Need Help? 1-800-701-7993 | Contact Us

inventRight Blog

5 minutes reading time (980 words)

Don’t Kill Your Licensing Deal Before It Even Gets Signed!

29875737 mToday I want to talk about ‘killing the deal’ when you begin negotiating with a company. And no, I don’t mean this in a good way. Let me outline a scenario for you: you’ve done a lot of hard work by putting together wonderful sales material, making a list of companies and contacting them, and BOOM! One of them has showed some interest in your product. So now you start really talking to a potential licensee – having real conversations about your product, its potential, and maybe even the terms of a licensing deal. You think everything is going great yet suddenly - they walk away. No phone calls, no emails, no deal.

How did this happen?  Why did this company lose interest?

In my experience, inventors often “jump the gun” and start asking for things that just aren’t reasonable.  You may have asked for an 8% or 10% royalty. You may have asked for a large amount of money upfront.  What’s wrong with this is that you haven’t asked some of the other questions that go along with those numbers. You don’t really know their business. When you pull a number out of thin air, what does that really mean? What does that 8% or 10% really mean? If you don’t know the potential revenue, if you don’t know the volume potential of your product (in their eyes), if you don’t know where your product will be distributed and sold, if you don’t have any idea of the wholesale price of your product, well then those numbers mean nothing!

You really have to do some homework and some math and ask the company some very important questions at the beginning. The best time to have open and friendly conversations with a company is in the very beginning.  It’s a little bit like dating – you want to get to know more about them and their business and they want to get to know more about you and your product before you start asking the tough questions.

So this whole process is going to go back and forth with rhythm and purpose. There are some ‘unwritten rules’ so to speak. Very subtle. If you don’t understand what’s happening you can say the wrong thing. A lot of product developers might ask for minimum guarantees right up front (which are really important) but do you say that at the very beginning? No! You don’t do that at the very beginning because it’s a deal killer. It’s like going on a date for someone you don’t even know and the next thing you’re talking about are all the things that have gone wrong in your relationships. You don’t do that! I’ve seen this happen so many times.

You know what else I’ve seen? Once your conversations progress, and maybe you even have a draft of a licensing agreement, you start arguing over things that don’t really matter at the end of the day. They just don’t. And sure enough you’re making your potential licensee pretty tired. So tired, in fact, he walks away from the deal.

You’ve got a small window of time to be smart, reasonable, and build up the relationship as if you were going to be a team in the future. The right attitude has everything to do with it, but if you keep wearing these guys down, they’re going to walk away.

Another way of killing the deal is to bring in an attorney too early in the process. There are a couple of reasons why this is a potential deal killer.  First, you’ve probably been working with a patent attorney to help you with your product protection - but a patent attorney is definitely not the right resource to use for a licensing agreement. Second, even if you employ a great licensing attorney – bringing him or her into the negotiations in the beginning is a mistake.  Why? Well, you bring in an attorney – so the company brings in their attorney – and pretty soon the two attorneys are charging lots of money to complicate the deal.  At the end of the day, there’s a chance you have a large legal bill and no deal.

Don’t get me wrong, I always use a licensing attorney, but I do so at the end of the negotiations when the deal is almost done.  I explain to my attorney that the business terms have already been worked out and that I just need them to review the deal from a legal perspective and to protect my interests from any legal language that I am not familiar with.

At inventRight we teach our students to negotiate their own deals after doing some homework on the company.  If you want to read more about this approach, check out my book How To Sell Your Ideas With or Without a Patent (Chapter 7 spends a lot of time walking you through how to negotiate with a potential licensee).      

What I’m saying here is to arm yourself with knowledge and learn the rules of the dance a bit beforehand. Be careful when you start talking to company that is interested in your product. Be reasonable, be smart, know the vocabulary, and know enough about a licensing agreement that you’re not just stabbing in the dark. Don’t pull numbers out of thin air. Ask the right questions, don’t ask for too many things up front, and ask for the tough things later in the process when everyone is more invested.

If you are in the beginning (or even the middle) of negotiating with a company for a licensing deal, I strongly urge you to get some advice or guidance from someone who has done it many times before. At inventRight we offer this service – even to folks who are not our students – because it is so important to get the right deal!

Royalty Rates - How to get a Higher One!
When Do You File a Patent? You’d Be Surprised!
 

Comments 2

Kristina Van Horn on Thursday, 18 January 2018 20:43

Interesting...but what ARE the unspoken rules and specifically, the right questions?

Interesting...but what ARE the unspoken rules and specifically, the right questions?
Andrew Krauss on Thursday, 25 January 2018 10:43

Kristina, Negotiating a license agreement is a dance. We help our students do that dance one or twice with the help of a negotiations coach. Then they can do it on their own after that. It's one of those things that is best experienced. You can't learn it all from a checklist or reading about it. There are so many scenarios that come up during a negotiation that new inventors need guidance on.

Kristina, Negotiating a license agreement is a dance. We help our students do that dance one or twice with the help of a negotiations coach. Then they can do it on their own after that. It's one of those things that is best experienced. You can't learn it all from a checklist or reading about it. There are so many scenarios that come up during a negotiation that new inventors need guidance on.
Guest
Monday, 21 October 2019

Captcha Image

About Us

inventRight is the world's leading expert on product licensing. Cofounded by Stephen Key and Andrew Krauss in 1999, it has since helped people from more than 60 countries license their ideas for new products.

Contact Us

1-800-701-7993 (U.S. & Canada)

1-650-793-1477 (Alaska, Hawaii & International callers)

Skype - inventright

Email: andrew@inventright.com

Stay Connected

Image
Image
Image

Copyright © inventRight, LLC. All Rights Reserved.
inventright, LLC. is not a law firm and does not provide legal or patent, trademark or copyright advice.
Please use caution when evaluating any information, including but not limited to: business opportunities; links to news stories; links to services, products or other web sites.
No endorsements are issued by inventright, LLC., expressed or implied. Depiction of any trademarks/logos does not represent endorsement of inventRight, LLC,
its services, or products by the trademark owner. All trademarks are registered 
trademarks of their respective companies.
Read the full disclaimer here. Read our Privacy Policy here.

sucuri