Patent and Invention Help Forum
Patent and Inventing Discussion => Marketing, Licensing, and Selling an Invention => Topic started by: VegasMike on April 13, 2017, 08:27:04 AM
I have developed and filed a PPA on an electronic device. A company is interested in licensing, manufacturing, and selling the device. The company estimates they will spend $50,000 to $100,000 to gear up for production, injection molds, etc. From past conversations with the company, I'm fairly sure they will want to share in my patent rights and or intellectual property rights. Is this normal and customary or should I insist on retaining complete intellectual property and patent rights even though they may spend $100,000 making my device ready to manufacture? What is normal and customary in this situation?
First of all is this a "real" company or is it an invention help or invention marketing firm? If its an invention marketing company a standard line is they say it will cost them all this money to bring your product to market and then they ask you to pay them $10,000 - $20,000 for development, etc.
If its a real company they will not ask you to pay anything and they will take on on the risks. In that case you can either retain ownership of your patent and give them a license to use it, or, you can work out a sale arrangement where you would sell them your patent or patent application. The sale or license price is up to you and what you think is fair. A common arrangement may be an upfront fee of some amount (say $10,000 to you) plus a small (2-5%) royalty on any product sold by them that is covered by your patent. (these are just rough estimates and this is not legal advice)
Thanks Brad. This is a real company that has been in business since the 1940s. Their sales are north of 20 million per year and they have about 15 employees. Earlier this week, they offered me $5000 just to have a 60 day evaluation period; however, some attorney out of New York City sent me a 17 page agreement with terms like "Joint Intellectual Property", "Generated Intellectual Property", etc. I told the company to forget the $5000 and I would send them my prototype and we would just operate under a NDA they signed which retains my intellectual property rights and patent rights. So I essentially, I gave them a 60 day free look at my device which is more than 95% complete but will require a new circuit board lay out and a new injection mold for it's enclosure and some other minor design changes.
When we get further down the road and it come time to discuss a licensing agreement, I know they will want some joint intellectual property rights which is exactly opposite of what I've read and been told to do. So lets say they offer me 5% of sales and $15,000 up front and agree to spent 50 to 100k for manufacturing development but want patent rights. What is normal and customary? What can I tell them? If I agree, then I have no leverage if they under perform on sales. If I disagree they may walk. If I can say it's normal and customary for me to retain all patent rights, maybe they will listen. I have no clue what to do since I can see the full court press coming.
First the standard disclaimer "THIS IS NOT LEGAL ADVICE - PLEASE CHECK WITH AN ATTORNEY"
From my experience doing licensing work on early-stage technologies (about 10 years of experience) it is standard for the patent owner to retain ownership of the ORIGINAL idea. However, Joint IP usually means further improvements or tweaks that are bound to be created as they further develop the product. Under this Joint IP it makes sense for both of you to own it jointly since you were both involved in the process of creating these new tweaks. Now, the next question is what do do with the joint IP. If they are giving you a fair deal and paying you for the orignal idea its common for them to have exclusive rights to the Joint IP and they just continue to pay you a royalty on sales related to the joint IP. If you waned to be pushy you could say joint IP is jointly owned but they will pay for the patent and you can use and license your interest to whoever you want (we call this the "free rider" where they pay the bills and you do what you want with it including possibly licensing it to their competition). Clearly people don't like free riders so if they are being fair to you I would not push for this.
So bottom line is either they buy your idea out-right through a IP purchase agreement, or you license it to them where you retain ownership of the ORIGINAL IP (sometimes called "Background IP" in agreements). You should also be able to terminate the license agreement if they are not living up to their end of the deal (i.e. they just put the product on the shelf and don't try to make or sell it).
There are plenty of good licensing attorneys who can help you with this but they are expensive (usually $400+ per hour).
Thanks for the information Brad,
My main concern is that I share intellectual property rights with my licensed manufacturer/distributor and they donít sell their quota. I dump them but I canít find another company because some part or aspect of my device is jointly owned by the company I just dumped. How do I get around that? Thatís my concern.
If its "Joint IP" that means you both own it and if they fail to meet their end of the deal your license with them is terminated (including your exclusive license to the joint IP) and you are then free to license the original IP and your undivided interest to the joint IP that you jointly own with them. Ideally your first patent is "domineering" meaning that even if you both co-own the joint IP the company who you dumped could not still make or sell it without your license.