FOURTH IN A SERIES
By James F. Riordan
Licensing your invention to a large company can be lucrative, but also dangerous. For example, some companies have been know to sign a licensing agreement to make, use, and sell an invention, take the product to market and then challenge the validity of the patent in court.
That's about as low as you can get.
But remember--it's all business to most corporations. The corporation isn't sentimentally attached to the inventor or the product. The company sees only the business side of things.
If a court then finds, FOR ANY REASON (including YOU, the licensor, NOT HAVING ENOUGH MONEY TO FIGHT THEM) that the patent isn't valid, the company can then break the licensing agreement, stop paying royalties and continue to make and sell the product.
Yes--it's sad, but true.
You should ALWAYS include a clause in every licensing agreement, which states that THE LICENSING AGREEMENT IS AUTOMATICALLY TERMINATED ON THE DATE THAT THE LICENSEE CHALLENGES OR THREATENS TO CHALLENGE, IN ANY WAY, THE LICENSOR'S PATENT, TRADEMARK, TRADE SECRETS, OR ANY OTHER INTELLECTUAL PROPERTY PROVIDED TO THE LICENSEE BY THE LICENSOR OR COMPETES IN ANY WAY WITH LICENSOR WITHOUT COMPENSATION.
Your agreement should ideally include a clause which covers unfair competition in the event the patent is found invalid by a third party. Many licensees will object to paying the full royalty if the patent is found invalid by a third party, but it never hurts to include it in the agreement and use it as a bargaining chip.
Be aware that you may also encounter roadblocks in your quest for a patent. For example, patents that are pending will not show up on searches. Whenever you file for a patent, you're taking a gamble that your patent will issue before someone else's does. Many people are paid top dollar to think of ideas for new products, both in this country and in foreign countries. Many other creative individuals think of inventions "out of the blue" and file for patents on all types of products, every year, hoping to sell them or license them, to companies capable of marketing them.
If any of them receive a patent before you do, on the same type of product or technology, at best you may be up against expensive litigation or you may be forced into an unwanted and costly licensing agreement. At worst, you may be forced to "cease and desist" from making, selling or practicing the invention which means you lose all rights to manufacture or sell the product and lose all monies you have invested in the product (you may, however, be able to deduct the expenses from your gross income for tax purposes).
You have the option of filing for a patent yourself, or having a patent attorney or patent agent file it for you. Again, if you think your idea has real merit, I would pay the money and have a patent attorney prepare your application. I have had my attorney file every patent I have ever applied for and I will continue to do so. Plain and simply, it's their business and they know it better than you do as a layperson.
If you decide to file yourself, I recommend you purchase David Pressman's book entitled PATENT IT YOURSELF, which is published by NOLO Press of Berkeley, California and is available at most book stores. Another good, inexpensive source of good information on patents, which incidentally contains all of the forms you need to apply for a patent is GENERAL INFORMATION CONCERNING PATENTS and you can get a copy by sending $2 to:
The Superintendent of Documents U.S. Government Printing Office Washington, D.C. 20402
Be sure to include the $2 and request the book by name.
Patents can be denied for any number of reasons. When a patent is denied, you lose the gamble. You lose the money you have paid the attorney or agent, because they don't guarantee you'll get the patent and they don't give refunds. However, don't panic when you receive your first rejection notice. The overwhelming majority of all patent applications are initially rejected by the patent office. The most common grounds are that the patent is "obvious." The joke here is that for those of us who continue to pursue our patent applications, THE MAJORITY OF PATENT APPLICATIONS DO EVENTUALLY ISSUE AS PATENTS. Why then, do most of them initially get rejected?
Some say it's to earn patent attorneys more money. Others claim they are all initially rejected in hopes that some will not return, thus lightening the workload of the patent office. I still haven't figured it out, except that every patent I've ever applied for has been initially rejected. In some cases, where the patent office denies your patent, you can go back with proof of commercial success and ask them to reconsider. Commercial success may stem from evidence that sales of the product have replaced or exceeded sales of competing products, evidence that you have licensed the product, evidence that your competitors are copying your product, or evidence of people in the trade commenting that your product is head and shoulders above the prior art.
The moral is--KEEP AT IT UNTIL YOU ARE ABSOLUTELY SURE THE REJECTION IS FINAL.
In light of the above, should a small businessman or product developer go to the expense of filing for a patent? The answer is a qualified "yes." The qualification is that the product must have a projected life cycle which is long enough to justify the expense of the patent or you must have a good chance of selling or licensing the product and the patent to another entity.
For the small business person, it's always a tough decision. Do you spend the money on a patent or on marketing and promotion? If you can afford both, great. If you can afford only one or the other, bear in mind that Riordan's Law states--WHOEVER SELLS THE MOST PRODUCT THE FASTEST USUALLY WINS THE GAME.
NEXT ISSUE: More on Patents
The above article was taken from James F. Riordan's classic book, HOW TO EVALUATE THE POTENTIAL FOR SUCCESS OF A NEW PRODUCT OR TECHNOLOGY. Riordan's highly-acclaimed, 36-point system is a valuable tool for inventors, product evaluators or anyone interested in the invention process. Each section is followed by a comprehensive questionnaire that can be used to evaluate your product.
The highly-recommended book can be ordered by contacting the James F. Riordan Company, 3110 Camerosa Circle, Cameron Park, CA 95682. The company can be reached by phone at (916) 676-4729. The book may also be ordered through Dream Merchant, 2309 Torrance Blvd., Suite 104, Torrance, CA 90501. The phone number is (310) 328-1925.
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