LICENSING YOUR IDEA
After you have secured your patent pending status, you can start contacting companies as explained in the last chapter. Be prepared for rejections from one company after another. You need to be mentally, emotionally and psychologically prepared for rejections one after the other. Prepare yourself for these types of situations. A travelling salesman is rejected many times before he sells a product. Steve Jobs was rejected every day and he called many companies dozens and even hundreds of times for the week, before an investor went to meet him. Today apple is a multi billion dollar company around the world. Author J. K. Rowling was turned down by countless publishers when she presented them with her first Harry Potter manuscript, until she finally found a publishing company that signed a contract with her. Today the Harry Potter books are distributed in over 200 territories, are translated into 68 languages and have sold over 400 million copies worldwide. The books have set a number of other milestones. A sequel of movies has been made from Harry Potter books. Plus there are countless other Harry Potter products globally. Each day more of these books are sold globally. Sylvester Stallone was turned down countless times by studios for acting jobs and for his manuscripts, until he wrote a brilliant manuscript called Rocky which was successful, despite the initial doubts by many. There has been a sequel of the Rocky movie plus Sylvester Stallone has starred in many other movies and he is considered as a successful actor in Hollywood.
If a company likes your product and they contact you for a licensing agreement, make sure and ask the representative as many questions as possible to get a better idea of what is happening, before you sign the contract. You will need to understand fully all the details and steps before you make a final decision. Read the contract thoroughly and understand it. If you are having difficulty with legal terms, you can search these terms on the internet and read their meanings. If you are still having trouble understanding some of the phrases and sentences, then you can get an attorney involved at this point, for him to explain to you what you are confused about. As the holder of the patent pending, you can negotiate with the company to patent the concept for you after the patent pending has expired at the end of the first year.
When you license an invention to a company, you are simply getting paid by that company to use your idea to make the product. Most times this payment called royalty is paid out to an inventor four times for the year, on a quarterly basis. You can ask the particular company how often they pay royalty. This is also stated on the contract. The more the company sells your product, the higher your royalty will be, so it will be in your best interest to look around at the supermarkets and stores to see if your products are there. You can report back to the company if you are not pleased about something. If the company breaches your contract, this contract can be terminated, for example if it is stated on the contract that the company will sell at least 10,000 of your products annually and this is not done, you can terminate the contract and approach another company to sign another fresh contract. Many companies offer from 1 % to 5 % in royalty payment. This represents a percentage of the wholesale price. Some people who do not know how the entire process works and expects 50 % which is unrealistic and unreasonable. The manufacturing company has to invest thousands of dollars upfront to make your concept into a working prototype. Then the company will have to spend hundreds of thousands of dollars to retool the factory, meaning they will have to buy additional machines, tools and molding equipment to make your product. They may even have to hire additional staff. The company has taken on an upfront risk when they accepted your submission. They will have to make back the amount of money that they initially invested, so it is not unreasonable for a company to offer someone royalty from 1% to 5%.
If you think you are uncertain about doing the licensing negotiations by yourself, then you can seek the guidance from Stephen Key and Andrew Krauss, or you can allow one of the invention companies to do the licensing negotiations for you. They will take an upfront fee for this, plus they will take a percentage of your royalty. Make sure and find out from the invention company what their fees for these services are. After you have understood all the information and steps, you will be in a better position to make the decisions for the next steps.