Inventing 102 - Licensing Inventions


Step 1: Identify & Research Target Companies for Licensing Your Invention

Companies will only license inventions that fit their current or future business plans. In general the invention must be a perfect fit for a licensing deal to take place. For example, while Microsoft is a fine, albeit difficult, target for licensing software with mass-market appeal (word processing, games), it is a poor target for specialized software (inventory management, 3D CAD, expert programs for doctors and lawyers). Black & Decker is a good target for consumer-oriented power tools but a bad one for specialty hand tools.

Finding the right target is as important to licensing success as the invention itself.

Put yourself in the company’s shoes and look at things from its perspective. If Blue Company has just introduced a new product that is similar to your invention how do you think it might react to your better version? The most likely reaction is defensive. Blue Company has already made a substantial investment in a product that targets the same customer. Will your invention get Blue Company more new customers? Will it be more profitable? Despite the brilliant advantages of your design, the answer is, in the short term at least, probably not. Moreover, having already made its investment in a new product, Blue really does not want to consider that product again for a while, nor want to throw away their work and investment. Remember buying a new car? Did you want to continue shopping for cars after you drove off the lot?

Now look at Red Company. Red Company competes directly with Blue Company but has yet to respond (publicly) to Blue Company’s new product. The odds are good that Red Company has something in the works but maybe that something is not yet a final design. Maybe Red Company has yet to invest in tooling.

In this example Red Company is a far better target than Blue. Red will assign a positive value to your invention. Blue will assign a negative value – the value of keeping it out of the hands of Red. The negative value will always be smaller than the positive one.

Keep in mind that to a greater or lesser degree all companies suffer from Not Invented Here syndrome. When you walk in with your great invention you are, to some extent, challenging the abilities of in-house product developers. Generally engineers will be more threatened than marketing people. The good news is that when it comes to launching new products, the marketing people wield the most influence.

Finding ideal targets for licensing requires you to become an expert in the market for products similar to and competitive with your invention. Many inventors like to believe that there is nothing like their invention. This perspective is not only naïve it is a way to guarantee failure. The only way to communicate the benefits of your invention to others is to give them reference points from current products that offer to solve the same or a similar problem. Games and novelty items solve the problems of entertainment and promotion. Airplanes and trains both solve the problem of interstate transportation. Wooden and plastic cutting boards solve the problem of movable cutting surfaces. Define the benefits of your invention broadly and you find an appropriate category and a corresponding group of companies.

Once you identify the category, it is time to learn all you can. Internet research is a great starting point. Google.com (http://google.com) is probably the best place to start. Use key words that describe the category and key words that describe your invention. See what you find. Look at ThomasRegister.com (http://thomasregister.com) and GlobalSources.com (http://globalsources.com) Look in stores and other distribution points. Write down the names of companies that you think might be interested.

Go to trade shows where the companies you’ve identified participate. One good way to find these shows is to simply call a target company and ask what shows it will be exhibiting at. At the trade show, talk to key people, and, even more important, identify companies you did not think of. You can also find trade shows at TradeShowCentral.com (http://tradeshowcentral.com).

Each company has its own personality. Some are open and friendly. Others are closed and suspicious. Not surprisingly, open and friendly companies are far easier to deal with than closed ones.

You can learn a lot about a company’s personality by visiting its booth at a trade show. Talk to marketing personnel and ask if the company is interested in inventions in your invention's product category. Find out who the product manager is for that category, and introduce yourself to him or her and explain, in general terms, the benefits of your invention. They will let you know if there is interest.

This kind of trade booth talk can take place regardless of the level of development of your invention. People understand the importance of Confidentiality Agreements and will not press you to discuss the details of your invention. However, if you freely choose to disclose details, perhaps by showing a prototype, and you do not have a Confidentiality Agreement in place, you are inviting a company to knock you off. The only time I suggest you make a full and open and unasked for disclosure at a trade show is, a) when you have an issued patent, and/or b) when you’re ready to throw in the towel and have nothing to lose.

Trade shows are where people gather to find new products and learn about the competition. Keep that in mind. Be open, but vague when discussing your invention. You might use a mask when describing it. An example of a mask would be saying you invented a new kind of drill, when in fact you invented a new kind of screwdriver. The mask should be close to your actual invention; this will help you get in touch with the right people. Feel free to discuss the invention’s benefits (faster, less expensive, safer etc.) without talking about how it achieves those benefits.

If you have a working prototype and did market surveys, be sure to mention that. Likewise you should mention any issued patents (feel free to give the patent number) and patents pending (keep details vague). Stretching the truth at a trade show is standard practice. For discussion (as opposed to contract) purposes, I will say I have a patent pending even when I only filed a disclosure document.

How WorkTools Inc. Identified Black & Decker as a Licensing Target for a New Staple Gun.

In 1991 WorkTools was far along in the development of a different kind of staple gun. Traditional staple guns worked by pressing a squeeze handle toward the back of the tool to shoot a staple out the front. WorkTools’ invention worked opposite: the squeeze handle pushed toward the front of the tool and the staple shot out directly beneath it. The working name for the invention was, “CounterPoint.”

At the 1991 National Hardware Show the WorkTools partners talked to all of the companies that were exhibiting staple guns. They talked to industry leaders Arrow and Stanley. They also talked to Black & Decker. It was surprising to see that B&D was showing staple guns at all. B&D was a power tool company. However, the B&D accessories division worked in areas beyond power tools. Accessory Division sales reps told WorkTools that B&D was planning to get serious about staple guns in the coming years.

WorkTools took note of the fact that all of the staple guns being shown by B&D were private labels – staple guns made by other manufacturers with the Black & Decker name printed on them. This meant that B&D did not have any investment in tooling for traditional staple guns.

The best way to sell CounterPoint was to compare it to a traditional staple gun and show that the traditional tool was inferior and backwards. CounterPoint featured a “forward action” design that, according to WorkTools, worked the right way. Companies with an investment in traditional staple guns would resist this message for obvious reasons.

B&D had no investment in traditional staple guns and needed something that was both different and better to make a big splash in the market. It was clear that B&D was the perfect target, far better than any other company.

Good analysis and serendipity combined. When WorkTools made initial contact with B&D, B&D had just appointed a Next Generation Stapler team. The team’s assignment was to find and/or create a great new staple gun for B&D. Talk about timing!

Negotiations eventually led to a licensing deal. WorkTools’ CounterPoint became the Black & Decker PowerShot.

The other side of the coin is also interesting. Subsequent to B&D’s introduction of PowerShot I spoke with the world’s ten other staple gun manufacturers. All of them were impressed by PowerShot but not one of them would have licensed it!

Today the PowerShot family of forward action staple guns (now manufactured and sold by PowerShot Tool Company) is on its way to claiming 50% of the US market for staple guns. This is a remarkable achievement for a new product in an established category and a testimony to the merit of WorkTools’ invention. Yet in the early 1990’s none of the established staple gun manufacturers were interested in licensing it. Only an outsider, Black & Decker, was interested in exploiting the invention.

Your invention can be a secret weapon that will give a company a big advantage in the marketplace. If other companies know about it that advantage is compromised. The value of secrecy is useful in early negotiations; secrecy is especially helpful in getting a good Confidentiality Agreement in place. For this reason I generally believe in approaching only one company at a time. If I choose that company well it may be the only company I talk to in concluding a licensing deal.

Get Ready

The licensing process is much like fishing: find the fish; make the bait irresistible; set the hook; reel it in. Sometimes a big fish bites as soon as you throw your hook in the water. If you want to land that first fish you should be prepared before you start fishing.

Be prepared with a basic understanding of business in general and the business of your invention in particular. Business people will listen to you if you talk and act like a professional. If you come off as a dreamer or have unrealistic expectations then you’ll politely be shown the door.

You never know how far an initial conversation may go. If you call in to a small company (or visit its trade show booth) you just might reach its President. After listening to your short pitch the President might say, “OK I’m interested, what are you looking for?” That’s a clear indication your bait has been taken. “I don’t know yet” or “Make me an offer,” are poor replies. Your fish could well drop the hook and swim away.

This does not mean you should have a complete licensing proposal in hand. It means simply that you should have a realistic appraisal of the potential (note that word) value of your invention and a realistic understanding of what a fair royalty or buyout might be. If you’ve done your homework and confirmed your invention then you already know these things.

A good answer to the question above might be, “I’m hoping to put together a deal where your company earns far better than normal profits while I receive a healthy royalty.”

Let a company know that you care about its profits. Make it clear you understand that your royalty is a share of those profits. This will give the company a comfort level in dealing with you and smooth the path through meaningful negotiations. Unrealistic expectations and lack of understanding are the main reasons that licensing deals fail.

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