I have licensed more than 20 products over the past 30 years. In most cases, I worked with midsize companies. The reason why is simple: They’re fairly easy to work with! They review products swiftly, they get back to you quickly, they typically focus less on intellectual property, and they never ask too many questions about manufacturing. It was quick and painless, in other words, and for that reason I absolutely recommend it.
But when I finally did have a big idea, I ended up partnering with what is now the largest label manufacturer in the world. Today, CCL Label has more than 150 manufacturing facilities across North America, Latin America, Europe, Asia, Australia, and Africa. Back when I worked with the Canadian company to manufacture and eventually license my concept for a new kind of rotating label, it was still a major player. CCL Label maintains superb relationships with its clients and vendors, provides top-notch customer service, and is extremely innovative — three excellent qualities in a potential licensee. But, it was an enormous company!
It’s not much of an exaggeration to say that we were perfectly suited to one another. Consumer product manufacturers struggle to include all that they’re required to on their packaging, let alone what they want to. (Think warnings, facts, games, and coupon codes, to name a few.) I had devised a way of adding 75% more space by laying one label with window cutouts over a base label. CCL Label had the capacity to make the best possible use of my idea.
But large companies move very slowly, I soon discovered. Many departments will have to comment on and review your submission, and they’ll have to come to a consensus about how to move forward with it in a way that serves all of their interests.
When I first showed the company my innovation, they told me they loved it! Then they started evaluating its viability. They thought they could manufacture it, but didn’t know for sure. One thing was certain: It was going to cost a lot more to develop my rotating label than to simply continue making the same labels.
They were a little reluctant, then, understandably. But to my surprise, nothing happened for the next six months. My idea ended up just sitting there! I know better now. Running a massive operation like CCL Label requires a lot of focus. They were not going to have a group of employees drop everything and devote the time and money needed to do the required testing, especially without proof of demand. They would get to it at some point, maybe, but it just wasn’t a priority.
It’s scenarios like these that pull-through marketing comes in handy.
Thankfully, I had been pitching my idea relentlessly to other large companies. After at least one hundred of them turned me down, the vitamin and supplements manufacturer Rexall Sundown (now Sundown Naturals) — a small to midsize company — expressed a lot of interest in my rotating label.
The timing could not have been better.
So I went down to Boca Raton, Florida, to meet with them… and they liked my innovation so much they were willing to order 50 million units the first year if I could provide the rotating labels!
Bingo. There was the proof of demand I needed. So I went back to CCL Label, which had a concrete incentive to figure out how to make it now.
We started testing in Monrovia, California at one of CCL’s many plants shortly after. It took a long time, a lot of trial and error, hard work, and determination. How much time exactly? I traveled to Monrovia at least once a week for about six months to work with Chris Creel, a very capable technician, until we figured out how to manufacture my rotating label. Did I forget to mention patience is crucial?
If you are familiar with my book One Simple Idea, you know I’m a big fan of provisional patent applications (PPAs). Filing a well-written PPA can effectively establish what I like to refer to as perceived ownership over a simple idea. That is what I would do today, but back then, the option to file a provisional patent application first did not exist. So I hastily filed two non-provisional patents, which later turned out to be worthless.
You have a year to test the market with a PPA, but a year is not long, especially when it comes to working with Fortune 500 companies. The PPAs you file are very likely to lapse, which means you will have to file intellectual property way before a licensing arrangement is finalized. So please, be prepared for that.
But timing isn’t the only reason filing a single provisional patent application won’t cut it.
To move forward with your new idea, a Fortune 500 company will have to invest enormous amounts of time and resources. Mobilizing their massive infrastructure to manufacture and widely distribute your product will include running tests, assigning equipment, going to trade shows, implementing new procedures, training their people, and tracking new SKUs all around the world, to name a few. These tasks require a lot of labor and a lot of money.
So, to reduce some of the risk they’ve taken on after all of that work, they need some form of protection in return. They are going to want to see actual ownership, so you had better have actual patents, and not just one. You need a wall of intellectual property to establish perceived ownership over a big idea. (Any innovation for the packaging industry is by definition a big idea.)
A patent portfolio that has real value is one that protects your idea from every direction. The two patents I filed initially were worthless because, as it turns out, prior art for my idea existed — the people my attorneys hired to search for it had just failed to uncover it. My exact idea had been patented 70 years ago. But, crucially, no one had ever figured out how to manufacture a rotating label. And when I realized that, that became my point of difference.
If you take the time to become an expert — meaning truly understand your point of difference — you can use that to your advantage and recoup some of the cost of your patents. I was able to do so through my contract with CCL Label.
I cannot emphasize this enough. Licensing an idea to a large company will take time and money, and the investment comes upfront. Would I do it all again? Yes. The rewards can be absolutely life-changing, both financially and personally.
Trust me, I get it. If you like coming up with new product ideas, you want to improve as many lives as possible. Who doesn’t want to have that kind of impact?
Many of my students work with Fortune 500 companies these days, which is another reason why I’m qualified to write this article. Needless to say, it very, very exciting! One of the first things I tell them is that their strategy has to be vastly different than the one you’d employ with smaller companies.
If a Fortune 500 company is interested in licensing your idea, take the following advice to heart.
1. Keep calm. Like I said, several departments will have to review and comment on your submission, including marketing, sales, and manufacturing. Most product submissions will start in the new product innovation group. This group will determine whether there are any manufacturing issues before presenting your idea on to marketing, so it’s wise to submit to this group. The first questions they will ask are: “How do we do it and what is the cost?” Have the answers to those questions. These departments have divergent interests, including, of course, legal. This process could take literally months and up to a year. Having proof of demand can speed up the process, so speaking to potential clients is advisable.
2. Talk to the experts. Contract manufacturers can help you determine the cost of production. You can find them online and through trade associations. When working with them, make sure they sign a non-disclosure agreement (NDA) that has work-for-hire language. The important point being: Anything they develop, you own. No reverse engineering. Consider having your patent attorney write your NDA. Understanding the manufacturing process can be very important in terms of intellectual property as well, like I discovered.
3. Learn and keep your secrets. Intellectual property will be important along with ‘know how.’ So do your homework, meaning search for prior art, until you truly understand what’s already been done. You need to become an expert in your product category. Trust that the companies you pitch your idea to will do their homework as well, so it’s extremely important that you know what your point of difference is. I guarantee you that prior art will exist. What you need to do is find it. Learn how to search for prior art yourself or hire someone to help you. It’s also important that you sign an NDA before you disclose any trade secrets, know how, or intellectual property. In most situations, the company will want you to sign their NDA. Please have a patent attorney review it.
4. Build a wall. Once you’ve familiarized yourself with the landscape, you need to file intellectual property that has merit. Be prepared to file multiple provisional patent applications. The best approach is to start by filing PPAs on the idea itself, which can be extremely broad. Next, try to ‘steal’ your idea from yourself by thinking of different variations and then protecting those. Then, as you talk to and learn from engineers and manufacturers, try to file provisional patent applications based on manufacturing processes. However, PPAs alone will not be enough, and this where licensing an idea to a Fortune 500 company gets very expensive. If the potential licensee signed an NDA and you have not shown your idea to anyone else, you can possibly re-file your application, losing only your original filing date. But most of the time, you’re going to have to file a few non-provisional patent applications before you have inked a licensing deal.
5. Transcend borders. In some cases, if you license an idea to a Fortune 500 company that has distribution in other parts of the world, they will still pay you a royalty even though you don’t have intellectual property in those countries. This is done as a sort of courtesy and it is certainly not a given. You might need to apply for an ‘international’ patent under the Patent Cooperation Treaty (PCT), which allows you to seek protection in a large number of countries simultaneously by filing a single application instead of several separate national or regional applications. Nonetheless, filing internationally can be extremely time-consuming and expensive, especially if the company has operations in countries that are not part of the PCT.
6. Expand your knowledge. During the process make sure you ask the company a lot of questions about their business. In fact, you should try to gather as much information as you can about their customers and where they operate around the world. I highly recommend taking very good notes whenever you speak to anyone, thus creating a detailed paper trail. You will also find yourself traveling to their facilities, so learn as much as possible by working with their engineers. Be prepared to protect whatever you learn by filing additional PPAs. Do not stop innovating!
7. Recoup your costs. Be reasonable when you negotiate, but bear in mind that you will need minimum guarantees if you’re going to give an exclusive to a company with wide geographic distribution. The notes you have been taking will be absolutely essential to you during this phase of the negotiation process.
8. Harness the three Ps: Patience, passion, and people. You must know the difference between a small idea and a big one. Big ideas take time, resources, and effort. You’ll need the drive and the audacity to keep you going through it all. Even so, you won’t be able to do it alone. You are going to need support, advice, and expertise so identify people who can help you early on.
You can do this, but it’s a marathon, not a race. Stay on top of the process and learn as much as you can in advance.
In this article, I describe how to get in to Fortune 500 companies to show them your idea.
For more on negotiating product licensing agreements, see here, here, and here for starters.
Originally published on Inc.com July 14th 2017.
