If you’ve been following my columns about how to license your product ideas for passive income, you know I believe in the power of self-education. You can’t depend on others to do the work for you. You need to think critically, develop a strategy for bringing your concept to market, and be able to advocate for yourself. That information is out there! It’s right at your fingertips. Whatever mistakes you make you’ll learn from. But — and this is a big but — there is at least one aspect of this process you should not attempt on your own, and that’s sitting down at a negotiation table without any experience. Licensing agreements are tricky. They’re very specific. It’s not enough to have negotiated a contract before. If you’ve never negotiated a licensing agreement, find someone who has to help you.
Full disclosure: I’ve been negotiating licensing agreements on behalf of my inventRight students for more than 15 years now. I learned the hard way (that is to say, on my own) how much of an effect the littlest nuances in language have. If you don’t know what to be aware of, unsurprisingly, there’s a good chance you’ll overlook something. And the stakes are too high to let that happen. You’ve made it this far! Now you need to close. Negotiations are like a chess game. Play to win. Companies that want to license your idea from you certainly will.
Which leads me to improvement clauses. Along with minimum guarantees, which I’ve written about before, you need to establish that you own any and all improvements made to your innovation. Because fact is, improvements will be made. Of course they will. Not all of the details are worked out yet. An aspect of your concept may need to be adapted to high-speed manufacturing equipment, for example. Which is why improvement clauses are so important. If you don’t own the improvements made, you may end up in the bizarre predicament of having to license the technology from your former licensee.
What you need to be aware of is this. Don’t let your license be defined as only applying to a specific piece of intellectual property, like a provisional or non-provisional patent application. Expand the definition to include any future improvements made, including other forms of intellectual property like trademarks, copyrights, and design patents. Basically: Any intellectual property concerning your invention, now and in the future, you own. In my opinion, that is absolutely crucial. By all means, your licensee should make and file improvements. But the company must assign intellectual property rights back to you. You need to have full control of your intellectual property going forward. To ensure that happens, I highly recommend working with a licensing attorney to hammer out the correct language. (Don’t bring an attorney in too early though. By expert, I mean someone with business savvy, not legal.)
The truth is, protecting the technology benefits both of you. You had the idea; now you’re giving them the exclusive (most likely) right to market and sell it. Not own it. Instead of asking to be paid upfront, ask your licensee to pay for your patents. That win-win strategy has worked for me many, many times.
As much as I don’t want you to be fearful, I do want you to be aware. Back in the day, after licensing my packaging innovation to an industry leader, I remember how surprised I was when a gentleman I had been working with for many months told me he had filed some additional patents on ‘the’ technology. The technology? It was my technology! I just smiled and thanked him. “Great! You’re going to have to assign those patents to me — anything having to do with the technology I own, remember?” The look on his face was priceless. To be fair, the packaging industry is ruthless.
A few more pieces of advice: Slide in an improvements clause later on during negotiations. Your licensee may try to fight it. Also, don’t let improvements be made to your concept before you’ve signed a contract.
Needless to say, I love negotiating. And I think it’s entirely possible for independent product developers to outthink big corporations. This is your money! The people you’re negotiating with are working for a paycheck. They’re looking forward to leaving the office at 5 o’clock.
So keep your spirits high. If you hope for the best and plan for the worst, you’ll be in good shape.
Originally published on Inc.com June 3rd 2016.
