You have a great invention. You know it, your investors know it, and now you have an interested company that believes it too. The question is where do you go from here? If you intend to receive royalty payments for your idea, you need a crash course in licensing.
The best advice we can offer, is consult a professional. It will be most beneficial to find someone experienced in licensing negotiations to strike a fair deal for you. Chances are, their services will pay for themselves in increased royalties they will obtain for you.
Let us discuss two types of licensing agreements and some common pitfalls experienced by inventors. The two types of agreements we will be covering here are non-exclusive and exclusive agreements.
Exclusive agreements specify one and only one manufacturer is allowed to produce your invention. Most companies are going to prefer this contract and it is important that you note how to protect yourself in this scenario.
The primary concern with an exclusive agreement is getting stuck with a company that ultimately decides not to produce or sell your idea. If you sign a contract with a company that initially has great plans, but for some reason decides to put the project on hold, you will never receive a dime. That is unless you take these precautions;
1. Get money up front. Nothing motivates people faster than a substantial investment of funds. If you receive a sizable sum in advance, it is much more likely the company will continue with their efforts to recover their investment.
2. Limit the term of the contract. After a set period of time, the rights will revert back to you. Effectively protecting you from an manufacturer just 'sitting' on your idea.
3. Anti-shelving clause. This is achieved by creating a plausible time table with a series of checks or milestones the company must complete. Recourse for not reaching these set goals can include minimum royalty payments to the inventor, or termination of the contract.
Again, it is most advisable to employ a licensing professional to help you review any potential agreements before relinquishing the rights to your idea. This may involve an upfront fee or a portion of your royalties, but if you truly have a great idea, it is most definitely worth the investment.
