So, you’ve got this amazing product idea. You’ve shared it with a potential partner through a sell sheet or a short video. And now there’s genuine interest from a potential licensee. Most likely, you started this conversation on LinkedIn, chatting back and forth. Now, you’ve progressed to email.
However, as the conversation progresses, a pivotal moment arises. It’s time to suggest a Zoom or Skype meeting or any online platform that suits both parties. You should both take advantage of this opportunity to get to know one another better. The correct moment to ask some inquiries is now. They’ll be happy to respond. They usually ask, “Do you have a patent for this?” as their first query.
This initial inquiry usually comes as a gut reaction. However, your goal is to transition to a platform where both parties can get to know each other better. This is also the perfect moment to seek their opinion on your product idea. If you’ve been through this process before, it’ll be smoother. But if this is your first time, it’s natural to feel a tad nervous. That’s precisely why having someone in your corner, ready to field those tricky questions, can be a tremendous support.
Once they’ve received your marketing materials and they’re keen on moving towards a licensing agreement, they’ll have some questions. You should be ready for the four questions they’re likely to ask to progress toward the licensing agreement. Remember, they’re not just evaluating your product, but also you as a potential collaborator. If they find you to be impractical or lacking in trustworthiness, they might reconsider involving you in their venture.
Preparing For The Licensing Agreement: 4 Essential Questions
When you’re getting ready to discuss a licensing agreement, be prepared for these four important questions:
Do You Have A Prototype?
For straightforward concepts, a prototype might not be essential. Sometimes, simple ideas don’t need one, but for more complex concepts, they’ll likely want to see some kind of proof of concept. It could be as basic as a rudimentary prototype, often referred to as a “Frankenstein” model. The principle is simple: sometimes a straightforward “no” suffices. On the other hand, if you do have one, ensure it functions effectively. It should be a prototype that allows them to conduct any necessary tests or evaluations.
Therefore, it’s crucial to inquire about the specific prototype requirements they have in mind.
Do You Have A Patent?
Most products that are licensed nowadays don’t necessarily have patents. And even many products available in the market aren’t patented. However, it’s a common inquiry they’ll make, so it’s wise to be ready. Having an issued patent is fantastic, but for many of us, it’s not the case. What you need is a well-crafted provisional patent application. This is what you bring to the table to move things forward, letting them know it’s patent pending.
On occasion, they might express interest in seeing it. If it’s too early in the process, it’s perfectly fine to let them know. Instead, you might suggest having a few initial discussions. It’s crucial to assess their level of interest before sharing any intellectual property. And if you do decide to share your provisional patent application, you might want to hold back some private information, like your filing date.
Keep it straightforward, and make sure you’ve put in the effort to craft a solid provisional patent application.
Have You Shown It To Anyone Else?
This is where discretion is key. If you’ve shared it, be honest. If they ask who, reassure them that it was under a Non-Disclosure Agreement (NDA).
What Are You Looking For?
This is the moment you’ve been anticipating. You should express your interest in seeking a Licensing agreement. Your goal is to license your innovative product idea to them, in exchange for a mutually agreeable royalty rate. Sometimes, they might inquire about the specific royalty rate you’re looking for. However, it’s too early to determine this accurately because there are other terms in the licensing agreement that might affect it.
At this point, I recommend proposing a rate that’s fair for both parties. Additionally, I express openness to receiving a licensing agreement from their end, which would be fantastic. I also reassure them that any challenges that arise can be addressed and overcome. I’m genuinely thrilled about the prospect of collaborating with you. This agreement will outline how we’ll work together on this exciting venture.
Your approach sets the mood for the whole conversation. When it comes to negotiating the licensing agreement, attitude is key. I’ll touch upon the specific details to discuss in the agreement a bit later.
Now, some companies might suggest something called a ‘term sheet’ before sending the actual licensing agreement. This is like a simplified version with the basic terms. It’s like a test run. The rationale here is clear: if you can’t find common ground on the fundamental terms outlined in a term sheet, pursuing a licensing agreement might not be the most practical step.
In truth, this practice isn’t all that prevalent. Companies that have licensed many product ideas usually have a standard licensing agreement they use. They’ve figured out what’s fair and reasonable through lots of experience. They know the ropes well because they’ve been through it countless times.
