The 10 reasons to hit the market under a licensing agreement

Accord de licence

Introduction

 

You now have your product, your Provisional Patent Application (PPA) is in force in the United States and you manage to make 50 sales per month. Let me first congratulate you! You’re off to a second source of income to complement your main job.

 

But then, why sign a licensing agreement and share your business success and profits with another company? Why not rent an space, buy machinery, find staff, buy a truck and build relationships with reputable distributors?

To avoid having to do all these tasks at the same time!

 

I present to you the 10 reasons why you hit the market under a licensing agreement.

These reasons come from the great book One Simple Idea by Stephen Key. I recommend it!

 

The opinions expressed herein should not be considered in any way as legal advice. For more information, please consult your patent agent or patent attorney.


1- Get to market fast

First to market wins

The sooner you reach the market, the sooner you can dominate it. Rather than establishing the distribution channels yourself, the licensing agreement gives you access to existing networks of a reputable manufacturer. In addition, you rely on the their already established reputation and credibility, which could take you several years to build alone.


2- Little financial risk

Little financial risk

As we saw in the previous blog post, starting a business is a daunting adventure. It will take several years of bootstrapping, knowing that the commercial success may not be there. For your first innovation, the licensing agreement puts the risk on the side of that manufacturer. If commercial success is not there, you will not have lost your home or years of work.

With the royalties that this first license agreement will pay you, you can then absorb the losses should your second innovation be a financial pitfall. Finally, and since job security no longer exists for anyone, these royalties could be the difference between tightening your belt and having to sell your house and move back with your parents. In any business, never forget that there is always someone who has a budget to balance.


3- Don’t need to raise capital

Venture Capitalist

To be able to launch your innovation, you need capital. To find capital, you need a business plan and partners. While you can prepare yourself a business plan, finding partners will take time. You will need to find one or two people with background and experience complementary to yours, but with the same desire to succeed. And then there is the personality, the availability, the priorities and many other reasons why it will or will not work.

 

In love, I would hope that you will not throw yourself at the feet of the first partner. Same thing goes for business!

 

The licensing agreement allows you to avoid all that. Better yet, it will allow you to put some money aside that you can use as seed money for your 2nd or 3rd innovation.


4- Great for creative individuals who don’t want to run a company

Guitarist or artist

Even if I want each of you to succeed in business, some personalities lend themselves to it more than others. In general, the more inventive, the more introverted. Or they have trouble selling their innovations to customers.

The typical image of the mad inventor in his workshop is not so far fetched. Think Doc Brown from Back to the future franchise!

With the licensing agreement, you put your innovation in the hands of a company with an experienced sales team. It will transform your innovation into an irresistible product for consumers.

 

Pro Tip: Get into sales or telemarketing for one or two years.

I can already hear all the parents and other well-intended people around you screaming that you’re going to ruin your career! That the sales are for the hot egocentric and aggressive Chad and Stacy of this world and that telemarketing is for losers who could not find anything better! It is true that sales attract more flamboyant personalities and that telemarketing is reputed to recruit people with less professional qualifications. However, you will develop two skills rarely taught at school:

 

A) you will practice and practice again how to present, convince and negotiate, skills that are rarely developed among professionals and college grads.

B) you will overcome your fear of rejection and that you will keep at it again and again until you succeed.

This is what separates the employee and the entrepreneur.

 

The employee accepts everything that the company gives him as work and settles for it. The entrepreneur looks for and persists in creating opportunities until he or she succeeds.

 


5- No experience required

No experience required

As a new innovator, you have everything to learn and this learning will take time. The licensing agreement allows you to minimize the learning curve to successfully launch a product on the market. You could even do without online sales and go directly to the manufacturer with your PPA. But expect to sign a much less generous licensing agreement or hit a lot more closed doors because your product has not gained traction. Basically, here’s what a reputable manufacturer could tell you:

 

We have thoroughly analyzed your product and believe that it has a future with us. According to our market research, we will have to present it differently to the customer. It will be necessary to allocate more funds to marketing and sales teams. For these reasons, we can only offer you 3% on sales.

 

If you had invested the time to learn how to make online sales with Shopify, analyze your customer base with Google Analytics and Google AdWords, did contract manufacturing and drop shipping, you could answer as follows:

 

I’m already making sales via Shopify and the trends are on the rise for the summer. Google Analytics and AdWords already allow me to do my marketing. With contract manufacturing and drop shipping, I know the costs of production and delivery. And I know that the royalties that are paid in your industry for an innovation like mine are around 7%.

 

In other words, don’t bullshit me! I know what my innovation is worth and what it can bring you. If you are not happy, I will gladly go see your competitor and you will lose those sales! All that said with more tact, of course.


6- Little time invested

Little time invested

The licensing agreement puts the time and marketing efforts into the hands of the manufacturer. This frees you to work on other innovations.


7- ROI is high based on what little money you invest

ROI and growing money

If you minimize your expenses related to your innovation from the outset, your Return On Investment or ROI could be very high. For example, do the market research yourself, model your innovation with free software like SketchUp, build yourself a homemade prototype and start field testing for $ 100! Same thing for patentability and research on intellectual property databases. Same thing for the preparation of a first draft of a Canadian pending patent application or a United States PPA.

 

Pro tip: For your first innovation, I recommend presenting to a patent agent or patent attorney.

He or she will start from your research and your draft, validate that everything is in correct and will file the Provisional Patent Application on your behalf. This is an investment between $ 3000 and $ 5000.

If commercial success is there, expect $ 10,000 royalties, or even $ 40,000 per year for 20 years! Not bad for an initial investment of $ 5,100!

And for your next innovations, now that you have the experience, why not write and submit your own application for a pending Canadian patent or US PPA? If you are meticulous and take the time to learn how to prepare it correctly, nothing prevents you from submitting it yourself for $ 200. Your return of $ 40,000 per year for 20 years would come from an investment of a few hundred dollars. Now that’s some serious return on investment!


8- Let them pay for the patent

Let them pay

Remember that a Canadian Pending Patent Application or United States PPA IS NOT a patent. So, a company that decides to steal your innovation can do so. However, as the PPA lasts for only one year and savvy inventors turn to reputable manufacturer through a licensing agreement, the investment in machinery and the time to train staff will be lost.

 

The strength of the PPA is in the appearance of property.

 

Here again, for your first innovation, offer them to pay for the patent in for exclusivity to manufacture, sell and distribute. If commercial success does not happen, you will only lose the cost of the PPA, rather than the cost of the PPA and the patent.


9- Let their lawyers duke it out in your name

Let their lawyers fight for you

Let’s jump ahead a few years in time: you have your PPA, you manage to sign a licensing agreement with a reputable manufacturer and he agrees to pay for the patent. Your patent application is accepted, sales have exploded and you are starting to attract the attention of unscrupulous manufacturers. Despite your patent, they drown the market with counterfeit products sold for a fifth of your price. Sales drop as a result of unfair competition. What do you do?

 

By inserting a special clause into the licensing agreement, the manufacturer will send his lawyers to fight on your behalf!

 

A company doing counterfeiting knows very well that an inventor can not afford to hire a reputable lawyer. It also relies on the slowness of legal proceedings and in some extreme cases, it can close, then reopen under a new name, reintroduce a variant of your product and start again. Not only do you lose money, but you have to pay the lawyer out of your pocket every time? No thanks!

 

Pro Tip: Use Influencers Instagram Influencers and YouTube Stars to Promote Your Product

See it as an investment to multiply sales. In addition, by associating value and lifestyle by these influencers and stars to your product, your customers will be much less inclined to buy a product considered low-end.

Sell on value and lifestyle, never on cost! Think of Starbucks coffee. People do not just buy coffee, they buy an artistic lifestyle made of poorly written books!

 

Bonus Pro Tip: Declare that you pay one dollar for each sale to a social cause dear to your customers.

Once again, people are not just buying, they are contributing to a cause and you are giving them the opportunity to change things. Think of Ronald McDonald’s Breakfasts Club for example!

 

The idea here is to create such market dominance that counterfeiter will lose money right from the start and look for easier targets elsewhere.

 


10- You don’t have to leave your dayjob

Keep your dayjob

Thanks to the PPA and the licensing agreement, you can build property without leaving your job, whatever you do. This is similar to people who are part-time renovating rental real estate or investing in the stock market on the weekend. Everyone has a job, but everyone agrees that this job could end at any moment.

 

Prior to the 1973 oil shock, money was set aside for rainy days. Today, you have to build a business, buy rental real estate or stock market investments to continue to generate money for rainy days!

 


Conclusion

 

You have just discovered my 10 reasons to hit the market with a licensing agreement. It is about minimizing financial risks, generating maximum return on investment while minimizing efforts. For your first innovation, it’s better a small slice of a big pie than 100% no pie at all!

In the next post, I will discuss the main elements of a licensing agreement.

 

3 roads to the US market – Drop it, the Patent and the PPA

Roads to the US market

Introduction

 

Congratulations, you have just created your first innovation! You can not wait to conquer the US market, sell to thousands of customers and make millions of dollars. Do you believe you won’t need intellectual property? Or do you think you can get to the market first and maintain your competitive advantage? Think again!

 

Did you know that an innovation that is not protected can be legally copied? That a dishonest manufacturer can apply for a patent before you, then accuse you of stealing his idea? Or that a product that is not protected by a patent can be copied in China in 2 weeks and land on the US market in one month?

 

For all these reasons and many more, I present to you today 3 roads to the market in the United States. These are:

  • Drop It If You Don’t See Commercial Potential
  • File a Patent Application and Manufacture and Distribute the Invention Yourself
  • Try to Sell Invention to a Manufacturer With a PPA

 

These roads come from the excellent book Patent it yourself – Your step-by-step guide to filing at the U.S. Patent Office by David Pressman. I recommend it!

 

The opinions expressed herein should not be considered in any way as legal advice. For more information, please consult your patent agent or patent attorney.


1- Drop It If You Don’t See Commercial Potential

Abandoned car

 

Abandoning an innovation is always a painful but necessary decision. Of course, you have invested a few weeks or even months of work but you will not lose anymore. It is better to realize that your innovation has no future for the moment, than to ruin your health and wallet to push a product that the market does not want. And marketing companies won’t help you assess the commercial potential of your invention, on the contrary! The idea here is to find the innovation that will generate the maximum profit for a minimum of risk and effort.

 

The good news is that the more you invent, the more skilled you become at inventing.

Plant growing back

 

For example, my first invention, the Umbrella Arm Clip, took me 7 months to create the prototype and assess the market! The SnowClaw took 3, while the Abs Flippers took me one month.

Then there are many things you can not know in advance or anticipate. That’s why you have to find partners or a close friend who will give you a reality check about your innovation. And even then, there are mistakes you must make to change your perspective on the product.

 

Pro Tip: Avoid the highly regulated sectors of the automobile or aviation.

Sectors to avoid

 

The reason is that there are so many different standards, norms and codes that it’s impossible to know them all. The last thing you want is for some government official to declare your invention illegal because it violates a regulation you did not think of.

For example, the SnowClaw is a product that allows cars to pull themselves out of the snow banks by being attaching to the drive wheels. The problem is that this is considered an illegal modification to the vehicle by Transport Canada.

 

Bonus Pro Tip: Follow the Startup Course offered by SAJE Montreal.

Whiteboard markers

 

Lasting 330 hours, you will see the Business Model Canvas to clarify your ideas, the business plan, the financial arrangement, as well as the operation of a company.

 

The real benefit of this course is that you will start to see your inventions through the eye of a businessman, no longer as an inventor.

 

Thus, you will be able to judge very quickly if your ideas have commercial potential or not. Better yet, this $ 6000 training is free and paid by Emploi Québec. So why not?


2- File a Patent Application and Manufacture and Distribute the Invention Yourself

The patent

 

Very difficult road to start on for your first innovation. Here are the reasons:

 

  • The cost of a patent, which can reach several thousand dollars.
  • Obtaining a patent can take years, with much communication between you and the United States Patent Trade Office (USPTO).
  • Despite all your research, commercial success may not be at there
  • The learning curve and the time required to make, promote and sell your product all by yourself is absolutely gigantic! The next section will give you an idea of the workload that awaits you.

 

However, if you succeed and the commercial success is there, you will pocket the lion’s share of the profits generated by sales.


3- Try to Sell Invention to a Manufacturer With a PPA

Conference man presenting

 

This involves filing a Provisional Patent Application (PPA) with the USPTO before contacting any manufacturer. In addition, do not file until you have prepared your design book so you can prove that you are the inventor of your product.

 

3.1 The role of the PPA

top secret seal

 

Although the PPA does not allow you to sue a infringing company that has copied your product, it signals to said company that you could soon get a full patent. Therefore, an infringing company will lose its investment in machinery and manufacturing molds once you have your full patent in force and a court orders said company to stop producing and selling its copied product.

 

3.2 PPA, marketing and sales

Ecommerce credit card goods

 

Once your PPA has been granted, you will have one year to promote your product and test the market. During this period, you will have to use all the means at your disposal to sell your product. Kickstarter, Indiegogo, WooCommerce, Shopify, Google AdWords and Google Analytics are platforms with which you will have to familiarize yourself well before launching your product on the market. Here is a very brief explanation for each of them:

 

  • Kickstarter and Indiegogo are crowdfunding platforms. In return for financial support, you will offer these first customers a limited edition of your products or non-monetary services that they could highly appreciate.
  • WooCommerce and Shopify are online sales platforms. Thus, you will not need a physical point of sale to sell your stocks.
  • Google AdWords is a platform that lets you test which keywords are generating the most search for your product. So you can try for a week a combination of different words and see which ones resonate the most with your customers.
  • Google Analytics is a platform to get to know who your customers are and how to better target them. Linked to your website and to an online sales platform, you will be able to determine the profile of your customers, what sites they came from, how they buy, etc.

 

More on all these platforms in another blog post!

 

3.3 PPA, contract manufacturing and drop shipping

forklift warehouse

 

In addition, you will need to familiarize yourself with the concepts of contract manufacturing and drop shipping well before launching your product on the market. Once again, here is a very rudimentary explanation for each of them:

 

  • Contract manufacturing is to sub-contract the manufacturing of your product to a factory that is not yours. Indeed, this method of manufacture allows you to have your product made without requiring from you investments in a business location, machinery, tools and manpower. If sales are not there, you will have lost only the value of the manufacturing contract, rather than being stuck to pay for a local and machinery that are now useless. Excellent way to test the market.

 

  • With drop shipping, you delegate the logistics of delivering your products to a third party. This company will take care of contacting the factory with which you have a contract manufacturing agreement and will deliver your products to distributors or directly to customers. If sales are not there, you will have lost only the value of the drop shipping agreement, rather than being stuck with a now useless delivery truck. Once again, THE way to test the market.

More about contract manufacturing and drop shipping in another blog post!

 

The idea here is to generate a certain volume of sales while minimizing risks, then to turn to a reputable manufacturer in the field of your product.

 

3.4 Meeting a reputable manufacturer and signing the licensing deal

business people handshake deal

 

Armed with your Shopify or WooCommerce sales figures as proof of traction, raised capital with Indiegogo or Kickstarter, top keywords for SEO from Google AdWords, customers profiles with Google Analytics and factory production figures thanks to contract manufacturing and your PPA, you can then sign with them a licensing agreement infinitely stronger than going in naked!

A license agreement is a contractual agreement whereby a manufacturer agrees to sell a number X of units of your product in Y territory for Z years. In exchange, you give them the right to use your patent, while keeping ownership. You are the landlord, they are the tenants. They will sell and market your product, but under their company logo. This agreement may be exclusive or not.

 

Once at said manufacturer, here is what you could say:

 

With all the proof of traction that I just presented and knowing that my product will integrate wonderfully with your product line, would you be interested in signing with my company a license agreement?

I am ready to offer you exclusivity in the State of New York for one year with extension if a minimum of 1000 sales per month is reached. In return, I want 8 to 10% of sales.

 

Better yet, if your sales are not enough to convert your PPA into a full patent, you could agree with this manufacturer to have him pay for the patent in exchange for exclusivity. The licensing agreement is a whole different subject and I’ll cover it in another blog post!

All these steps for online sales give you an idea of the magnitude of producing, promoting and selling yourself! Hence the importance of finding partners to help you and signing a license agreement with a reputable manufacturer.

 

For your first invention, better a small portion of a big pie that 100% of no pie at all!


Conclusion

 

Congratulations! You have just discovered some of the routes leading to the commercial success of your product using intellectual property in the United States. Here they are:

 

  • The dead end: give up and move on to another innovation if the first has no commercial potential.
  • The one that pays the most: file a full patent before producing and selling yourself.
  • The safest: submit your PPA application and once in hand, test the market for a year and sign a license agreement with a reputable manufacturer.

 

In the next article, I will discuss the main elements of a licensing agreement.

What is patentable and what is not

Brevet motocyclette

Introduction

Now that you have your idea, that you have done the market research and identified the US market as having the greatest potential, it is time to protect it. But is it really patentable under a utility patent? You could waste a lot of time and money putting a product on the market that can not be protected. Worse, a competing company could simply copy you and release a similar version at a lower price. For all these reasons, today we will explore what is patentable and what is not patentable under the United States Patent Trade Office (USPTO) rules.

 

We will begin by presenting the 4 criterias of patentability, namely:

 

  • Statutory class – In which class can your innovation be categorized?
  • Useful – Is your innovation useful?
  • Novelty – Is there an innovation similar to yours elsewhere in the world?
  • Unobviousness – Would someone specialized in the field of your innovation have thought about it?

 

An innovation must meet these 4 criterias in order to be considered patentable. All of these criterias come from the excellent book Patent it yourself – Your step-by-step guide to filing at the U.S. Patent Office by David Pressman. I recommend it!

 

The opinions expressed herein should not be considered in any way as legal advice. For more information, please consult your patent agent or patent attorney.


1- Statutory class

 

green buckets

The statutory class is a category in which an innovation must fall into to be considered patentable. If your innovation does not fall into one of the 5 statutory classes, your patent application will be rejected. Here are these 5 classes:

 

  • Process or method

 

drilling process

 

A process or method is a way to manipulate real matter and transform said real matter. Thus, shuffling theoretical or abstract ideas is not considered a process per patent law. Be aware that these manipulations can be manual and considered acceptable. For example, a new way of holding an umbrella handle to reduce hand fatigue during strong winds would be an acceptable method.

 

  • Machine

 

gears machine

 

A machine is an equipment used to perform a task. Thus, a machine can be powered by human muscle (a manual can opener) as well as by another source of energy (an electric can opener). The machines are classified into 2 categories:

 

A) Conventional machine

In the general sense, almost any equipment or tool that performs a specific task will be considered a conventional machine.

B) Software machine

An example of a software machine would be a control system of a manufacturing process. Indeed, sensor data and actuator controls help regulate the manufacturing process, so this system helps to manipulate and transform real matter. Thus the machine statutory class requirement would be met.

 

  • Article of manufacture

Manufactured items

 

It may be thought that an article of manufacture is only an industrially produced object, but handmade objects are also acceptable. Any object that exists in its primary form in nature is not considered an article of manufacture. For example, rocks, air or water.

 

  • Composition of matter

Chemical compound

 

These are chemical compounds in the solid, granular, powdery, liquid or gaseous state. As an example, a new and unique bituminous mix would be fall in the composition class. At home, a spaghetti sauce would be fall in the composition class as well.

  • New use of one of the four previous classes

 

delfin bananas

 

Here, the creativity does not come from a new process or machine or article of manufacture or composition of matter, but rather a new and purposeful use of what already exists. For example, an inventor received his patent after using an industrial vacuum to suck prairie dogs out of their holes!


2- Useful

 

happy man tablet vacation

 

To be patentable under a utility patent, an innovation must be useful. Remember that a utility patent is valid for 20 years in the United States, as in Canada.

If the innovation is not useful but of original design, it can still be protected under a design patent, valid for 14 years only.

 

There are several exceptions, including these two:

  • A drug dangerous to health is not patentable.
  • An innovation created for criminal motives is not patentable.

3- Novelty

 

aircraft Wright brothers

 

Of course, your innovation must be new. This is one of the greatest dangers of the innovator, that is, to fall in love with his product. Love makes you blind, as the old saying goes. Thus an innovator who does not perform a prior art search may spend a lot of money and time creating a product that already exists.

The prior art refers to all that has already been invented in the world, protected or not by a patent in force or expired. Thus, a product invented on the other side of the planet or 200 years ago will prevent you from obtaining your patent.

 

Pro Tip: Before going to a patent agent or intellectual property attorney, do a prior art search yourself! To do this, I recommend using Google, Google Image, Amazon, AliExpress and Alibaba to get an idea of what exists around the world.

This research is no silver bullet, but it will quickly give you an excellent idea of the existence of a similar innovation. This search will allow you to find similar products, competing products and the companies that produce them. Moreover, this research will allow you to expand your market research. Best of all, it will become a starting point for the prior art research for the patent agent or patent attorney. Not to mention the money you will save! More about the prior art search in another blog post!

 

Bonus Pro Tip: Again, do your own research with Google Patents and the USPTO database in the US and Canadian Intellectual Property Office or OPIC database.

Start by brainstorming as many words as you can about your innovation. Then enter each of these words and combinations of words into the USPTO and CIPO search engines. Each search will give you a set of related classifications and patents. Finally, you must check whether these classifications and / or patents are related to your innovation or not. It is a long and tedious process, but it will save you a lot of money!

More about using the USPTO and CIPO databases in another blog post! Same thing for searching through Google Patents!


4- Unobviousness

Why the heck didn't i think of that!

 

Hands down the most difficult hurdle to determine the patentability of an innovation.

 

According to USPTO statistics, nearly half of patent applications are rejected because of this criteria.

 

According to the law, innovation must be unobvious to a hypothetical specialist working in the field of your innovation. He is an engineer or designer with average intelligence and creativity, but having the knowledge of everything that has been created in his field of expertise.

 

At the sight of your innovation, he must slap his forehead saying: Why the heck didn’t i think of that!

 

Judgments in court often refer to the unobviousness criteria as a flash of genius and whose innovation produces unusual and surprising results. The idea here is to reward the creativity of men and women who, through their efforts, help the human race move forward.


Conclusion

 

Before starting out, it is better to double check that an innovation is patentable. The patentability of an innovation must answer the following questions:

 

  • Does the innovation fall into one of the 5 statutory classes?
  • Is innovation useful?
  • Is the innovation new compared to the prior art?
  • Is the innovation unobvious to a specialist working in this field?

 

If you answered yes to these 4 questions, let me congratulate you! You have taken another step on the long road to bring your innovation to market. By doing your own research of prior art and patentability, you can confidently present yourself at a patent agent or patent attorney office. They will be strongly impressed by the seriousness of your approach and the strength of your case. Not to mention that the money saved can be reinvested as starting capital!