We all know that securing a licensing agreement from a distributor can mean big money for an inventor. What inventors may not know, is what to expect in a licensing deal. Here are a few things to consider before licensing your rights.
Royalties. You may be surprised to learn that royalties on direct response sales (TV, Web), if offered, will likely be nominal. DRTV is no longer a money maker for direct response marketers, as media is expensive and most consumers now purchase “as seen on tv” products at retail. So, although you should not be shocked to see little to no royalties on DRTV sales, there is almost always room to negotiate. As for royalties on wholesale sales, depending on how developed your product is, look for numbers ranging from 5-10%. For example, a patented, trademarked product that is molded and packaged can command a higher royalty percentage than a product with just a provisional patent.
Patents & Improvements. The patent, and in some instances, a trademarked name, is the heart and soul of the licensing agreement. After all, without the intellectual property, what is there to license? What you may not know is that a product’s patents may change and evolve from the time a licensing agreement is signed to the time the agreement expires. Oftentimes, large product distributors will find ways to tweak a design to improve the product, or to allow for cheaper manufacturing. When these improvements are filed by the licensee, they become the property of the licensee, and the original inventor is no longer the inventor of the patent. This is why grant-back provisions are so important. Make sure the rights to all improvements made to the patents during the term of the licensing agreement are granted/assigned back to you, the original inventor, upon termination of the agreement.
Property Protection. First rule of thumb: trust no one. This may seem a bit harsh, but it is solid advice nonetheless. While many product licensors play by the rules, some do not. As such, you should have a strong non-compete agreement in place prior to licensing out your product. Additionally, be sure that all of your intellectual property rights are valid. Missing deadlines for both patent and trademark submissions can result in the loss of your intellectual property rights. This can open the door for others to register your now invalid intellectual property. Lastly, until you have your IP protection in place, avoid showcasing your product at trade shows or inventors corners to minimize the possibility that you will be knocked off.
Overall, while licensing can be a lucrative option, its wise to consult with someone who can help protect your product and maximize your opportunities.
Written By Paula Brillson Phillips