|I know that I have talked about this before but it is time to do a reminder about what is realistic in this economy.
I recently “fired” a client because he had expectations that were beyond reasonable.We had a firm licensing offer: a royalty offer of 5% for the life of the patent. Unfortunately, the client believed that he should have been offered a $2.5 million buyout. There was no way that we were going to reach any compromise.
- Not every home in America is going to want one. Unless you invented the toilet, not EVERY home is going to have one of anything.
- A product with issued IP is not a “company” with a book of business.
- Expecting to be paid up front for your sweat equity is a thing of the past.
- The invention is good but not a game changer for the industry.
A licensing agreement is a way that you partner with the company that is going to manufacture, market and sell for you. In essence, you are sharing the risk with them. While a buyout does happen on rare occasions, you have to be objective about your invention and your expectations.
Here are some points to help determine royalty percentages:
- What market share do you have todate? This does NOT mean how much you fantasize about getting in the future. It means how many have you actually sold.
- How strong is your intellectual property?
- Is your invention a “game changer” for the industry?
- Can you cross into multiple industries?
A good licensing agreement is 5% to 7% (sometimes 10%) for the life of the patent. If you are offered less than 3%, you should figure out why. There are many companies out there that will charge you up front and pay a very low percentage.
There is a balance between being too greedy and being too desperate. Get help and ask questions.