LICENSING YOUR PRODUCT
For Those Who Don't Wish to Manufacture and Market, Jim Riordan Offers Tips on How to Make the Best Licensing Deal for Your Product.
By James F. Riordan
Some of you may not want to consider manufacturing and marketing deals for your new product, preferring to license the item to interested companies. In order to create the most advantageous deal for yourself, keep the following information in mind:
• Patent rights only are usually worth between two and five percent of net sales and are commonly paid quarterly• Patent rights along with a trademark can bring between three and seven percent of net sales
• Patent rights combined with a trademark and "know-how" can be worth as much as 10 percent of the net sale price
Please remember that the above figures are based on my experiences and those of clients and friends. There are a few instances where inventors receive more than 10 percent of net sales, but they're rare. Most companies, in fact, moan and groan at five percent and call that exorbitant!
With that said, let's look at a few steps you can take to increase your likelihood of cutting a positive licensing deal.
DEVELOP A HIT LIST OF TARGET COMPANIES
The companies you choose will have to be able to use your technology or be able to manufacture and market your product through existing channels of distribution or you'll be wasting your time. Your first step should be to visit all of the stores in your area that sell products similar to yours and review all catalogs and printed material you can lay your hands on to find the names of the companies marketing a line of products which your product will complement. Notice I said, "Complement," not "compete with." IF YOUR PRODUCT COMPETES DIRECTLY WITH ANY OF THEIR PRESENT PRODUCTS, MY ADVICE IS TO SEEK A DEAL ELSEWHERE. The company has already spent money on tooling, manufacturing, sales literature, inventory, distribution, etc. They're not likely to want to drop that product until people stop buying it or until new competition enters the market.
You can have your local research librarian help you with your quest for companies. They'll be able to find companies that fit your target profile in the Thomas Register, through various trade journals, Standard Rates and Data, or the Dun & Bradstreet Million Dollar Directory, which lists companies by SIC (standard industrial classification) codes. Ideally, when complete, your list will have the names of every large company capable of making and selling your product.
QUALIFY YOUR PROSPECTS
Once you have your hit list completed, you must "qualify" them or determine which ones are mostly likely to have the greatest level of interest in your product or technology. You should also figure out which ones will be able to make and sell your products fastest and in the largest quantities. Hopefully, you'll be able to come up with a few choice prospects that have BOTH attributes. Those are the ones you should hit first. One way to find out which companies will have the capabilities to produce and sell the most product is to check their standing on the Fortune 500 list of the most successful businesses in the United States. Another easy way is to check their corporate standing on the Standard and Poors listing at the library. If you find a few companies which have product lines that are a perfect fit for your product AND listed on the Fortune 500, you're "in heaven."
Another good source of information on companies is The Corporate 1000, a directory of those who manage the leading 1000 listed U.S. companies. This publication gives the name and titles of key executives, their direct dial phone numbers and FAX numbers, as well as other helpful data.
It's worth noting that in his book, Patent It Yourself, author/patent attorney David Pressman suggests avoiding the big companies because they can be too bureaucratic and can take too long to bring a new product to market. He suggests approaching smaller companies that can act more quickly. I have done both and I find the larger companies to be a better bet, in most cases, for the simple reason that if they do choose to bring your product to market, they can usually start the project off with enough funding to assure its success (as much as anyone can assure success).
Many times, smaller companies may be more open to your ideas, but are less able to penetrate and educate the potential market as quickly. The decision is yours. Will you go with a company that may take longer to get the product to market but be able to reach the potential market much quicker once the product is out there or will you go with a company that may be able to get the product out faster, but take far longer to reach all the potential markets? Each product and each individual inventor may require a different strategy.
INITIATE CONTACT
You should now contact each of your target companies by phone or letter and ask them to send you their latest annual report and catalog of current products. In the annual report, you'll look up the earnings of each different division and find out how important the division, which will make and sell your product, is in the overall scheme of things. The best possible scenario is that the division you're interested in turns out to be one of the major ones and is in a growth mode, which can mean they're eagerly searching for new products to fuel their growth.
And that's always good news for you.
NEXT ISSUE: More on Licensing
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 the Dream Merchant, 2309 Torrance Blvd., Suite 104, Torrance, CA 90501. The phone number is (310) 328-1925.
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