One of my students emailed me recently to relay a disappointing story. He’d come up with an idea and pitched it to companies he thought might want to license it. One company called him back right away to tell him that it absolutely loved the idea.Bingo, he thought. The company had a lot of questions for him, including what he was looking for, which was a great sign. Things were looking bright! Or so he thought. Negotiations kept moving forward, but eventually six months passed without an agreement having been signed.
To make a long story short, the company ended up passing on his idea. He was crushed. What had he done wrong? He had lost time and momentum. The clock was ticking. Filing a provisional patent application-which I strongly recommend-allows an inventor to shop around his or her idea for up to 12 months before having to commit to filing a full-fledged non-provisional patent application. Although its intentions might have been good, the company in question had just effectively wasted six months of his grace period! What could he have done differently, he asked.
None of us are immune to his experience. I myself have had the same thing happen. When a company expresses interest in your idea, you may feel victorious, but in reality, you’ve only just begun what is often a lengthy conversation. There are a number of things that can derail the process along the way. Here are a few tips to keep you and your potential licensee on track.
1. Communicate often. Don’t take it for granted that progress is being made. You need to know for sure. To help you keep track of where you’re at, recap each of your conversations in print afterwards. Establishing a paper trail is always a smart idea.2. Ask for next steps. Do you understand the company’s product development process? What kind of timetable are you working with? You need to know what to expect. Maybe the company is meeting with retail buyers. Maybe it’s getting quotes from manufacturers. Yes, these things take time, but you still need to know about how much. Potential licensees are always looking for ways to reduce risk, so the company may spend time gathering information to help it make a decision about whether or not to move forward. That’s a smart move for them, but could cause problems for you.
3. If the company asks you for something, provide it. Better yet, set a good example and fulfill its request promptly. To be clear, I’m talking about companies whom you’ve determined are legitimately interested in your idea because you’ve qualified them.
4. Don’t stop showing the idea to other companies. If a potential licensee asks you to stop showing your idea to other companies, you should consider asking for a holding fee in exchange. Holding fees are usually good for a couple months. Your payment could be as little as $2,000 a month. It’s more of a gesture of good will.
5. When the time comes, have the courage to ask for a decision. If the process feels like it’s dragging on and on, you need to ask pointblank: Are you interested? Let the fact that you are looking for a licensing agreement be known. If a company tells you it’s not ready to make a decision, that’s fine; you’re going to keep submitting the idea to other companies in the meantime. In my experience, it’s very difficult to get a company to make a decision when it’s not ready to. You could ask for a letter of intent, but that’s only worth so much.
Please, don’t wait by the phone! And don’t let months and months pass by without an answer. Time is money, especially when intellectual property is on the line. If a second company you show the idea to expresses interest in licensing it from you, congratulations! That is not a problem-far from it. Now you have two companies to follow up on.
Originally published on Inc.com July 16th 2015.
