I’m going to discuss something in this blog that is very important to your ultimate success in licensing an idea to a company. Towards the end of the process, most inventors are so excited to be signing a licensing agreement that they lose focus on the actual terms of the agreement. There is one surefire way of protecting your interests in a licensing agreement, and that is to understand and use minimum guarantees. Minimum guarantees hold companies accountable by establishing specific performance clauses. If a company fails to meet those performance requirements, they lose the rights to your idea. An example of a performance clause could be selling X amount of units of your product in the first year, and then second, and then third. If you fail to include minimum guarantees in your contract, your licensee could feasibly sit on your idea and decide to do nothing with it at all! This actually happens. Which would mean that you’ve lost the rights to your idea and aren’t going to make any royalties because your product isn’t even being made and thus definitely cannot be sold on the market.
Understand that most companies dislike the idea of minimum guarantees and may protest. So make your requests reasonable. Ask them how many units they think they can sell in the first year and then make the minimum guarantee just 25% of that amount – that’s very doable. Make your minimum guarantee very low the first year, and work your way higher. You could also consider establishing certain deadlines. When are they going to produce the first unit? By what date are they going to be selling your product in 20 stores? 50? Are they going to have your product ready in time to demonstrate a big tradeshow later in the year?
If they don’t meet the deadlines that you’ve established in your licensing agreement, you get your product back. That’s the important thing.
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Stephen Key is a successful award-winning inventor who has licensed over 20 products in the past 30 years. He is a board member of Accudial Pharmaceuticals, Inc. and has a new book “One Simple Idea: Turn your dreams into a licensing goldmine while letting others do the work,” from McGraw-Hill. Along with business partner Andrew Krauss, Stephen runs inventRight, a company dedicated to education. Teaching inventors and entrepreneurs the skills needed to successfully license their ideas.
One Simple Idea is available in book stores and online book retailers nationwide. Visit www.inventright.com to learn more.
Article source: http://inventornotes.com/2012/01/26/the-one-surefire-way-of-protecting-your-interests-in-a-licensing-agreement/
Click here to listen to Stephen's interview on the Biz Ninja Radio show.