
                  Licensee in consideration of the sublicense; and
 
     (iv)  Non-cash consideration received by Licensee from a sublicense in
           consideration of the sublicense, such consideration to include,
           without limitation, equity in other companies and the value of any
           license granted to Licensee.
 

This clause specifies what happens if OccuLogix sublicenses the patent to someone who is not a customer or end user of the patented technology. By clarifying this up-front, the likelihood of any future dispute or litigation arising from sublicensing the patent is dramatically lowered. It is always better to provide for what happens in these scenarios, in writing, instead of waiting to duke it out in court after the fact.



9.   Failure to Pay by Licensee. Should Licensee fail to make any payments as
     required herein, and should the Licensee fail to cure the breach created
     thereby, any and all rights, title and ownership to the License provided 
to the Licensee under this Agreement shall be forfeited and any and all such 
rights, title and ownership to the License shall, upon notice of the
failure to cure the breach, immediately revert to Brunner, and all monies paid 
by Licensee until such date shall be retained by him without forfeiture.

 

To be sure, this patent licensee specified exactly what will occur in the event that a payment is missed or not made. This is also highly advisable for anyone writing their own agreement (which we don’t recommend). Working with a patent attorney with experience in patent licensing can help you protect the downside risks for both parties. This sample patent licensing agreement overview is not legal advice.

Standard Licensing Agreement Terms

Wednesday, December 25th, 2013

Standard Patent Licensing Terms

Do you feel like you are throwing darts trying to come up with reasonable terms and performance obligations for your patent license agreement? If so, there is no need to panic. Patent licensing is an established field with standardized terms and considerations that you can use as benchmarks. In this article, we will walk you through some of the standard licensing agreement terms and offer tips on applying them to your own unique situation.

The first thing you need to decide is whether your patent license will be an exclusive or non-exclusive license. An excellent article called “Patent Licensing” explains the difference between each type: and which one your licensee is probably going to want:

“A patent license is a waiver by the licensor of the right to exclude the licensee from practicing under the patent rights. Licensees would prefer to obtain an exclusive license if possible. In addition to the commercial disadvantages of a non-exclusive license, a non-exclusive licensee acquires no affirmative rights with respect to the enforcement of the licensed patents. Unless the non-exclusive license specifically provides some protections, the licensor has no duty to protect the non-exclusive licensee’s interests in the event of patent infringement, abandonment of the patent, or other licensee’s with better terms.”

SRC: http://www.zeromillion.com/entrepreneurship/patent-licensing.html

Standard Licensing Agreement Terms to Avoid

Once you have settled the matter of exclusive vs. non-exclusive, you will move on to what performance obligations and requirements get written into the license. There is one clause, however, that you should avoid: the generic “best efforts” clause. The article continues:

“Both parties should avoid this clause in favor of more objective standards. The courts may interpret such a clause to require the dedication of all of the licensee’s resources towards exploitation of the licensed patents, when realistically most licensees will have a number of other significant business endeavors to support.”

Fortunately, there is a better way to ensure that your licensee performs on a high level: specific, numeric performance obligations. The idea is that you want each party’s responsibilities to be crystal clear, unmistakable, so that they can be enforced. For instance:

For example, the licensee may be required to obtain an approved New Drug Application with the Food and Drug Administration by a certain date. Licensees should be aware that there is an implied obligation to exploit the licensed patent on the part of an exclusive licensee.

An obligation like this is very specific. If it is not met, you as the licensor will have the right to revoke the patent if you feel that is warranted. Of course, you will need to tailor the performance obligations in your contract to your own needs and desires. You may decide to give your licensee more relaxed terms, say, if you are close friends or longtime business partners. The choice is really between you and your licensee.

But how should you set those obligations? This is where many patent holders stumble and feel that they are shooting in the dark. Fortunately, it does not have to be this way. There are 2 main benchmarks that you can use in setting performance obligations and royalty requirements.

1)      Your costs up until this point

Whatever you have paid to patent your idea, document it, advertise it, and bring it to life should be factored into what you expect out of your licensing agreement. After all, you want to recoup those costs, and profit some, besides. That’s the whole point of licensing the patent in the first place.

2)      How much you are making from the patent

If you are already capitalizing on the patent, you should aim to replace and exceed that income with your license agreement. For example, let’s say you created a product based on your patent and are earning X dollars a month from it. If you want to grant someone an exclusive license to take the reins and capitalize on your patent, you should be getting X + something from the agreement. Otherwise, why not just keep exploiting your own patent yourself? If you are going to introduce a middleman (the licensee), it had better be worth your while.

Discuss Your Royalty Requirements

The same goes for royalty requirements. This is when you specify “This agreement must provide me with X dollars monthly, annually, or semi-annually, regardless of where it comes from.” Here, too, you want the amount to compensate you for what you have already spent or what you are already earning. The way to avoid the “throwing darts” feeling is to run the numbers and set your royalty requirements based on those.

As you can see, the key to a license agreement based on numbers instead of guesswork is to assess your own unique situation. While the basic framework of patent licenses is standardized (exclusivity, performance obligations, term lengths, etc.), the exact manifestations are up to you and your licensee to hammer out amongst yourselves. Have questions? Contact us.

 

Patent Licensing – Negotiations

Monday, October 13th, 2008

Patent Licensing Negotiations

Now that you have a patented invention and are ready to license it, you still have to contend with the thorniest obstacle of all: the patent license negotiation. This is when you and the prospective licensee hash out what you believe a fair license agreement to be. However, this is not something you should rush into. In this article we’ll offer tips and suggestions for making sure the negotiation goes smoothly – and hopefully in your favor!

Patent Licensing Negotiations Tip #1:

Determine your objectives

Why are you trying to license your patent? What are you hoping to get out of it? The obvious answer is “Because I want money”, but it has to go deeper than just that. Do you want to wash your hands of the patent altogether? Do you still want some day to day interaction and a say on how it gets marketed? If so, these are things you need to specify and take into account during the negotiation, and it helps greatly if you go into it with your priorities fresh in mind.

Patent Licensing Negotiations Tip #2:

Assemble a team with the right players

According to a very detailed scholarly article called “Best Practices in Patent Negotiations”, you must enter into negotiations with the right “team” behind you.

“Whatever the reason, your team should include a business development executive, a scientific-technical expert, a decision maker and a licensing attorney. The business development executive (sometimes the CEO at smaller firms, or a technology transfer professional at a university) usually finds the deal, brings the parties together and keeps the process moving. The scientific-technical expert provides scientific and technological expertise and conducts due diligence research relating to the technology at issue. And the decision maker must have authority to commit your party to particular deal terms. In our opinion, document drafting is often easier when an attorney has the benefit of participating in negotiations and understands the positions of both sides. Once the team is in place, it’s important to meet and reach an understanding of the motivation for the deal and to go over each member’s responsibilities.”

SRC: Nature.com

We should note that it is not always necessary to have a separate person handle each task. For example, in your situation, you might be the businessman and the technology/scientific expert. If so, you don’t need to go out and bring in a separate businessperson. However, the point remains that all of these considerations must be accounted for by someone, and you should know exactly who is responsible for each one before negotiating to license your patent.

Patent Licensing Negotiations Tip #3:

Determine the value the licensee will add to the patent

Typically, the reason you are licensing the patent include not having the resources to market and capitalize on it yourself, or not wanting to. It is important, therefore, to assess how qualified the potential licensee is to capitalize on the patent. What assets, strengths, and abilities do they bring to bear that increase the value of the patent, over and beyond what it would be if you just held onto it? The article elaborates:

“Your team should evaluate and determine your own marketing, technical, sales and services strengths as well as the strengths of the other party in the field of the patented technology—all are relevant to licensing fee amounts and royalties to be paid back to the patent holder. These and other contract provisions will help the parties define the scope of the licensed technology and their competitiveness as potential licensing partners.”

Another step you should take leading up to negotiation time is exchanging a term sheet with the potential licensee. This helps establish a starting point so that both parties can get straight to business when the actual negotiation begins. Here are some of the things you might want to include or look for in a term sheet:

“The term sheet typically outlines the major issues in a potential deal. These include the following: the licensed product or process; licensed territory; preliminary thoughts on fees and royalties; technical information and training required to develop and manufacture, sell and service the licensed product (and who will be responsible for the same); sales and service support; degree of exclusivity; and duration of the license.”

As for the negotiation itself, the primary sticking point will how broad the licensee’s rights are (ie, how much it can do with the patent) and how much they will have to pay you. While this is inherently a somewhat speculative process, you can and must aim to create a license agreement both parties can live with. Here is one approach, using specific numbers, recommended by “Best Practices in Patent License Negotiations”

“A rational approach is to develop a win-win scenario by looking at the actual investment return of each party. If the licensor has spent $10 million to develop the compound, and the licensee will spend an additional $100 million to commercialize it, negotiating a deal in which the licensor receives 10% of the return may be realistic, although the licensee may want a greater return based on assuming a greater risk (greater investment). Alternatively, where a licensed compound is ready for commercialization or is on the market, more standard accounting techniques may be used because the risk/return ratio can be more directly calculated.”

As the licensor, you will want to grant as narrow exploitation rights as you possibly can. While the licensee will want as much leeway to capitalize on the patent as possible, it is in your best interest to be able to license it out to others if you see fit. One way to provide for this is to only license the patent out for specific uses, leaving you free to license it to other people for other uses.

Here are some other ways to get your licensee to accept narrower exploitation rights:

“There are compromises: you may grant a broad field of use with the right to retract fields if you present a use to your partner and your partner elects not to pursue it, or you may grant a narrow field of use and give your licensee the right of first refusal on other uses. Alternatively, your licensee could convince you to restrict any future licensees from particular uses that fall within the licensee’s specialty or area of expertise.”

As you can see, being focused before the negotiation and creative during it lets you grant a patent license that puts money in your pocket and leaves you free to pursue other options.

Recommended Articles:
1. Patent Licensing

The Maverick’s Do-It-Yourself Patent Licensing Library

Saturday, May 24th, 2008

Patent Licensing LibraryWhile it’s usually preferable to have an attorney draft your licensing agreement, it’s not always necessary. Legal-minded inventors can certainly draft their own patent license agreements with appropriate study and preparation. This article is about books and articles you should read – and precautions you should take – should you choose to do this.

One excellent free article on the subject comes from IPWatchdog.com, and is entitled “Drafting a License Agreement.” Patent attorney Eugene Quinn begins the article by cautioning that while it is okay to draft your own agreement, you should probably have an attorney review it before you use it. The key, Quinn writes, is finding an attorney who will agree to review an agreement that he did not personally create:

“There are some attorneys who will, no doubt, not want to review your work, but there are a number of attorneys that routinely work with independent inventors and understand the need to keep costs down by offering review services, such as reviewing patent applications or reviewing licensing agreements.”

SRC: http://www.ipwatchdog.com/inventing/licensing-agreement/

The next thing Quinn encourages do-it-yourself license writers to do is forget about the “template” mentality. There is a myth among intellectual property laymen that there are “standard” contracts for patent licenses that everyone uses. According to Quinn, this is wrong, and attorneys actually roll their eyes when clients ask for standardized or “template” license agreements. While there are standard elements of every agreement, the exact manifestation of those elements is virtually never the same for any two patent licenses. So don’t approach the task by trying to emulate what you believe to be a standard form.

Instead, the far smarter thing to do is focus on the specific clauses – things like performance obligations and royalty requirements – that will go into your unique patent license. IdeaBuyer has a comprehensive article on precisely this subject called “Writing Good Performance Obligations Into Patent Licenses.” Consider that required reading for any do-it-yourself patent licensing.

That said, you do want to at least look over a few sample patent licenses to get an idea of the structural elements they all share. Sample patent licenses can be found in abundance on the Internet, such as this one:

SRC: http://contracts.onecle.com/occulogix/brunner.lic.2004.10.25.shtml

However, Quinn recommends using an encyclopedia of legal forms, such as this one, which he describes in detail in his article:

West has an encyclopedia set called West’s Legal Forms. In the Second Edition it is Volume 25 that relates to patents (I know this because I own that volume myself). There are a number of good sample licenses in the West book. If you find a library that has a good intellectual property section (which is becoming easier given the growth of this field of practice) there will be several smaller encyclopedias dedicated to patent licensing, such as Milgram on Licensing. In most libraries the form books will be in one location and the IP books in another location, so be sure to check both locations.

Many will read this and think “yeah, that’s all well and good but I can probably get the same information from a local bookstore with less fuss.” However, this is often not the case. Many bookstore books on intellectual property are what John T. Read calls “dictionaries not in alphabetical order”. That is, they simply define some basic terminology of the field without laying out a concise sequence of steps for achieving the goal, which, in your case, is writing a patent license on your own. For this reason, you should stick to encyclopedias such as the one referenced by Quinn.

If you cannot or will not use such an encyclopedia, sample forms from universities are the most reliable alternatives. In any event, once you have a sample form to work with, you should adopt a “buffet” mentality. Rather than copying the structure of the patent license verbatim, simply take clauses that seem to match what you are hoping to convey in your agreement.

Using the sample patent license referenced earlier, let’s say you wanted to use this clause in your own license agreement.

Advance Royalty Payments. Licensee agrees to pay Brunner Fifty Thousand

Dollars ($50,000 USD) annually as an advance and credited against any and all Royalty Payments paid in accordance with this Agreement. Such Advance

Royalty Payments shall be non-refundable and be paid to Brunner and in

equal payments of Twelve Thousand Five-hundred Dollars ($12,500 USD), made

quarterly, on or before the expiration of Forty-five (45) days after the

reporting close of each prior calendar quarter.

According to Quinn, royalty requirements are one of the things do-it-yourself patent license writers should focus on most. So in the case of this clause, you would simply modify it to suit your needs. If your quarterly royalty payments are $50,000, you would just erase the $12,500 currently in that clause and replace it with $50,000. Repeat this process of taking clauses from other agreements and modifying them until you have a complete agreement that covers everything you want it to.

At this point, you are ready to show your agreement to an attorney and have him iron out any of the kinks that might be left. Good luck!

Click here to read more about Patent Licensing.

Eric Corl is the President of Idea Buyer LLC, a new product development company that owns and operates IdeaBuyer.com- The Online Marketplace for Intellectual Property. The site gives inventors the opportunity to showcase their intellectual property to consumer product companies, entrepreneurs, retailers, and manufacturers. You can email him at EricCorl@IdeaBuyer.com.

License an Invention to a Retailer

Monday, May 19th, 2008

Retailers

Once you have created your invention, the next thought is obviously “How can I capitalize on it?” One time-tested way of doing this is licensing your invention to a retailer who will bring it to paying customers. Retailers can be anyone with the ability to reach your market, whether it’s Wal-Mart, Target, Home Depot, or even an Internet website. The idea is that you will be cutting them in on the profits from the sales they make possible. However, there are a few things you should know about this approach before you dive into it. In this article, we will touch upon the most important considerations.

The first think to keep in mind is the notion of “inventory available.” Generally, successful retailers will want to know that you can supply them with enough inventory to handle a large volume of sales. This is simply part of the planning process that retailers engage in, especially catalogs. Therefore, you should have some type of strategy for addressing this before you go trying to license your invention to a retailer. Do you have the facilities and equipment to mass-produce your invention? Do you need to hire staff? If you are not sure what your capabilities are, ask the retailer in question what their inventory available requirements are. This will give you an indication of what you will need to do to produce enough inventory.

Another term you should get familiar with is the purchase order. About.com defines a purchase order as such:

“A written sales contract between buyer and seller detailing the exact merchandise or services to be rendered from a single vendor. It will specify payment terms, delivery dates, item identification, quantities, shipping terms and all other obligations and conditions.

Purchase orders are generally preprinted, numbered documents generated by the retailer’s financial management system which shows that purchase details have been recorded and payment will be made.”

The basic idea is that the retailer you license your invention to will be sending you purchase orders which say how much product they are buying from you at that time. It will be crucial for you to store and file these records in an efficient way, as they will over time contain almost all of your financial history with that retailer.

Another all too important aspect of licensing an invention to a retailer is the terms of payment. There are four main terms that are common today: net 30, net 60, net 90, and net 120. However, many retailers are known for using other, more creative terms of payment. Wikipedia offers some helpful hints that will help you clear up the confusion.

“Net 30 is a trade credit which specifies payment is expected to be received in full 30 days after the goods are delivered. Net 30 terms are often coupled with a credit for early payment; e.g. the notation “2% 10, net 30″ indicates that a 2% discount is provided if payment is received within 10 days of the delivery of goods, and that full payment is expected within 30 days.

 

For example, if “$1000 2/10 net 30″ is written on a bill, the buyer can take a 2% discount ($1000 x .02 = $20) and make a payment of $980 within 10 days, …

If credit terms of “2/10, net 30″ are offered, the approximate cost of not taking the discount and paying at the end of the credit period would be as follow:

[2/(100-2)]*[365/(30-10)]=0.3724 in percentage = 37.24%”

Obviously, you as the licensor will want to secure the timeliest payment terms possible; most likely, this means Net 30. However, you should be warned that not every retailer will go along with this. The bigger the retailer is, the more clout they have in compelling you to accept their terms. One way around this is to start by licensing your invention to smaller retailers, building a successful track record that you can use as leverage when it comes time to negotiate payment terms with larger retailers. Either way, you want to try and negotiate as hard as possible for payment terms that benefit you.

Another way to license your invention to a retailer is to go through what are known as “reps.” Although reps are somewhat less commonly used today than in the past, they still have a large role to play. Reps are people who are on good terms with the buyers at various retailers and who convince those buyers to stock certain products. If the buyer’s store does stock those products, the rep gets a kickback from the product manufacturer for getting them into the store. While you might balk at the idea of paying someone to get you in the door, it may be worth investigating. Sometimes all it takes is an introduction to get the deal done.

Keep these tips in mind and you should find that licensing your invention to a retailer makes more sense than it did before.

Eric Corl is the President of Idea Buyer LLC, a new product development company that owns and operates IdeaBuyer.com- The Online Marketplace for Intellectual Property. The site gives inventors the opportunity to showcase their intellectual property to consumer product companies, entrepreneurs, retailers, and manufacturers. You can email him at EricCorl@IdeaBuyer.com.

How to License a Tool Product Invention Idea

Wednesday, May 14th, 2008

Licensing a tool product invention idea starts with first preparing and protecting your tool invention.

10 Steps to Licensing a Tool Invention:
Tool Manufacturers1. Initial Market Research
2. Technical Drawings & Costing
3. Physical or Virtual Prototype
4. Patent Preparation and Filing
5. Identifying Potential Licensees
6. Preparing Presentation Materials
7. Setting up meetings
8. Meetings
9. Negotiations
10. Transaction

1. Initial Market Research
Initial market research is an important step in licensing a tool product invention idea. It is like evaluating the land where you are going to build you a house on. Yes, you can simply choose to plop down on a piece of land you see or seems like a good deal and decide to build there. Or, you can research the best areas and type of land to build on long term. There are several items you want to research here.

Market Research Items:
– Is there a patent on a similar patent already? If so, it isn’t entirely limiting. However, you need to be aware of all similar IP filed. These will need to be referenced in your patent filing.
– What are the current products available that are already solving the problem? Why is your solution better?
– What are the current costs of these alternative products?
– Why would customers buy your product instead of the current solution?

Answering these questions will help you develop a strong foundation for the value of your invention or uncover that it may not be as great of an idea as you originally thought.

2. Technical Drawings & Costing
Technical drawings are important to ensure that the product can; A. Be made with current technology, and B. Be made at a reasonable cost with a reasonable profit margin. They will also be essential for production quality prototyping and manufacturing.

There are several critical engineering aspects for a tool invention to consider.
– What material will be used to construct the item? What will it’s strength be?
– What will the estimated life cycle of the tool be? This is critical for industrial tools but it is also important to ensure quality and reliability for consumers.

3. Production Quality Prototype or 3D Virtual Prototype
A production quality prototype is the best route to go. People react much better to a tool invention when they are able to physically touch, see, feel, and use it. However, 3D virtual prototypes can be a very useful and more budget friendly way to ‘prototype’ your invention while allowing to show what the ‘end result’ should look like. You can take a 3D virtual prototype a step further by having an animation created to demonstrate the function or use of the invention.

4. Patent Preparation and Filing
Patent preparation and filing of your invention idea is critical to recognizing value from your new tool idea. If you skip this step, you will severely limit the value and protection for your intellectual property. Make sure you find a patent attorney that has experience preparing and filing patents for tool inventions.

5. Identifying Potential Licensees
The fifth step is identifying potential licensees of your tool idea. You will want to consider both major and minor tool product manufacturers in this step. Do not simply limit yourself to large manufacturers like Craftsman, Black & Decker, Bosh, and Dewalt. There are many smaller and mid market players that may be more willing to review your new tool invention and it may end up being a more lucrative deal.

6. Preparing Presentation Materials & Business Case
Being able to show these tool companies why investing in your tool product instead of other opportunities will set you far apart from the amateur inventor. With the proper presentation materials in place, you will be able to get more meetings, be taken more seriously, and end up having a better opportunity to get a lucrative licensing deal.

Licensing Items to Consider:
– A major manufacturer will likely require an exclusive license. Are you OK with this?
– What royalty rate will you expect in exchange for providing an exclusive license?
– Are you open to selling your patent outright?
– Are you expecting an upfront some in addition to a royalty rate?

7.  Setting up meetings with Potential Licensees.
We have a great article discussing how to talk to anyone and get into the doors of major companies. You can find that article here; How to Talk to Anyone.

8. Meetings
Giving a good sales presentation is paramount in your quest to license your tool invention. Learn how to craft a good sales pitch and prepare your material in the proper manner. Learn what companies what to see by reading our seven part series on the subject.

9. Negotiations
Negotiating can be the make or break of any deal. Even small contract details can have a huge impact on how you end up making out on the deal. It can also lead to confrontation and kill deals if you aren’t careful. You can read our article on patent licensing negotations here; Patent Licensing Negotations

10. Licensing Transaction
The last step comes down to actually getting the transaction done! You will want to have an attorney with experience in patent licensing review all documents. If you get to this step, congratulations. The next milestone of course is seeing your product on store shelves and collecting those royalty checks!

License Your Idea to a Manufacturer

Tuesday, May 6th, 2008

Manufacturers

If you do not want to go through all the time and hassle of bringing an idea to market yourself, there is an alternative: license your idea to a manufacturer. In doing this, you are granting someone else the right to create your idea and bring it to buyers via the marketplace. However, there are some important steps and considerations that you should keep in mind if you choose to do this. In this article, we will make you aware of them.

First, a few words about what it means to license an idea. Licensing an idea actually means licensing a patent, which protects your idea. If your idea is not patented already, you will want to apply for one. You can call 832-683-1527 for more information on filing for a patent. Once your patent is filed it will be considered ‘patent pending’ which will give you the ability to begin presenting it to investors, patent buyers, manufacturers, and retailers looking for patents to license or purchase outright.

Important Steps to License Your Idea

Legally speaking, you have licensed your patent when you (the licensor) grant exploitation rights over your patent to a licensee (the person you are licensing it to.) In this case, the licensee is whichever manufacturer you have licensed your patent to. “Exploitation rights” simply means the right to create, market, and/or sell something based on what that patent protects. A patent license is also a legal contract, and that contract is what will spell out terms precisely which exploitation rights are being granted. These include any performance obligations the licensor might demand of the licensee. This means that if any performance obligations are included in the contract (ie, “You must produce X number of sales by the year X.”), and they are not met, this could lead to the license being terminated in its entirety.

If this sounds complicated, it can be, but it is actually quite simple. The biggest consideration is finding the right manufacturer to license your patent to. To do this, you should check resources like the Thomas Register to find manufacturers related to your idea. These are the people most likely to want to license it from you. There are other easy ways of finding manufacturers to license your idea to, as well. See our article “Researching Your Market Online” for more details. Once you have narrowed down a list of 10-20 relevant manufacturers, the next step is deciding on the terms of your license agreement.

License Your Idea: Terms of Your License Agreement

As mentioned earlier, most license agreements include one or more performance obligations. These are simply requirements that the manufacturer (licensee) must fulfill in order to keep the license. If you have certain expectations that you want to enforce, such as X number of sales in the second year or a 4% profit margin, performance obligations is the way to enforce them. Of course, both parties will have to agree on the obligations before they become final. There is also the issue of royalty requirements, where you can specify that you must receive X dollars in royalties monthly, annually, or semi-annually to keep the license agreement alive. These are ways of ensuring that your own financial needs are met from licensing your idea to the manufacturer.

Making sure those needs are met is probably the biggest consideration of all. How much are you going to ask for in royalties? You cannot get greedy, but you must ensure that your costs are paid back and the money you get is worth your while. Tally up the money you have spent so far and keep the total in mind when setting royalty requirements.

Another consideration is the term of the agreement. Do you want a longer or shorter agreement? Well, that depends on your circumstances. Do you want to someday capitalize on this patent yourself? If so, you might opt for an agreement of 5 years or less. However, if you’re the kind of person who just wants to collect the royalty checks and move on to something else, a longer agreement might suit you best. The key is to choose the length consciously, based on your true needs and goals.

Of course, you should also use a patent attorney for the duration of this process. Licensing a patent is not something you should “wing it” with, as there are complex laws involved and severe penalties for breaking them. Additionally, a good patent attorney can also warn you if you are about to license your idea in a way that harms you. What if the manufacturer tries to get away with paying you a pathetically small sum in royalties? Situations like these are when it pays to have an attorney on your side, so don’t feel shy about spending the money to get one.

If you can keep these considerations in mind and the timing is right for your product in the market place, you will have a much better probability of profitably licensing your idea to a manufacturer.

Eric Corl is the President of Idea Buyer LLC, a new product development company that owns and operates IdeaBuyer.com- The Online Marketplace for Intellectual Property. The site gives inventors the opportunity to showcase their intellectual property to consumer product companies, entrepreneurs, retailers, and manufacturers. You can email him at EricCorl@IdeaBuyer.com.

Selling or Licensing an Automotive Patent

Tuesday, May 6th, 2008

Automotive Patent

With the energy crisis and the worldwide push to “go green”, innovation in the automotive sector is at an all time high. This puts automotive patent holders in a prime position to sell or license their patent. However, it would behoove you to do some research on how automotive patents are typically capitalized on, as well as who would be most likely to buy or license said patents.

Most of the action in the automotive industry takes place in Michigan, specifically Detroit, or “Motown.” A recent article called “Auto Industry Fueling Growth in Michigan’s Patent Applications” describes the recent surge in auto innovation there:

“The auto industry may be bleeding money throughout Michigan, but it is fueling a rise in innovation in the state, federal data on patent activity shows.

The state saw a 20 percent rise in the numbers of patents granted between 2000 and 2006, the years for which the most recent data is available, compared with the seven-year 1993-1999 period, according to the U.S. Patent and Trademark Office.”

SRC: http://www.mlive.com/business/index.ssf/2008/03/auto_industry_fueling_growth_i.html

However, a number of auto leaders do business internationally as well. Wikipedia offers a handy chart that breaks down, by volume, the largest auto makers and their divisions and subsidiary companies. The table is based on the most recent OICA data.

SRC: http://en.wikipedia.org/wiki/Automotive_industry#World.27s_largest_vehicle_manufacturing_groups_.28by_volume.29

General Motors, Ford, and Chrysler are the largest players in the United States market, in that order. Under the GM flag are brands like Buick, Cadillac, Hummer, Pontiac, Saturn, and Saab. Ford encompasses Lincoln, Mercury, and Volvo, while Chrysler markets the Dodge and Jeep line of trucks and SUVs. The divisions of each auto maker should inform your decision on who to contact about selling your patent.

If your patent pertains to low-mid range sedans or gigantic SUVs, you might look to score a meeting with someone from GM. If your patent applies to luxury models like the Lincoln Towncar, a call to Ford might be best. And if your invention would be best utilized in a heavy-lifting work vehicle like a Dodge Ram or Jeep Cherokee, Chrysler is probably the ideal networking target. Of course, there are several other auto makers worth considering who operate outside of the U.S., but it often helps to start closer to home.

It is also worth noting that many automakers own stock in and have business partnerships with other automakers. This means that even if you fail to sell or license your patent to one automaker, they might be able to put you in touch with one that would be more amenable to your proposal. Here is a quick reference of ownership overlap within the automotive industry.

However, not every automotive patent holder should necessarily target auto makers. Instead, some patents are probably more attractive to auto dealers, of which there are tens of thousands across the United States. If you are unsure of which auto dealer to contact or how to get in touch with them, the National Automobile Dealer Association is a good place to start. They are an automotive industry trade group that represents some 20,000 dealerships across the U.S. and boasts some 43,000 worldwide franchises. They also develop comprehensive research data on the auto industry, which might be of use to you in putting your pitch together.

You can contact the NADA by phone, e-mail, or snail mail.

National Automobile Dealers Association
8400 Westpark Drive
McLean, Virginia 22102
(703) 821-7000 or (800) 252-6232
nadainfo@nada.org

Of course, you will want to consult a patent attorney before diving headlong into negotiations. Furthermore, this attorney should be one with experience and success in the auto sector. One proven winner in this field is Quinn Law Group, PLLC. “Auto Industry Fueling Growth…” discusses the track record and auto industry connections Quinn has at its disposal:

Principal Christopher Quinn said patent applications in areas such as hybrid technology, vehicle safety and electronics are helping drive annual revenue increases of 20 percent or more. The 19-member firm works with customers including General Motors Corp. and suppliers, as well as with out-of-state companies, many with Michigan offices, whose patents wouldn’t necessarily show up in USPTO data, he said.

Quinn can be contacted at the following web URL:

http://www.quinnlawgroup.com/contact.htm

All in all, your quest to sell or license an auto patent should begin with a careful matching of your patent to the right auto maker, and end with the assistance of a proven attorney in the field.

Eric Corl is the President of Idea Buyer LLC, a new product development company that owns and operates IdeaBuyer.com- The Online Marketplace for Intellectual Property.  The site gives inventors the opportunity to showcase their intellectual property to consumer product companies, entrepreneurs, retailers, and manufacturers. You can email him at EricCorl@IdeaBuyer.com.