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When you’ve got a great idea for a product, there’s an important decision to make right up front: Do you want to build a brand new company from the ground up in order to commercialize the product, or do you sign a product licensing deal with a preexisting company that already has the resources in place in order to get your product out into the market?
If you choose the latter, and you’re successful in getting your product or invention licensed, you’ll receive royalties on sales of the product, and you’ll have a lot more time on your hands to tend to other activities in your life.
We know a thing or two about both commercializing and licensing products, having pursued them both on many occasions over the years. If you’re considering licensing an idea, be sober. Getting a company to license your invention from you is far from a simple task. The fact is, the rate of inventors who successfully license their inventions is very low—much less than 10 percent.
If seeing your product on the shelves is your dream, you not only have to have an appealing invention, but you also need to be an appealing inventor. Tenacity, preparation and professionalism must become your hallmarks.
And we’re here to tell you that you can succeed. We’re proof positive! We were fortunate to successfully license our invention, “The Battery Buddy,” to a Fortune 500 company. And we generated upwards of $1 million dollars in royalties by doing so. From there, we went on to help other inventors license their inventions to Fortune 500 companies in exchange for a share of any royalties generated.
Below are tips we have learned along the way to help you land a product licensing deal:
- Know your stuff. First and foremost, to have any chance of licensing your invention, you must know your stuff. You have to become an expert in the field to which your invention applies. You should be able to rattle off who the competition is, what the potential market size is, what the projected demand for your product is and why your product is the best to meet and satisfy that market demand.
- Know the downside. While it’s important to be passionate about your idea, it’s also important to be sober. Your credibility will be assessed by potential licensees partly based on whether you present a realistic analysis of the risks the licensee will have to deal with—things like product failure, the potential for slower-than-expected customer adoption, etc.
- Present like a pro. Information you present to potential licensees should be provided in written form and in a PowerPoint presentation. The information should include market research data, competitive analysis information, patent status and extent of coverage. It helps to provide a letter from your patent attorney summarizing the initial search results and any other pertinent opinions relating to the extent and value of the patent coverage awarded to you. Also include your product specifications, drawings, prototypes—even if they demonstrate only what the product looks like without the actual functionality. Add to this presentation your production cost estimates, testimonials you’ve collected, and any and all other materials that help demonstrate the potential your invention has in the marketplace.
- Get it protected. Big corporations usually have intellectual property or licensing departments specifically set up to handle and manage the inflow of product licensing opportunities. Most of these offices will not accept any submission of a licensing opportunity for which a patent has not yet been issued. And many will not sign a confidentiality agreement, while many others will require that only their own agreement be signed. In some cases, companies might be willing to sign your confidentiality agreement, but only rarely.
- Submit smart! Work closely with your intellectual property attorney when submitting an idea to a potential licensee to ensure that your idea is adequately protected. Never sign a confidentiality agreement without first having an attorney review it. And never turn over materials to a company without your attorney giving you the green light. It may be dangerous unless you have adequate patent protection in place or a confidentiality agreement that your attorney deems sufficient to protect your intellectual property.
- Analyze your targeted licensee. Always do research on the company you’re targeting prior to pitching them. Check to see if the potential licensee has the manufacturing and distribution capability you need already in place. If they do, their risk is mitigated to a substantial degree, and they will be much more likely to seriously consider the opportunity. Believe it or not, though, you may have to educate them on how your product can fit into their existing lines of business.
- Don’t reinvent procedures. It’s important to follow the established protocol of a licensee when submitting your idea for consideration. If you attempt to bend the rules, your submission can be stopped dead in its tracks before ever being given consideration. If a targeted licensee has a licensing office, always start there to get a case file started at the company’s licensing office, and attend to their confidentiality procedures.
- Find a champion. Once you have clearance from the company to present your idea, always try to find a champion from within the company who gets excited about your idea and works to “pull” the idea into the company rather than you simply attempting to “push” the idea onto the company.
- “No” is an opportunity. Remember, it’s always safer for the company to say no to an idea than it is to say yes. The key is to be able to overcome the likely onslaught of negative responses the company will undoubtedly throw your way. It’s imperative (even in the midst of a no) that instead of hanging up or walking out in defeat, you ask to understand specifically why. If someone says no to you, that’s a perfect opportunity to learn. Immediately ask why? What are the concerns? Are they insurmountable? What could be done to address the concerns? You’ll use what you learn to create a yes! next time around.
- Multiple baskets. As the old saying goes, “don’t put all your eggs in one basket.” Relying on a single potential licensee just adds more risk to a challenge that already has plenty of inherent risk. It’s smart to approach more than one potential licensee to increase your odds for success. Further, playing multiple bidders off of each other can actually put some well-needed leverage on your side of the negotiating table by bringing out the competitive nature of the potential licensees. Ultimately, if you generate serious interest (and your aim is to license your invention to just one licensee) be sure you know when to stop playing competitors against each other. The moment you select your licensee, you’ll have to begin building good faith with them and you don’t want “bad blood” to tarnish how they perceive you and work with you in the long run.
Product licensing: our bottom line
While obtaining a license from a third party to produce and sell your product is very challenging, it can be done. And if you properly prepare and equip yourself for the challenge, you have a shot to have the dream of landing that product licensing deal, and collecting royalties while the licensee does all the work and takes all of the risk.
Originally published April 22, 2005.