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Selling your invention question

Selling your invention question
« on: April 22, 2013, 08:39:20 PM »
(GREAT website and vids, Brad--I'm glad I found you online.)

I'm close to submitting my application for a Provisional Patent and I know off the bat that I don't want to be the manufacturer of the device I'm patenting, but I do want to sell the rights to its manufacture or sell the idea outright to a manufacturer. (I'm an "idea guy", not a business guy.)

My concern is that the device will be relatively easy and inexpensive to manufacture (but it has a realistic possibility of having a million units purchased), so if I were to ask for a big number up front, a manufacturer might pass on my idea and develop something very similar on their own to produce and sell. If I were to license the device to the manufacture for "x" units, how do I exact a fair accounting of the number of units produced/sold so I'm paid fairly?

Without sounding too greedy, I guess what I'm asking is: What's the best way to get the most bang-for-the-buck if you're not directly involved in the manufacturing process?


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Re: Selling your invention question
« Reply #1 on: April 23, 2013, 10:05:38 AM »
It depends.

Will you be paying the manufacturer to make the device for you (contract manufacturing)?   Or, will you be selling the idea with the hope that a manufacture will go out and do all of the selling, manufacturing, distribution etc.

Based on your question I think its the second option.  This would typically be a license deal where you would ask to get paid either a percentage of each sale or a fixed dollar amount per unit sold.  A very rough starting point to determine this number would be to ask for 25% of the operating margins.  Read more about this "25% rule" here

In order to determine if you are getting paid fairly, it is common to ask for rights to have an auditor come in and audit their books and accounting.  If they find that you were being underpaid, there could be a penalty built in.  This would discourage someone from trying to underpay you and keep them honest. 

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