Inventing 102

Step 2: The Initial Approach for Licensing Your Invention

Licensing deals are often done for inventions that are not yet protected by issued patents. This complicates things because you need to get a Confidentiality Agreement (aka NDA) in place prior to disclosing the details of your invention. Most corporate Confidentiality Agreements are slanted horribly against the inventor. You want a customized agreement (see examples of Confidentiality Agreements in the Appendix).

A fair Confidentiality Agreement will prevent the corporation from knocking off your invention (for at least for a couple of years). Nonetheless, a fair agreement will also tie the corporation’s hands. When the corporation agrees to respect your intellectual property, it limits its ability to respond to competitors in the marketplace.

The corporation knows that it licenses less than 1 in 1000 inventions that are submitted to it. In other words the odds are great that the effort a corporation spends on your invention is wasted. Writing and reviewing a custom agreement will require attention from an overworked and stressed legal department. For this reason, in addition to possible constraints to its existing product development activities, corporations are very reluctant to negotiate customized agreements.

Without disclosing details, you must convince the corporation that your invention is worth investing time and accepting constraints. How do you do this? You perform a striptease and keep the good stuff covered.

In business terms you talk about customer surveys, competitive advantage and extraordinary profits. You talk about why end users love your invention and how your invention will turn competitors into dust. You might show a video of your invention in action, but not disclose what makes it work. If you generate enough interest, you'll have a chance to negotiate a Confidentiality Agreement that is better than the corporation's standard one (or none as the case may be).

If you have an issued patent in hand, you will do all of those same things and then disclose the details published in your patent.

You need an advocate, someone within the corporation who knows the inside scoop and will promote your invention to the the powers that be. Not surprisingly the best advocates are in marketing and sales. They are in the business of persuasion. People in marketing and sales necessarily understand the needs and wants of customers. For this reason, their opinion carries a lot of weight with managers when it comes to new products. By nature, marketing and sales people are also open and friendly. They like to approve proposals and deals. On top of all of that, marketing and sales people are always looking for new things to show to existing customers. They want a good excuse for calling busy buyers that will make buyers happy to read their emails or accept their calls.

Engineers, by nature, are cautious and good at finding reasons why things will not work. For reasons of ego and job security, an engineer could well be threatened by your invention.

Therefore, if possible, start with someone in marketing or sales.

Meeting marketing and sales people is easy at a trade show. They are everywhere. There is no switchboard to filter you out on a trade show floor. Just walk into a booth, find the product line that comes closest to your invention, and ask for the Product Manager responsible for that product line. If the Product Manager is not there, start pitching your invention to the person in front of you. They will probably find someone else for you to talk to, or can tell you who to call at the home office – however, you just might be speaking to a senior manager, or the President. Regardless of whom you talk to, be polite and act professionally - and always be ready to do a deal. You might be offered an initial deal on the spot and If you hesitate you could lose your opportunity.

Just being at a trade show gives you an aura of professionalism. It is the best place for making an initial approach.

If you are referred to someone at the home office be sure to get the name of the person who referred you. You will want to use that name and refer to the trade show when you make your initial phone call.

If you make your approach by telephone and targeting a Fortune 500 corporation, you are certain to run into a brick wall disguised as a friendly voice or an email address. The brick wall explains that you must submit your invention by mail accompanied by a corporate Confidentiality Agreement. The Confidentiality Agreement will say that the corporation is free to steal anything you submit, except, perhaps, an issued patent. The brick wall is designed to kill inventions before they reach the front door. It does this job remarkably well. But do not despair, behind the brick wall are people who want great inventions, people who might act as your advocate. You must simply find a way to get through or around the brick wall.

Every brick wall has a door called the sales department. If you call in as a potential customer you will be directed to a sales person. If you call in as a big potential customer or as a potential customer with a special request you will be directed to a senior sales or marketing person. This is the person you want.

Words That Break Through the Brick Wall

To break through the brick wall you must sound like you know what you are talking about. If you tell the switchboard operator, “I have an invention…” you’ll be immediately transferred to the brick wall. If you say, “I’d like to speak with the Product Manager responsible for Newfangled Widgets,” the operator will transfer you to the Newfangled Widgets department where another secretary will probably answer and ask, “What is this regarding?” Here again, if you mention the word, “invention” you’ll be transferred to the brick wall. If you say, “I have a company that’s looking into entering the Newfangled Widgets business and I’m interested in the possibility of purchasing private label widgets from you,” you are very likely to be transferred to the person responsible for marketing and/or selling Newfangled Widgets. (Marketing people develop strategies and tools to support sales people who make sales calls).

This process is the same when working by email.

The term private label is critical here. It means that you want the company to make a product for you with your name on it. Private label deals are special and do not fit into normal day to day operations. Such deals can also be large. Secretaries and lower level sales people will not be able to help you with private label. When you say private label, you are pretty much guaranteed to reach someone high up the food chain.

Are you lying? Well… perhaps a little. On the other hand, if you are serious about your invention then, as an alternative to licensing, you should be considering getting into the business of making and selling your invention yourself. Since your invention is compatible with Newfangled Widgets, you just might end up in the Newfangled Widgets business too. Checking into the possibility of purchasing private label Newfangled Widgets is a reasonable thing for an entrepreneur to do (and that is what you are).

Now then, what happens when the senior manager answers the phone? You introduce yourself and say something like, “My name is Mike Marks, I have a small company entering the widgets business and I’m interested in the possibility of buying private label New Fangled widgets. I also have an invention that will revolutionize the New Fangled widgets business and frankly, my invention is probably a lot more interesting to you than any quantity of widgets I might buy…” and you go on to describe your invention without giving away the secrets.

Once you get through the brick wall, you will talk to someone who might be an advocate (or who will direct you to an advocate). Your initial goal is to get a Confidentiality Agreement in place so that the corporation can review your invention in detail.

Going Through Black & Decker’s Brick Wall

Although WorkTools identified B&D as a prime target for licensing its CounterPoint staple gun at the Hardware Show, the company did not approach B&D until a few months afterwards. Regrettably, WorkTools had failed to get the names and phone numbers of contacts at the show. A contact name and phone number would have enabled WorkTools to avoid the brick wall altogether. Without a contact name WorkTools started the licensing process cold.

I made a call to B&D’s main switchboard and asked for the product manager for staple guns. The operator inquired, “Regarding?” and I replied that WorkTools had invented a staple gun that would revolutionize the category. Mistake. I was transferred to the person responsible for inventions and was told we would need to sign a company disclosure agreement and submit our invention by mail. “We can’t sign your agreement,” I explained, “I’m sure it doesn’t protect us and our patents haven’t issued yet. We have developed a new type of staple gun that will revolutionize the staple gun business. It will grab 50% of the market and generate at least fifty million in annual sales within three to five years and could well generate over one hundred million in annual sales. I know your marketing department needs a tool like this. Could you please transfer me to the product manager for staple guns.” “Mr. Marks,” the woman explained, “I’m sorry, I can’t do that.” “Don’t you understand what I’m saying?” I pleaded, “I’m talking seriously, without exaggeration, of generating fifty to one hundred million dollars a year in additional revenue for your company but there’s no way I can go through your standard procedure. I need to talk to someone in marketing.” It was useless. “I’m sorry, the only thing I can do is send you out our submission agreement. It’s up to you,” she said. I thanked her and hung up.

How could I reach someone in marketing? Then it came to me. If I wanted to buy staple guns my call would go through. If I wanted to buy private label staple guns, I would not get a low level sales assistant, I would get someone with authority. Low level people barely knew the term private label. Private label sounded important and would surely get me kicked upstairs.

Two minutes later I called the main switchboard again” “I’d like to speak with the Product Manager for staple guns please.” “Regarding?” asked the operator. “We’re interested in buying private label staple guns.” Bingo. I was transferred to the Accessory Division where another secretary answered. I repeated my request, “Hello, my name is Mike Marks. My company is WorkTools, Inc. I’d like to speak to the Product Manager for staple guns regarding private label purchases. Bingo. I was transferred to the Product Manager. Now it was time to pitch:

“Hello, my name is Mike Marks. I have a small company called Worktools, Inc. and we’re interested in possibly buying private label staple guns from you. We’ve also developed a revolutionary new staple gun that you might be interested in licensing from us. Our new staple gun will grab a 50% share of the market and put a crater in Saddlebrook, New Jersey (headquarters location of Arrow Fastener, makers of the ArrowT-50, the leading staple gun with a 75% market share). We’ve done preliminary surveys with a prototype and 99% of the people we surveyed strongly preferred our design to the Arrow T-50.”

“Interesting you called,” came the reply. “We just set up a team to create a new staple gun. The name of the team leader is Gary. You should talk to him. I’ll transfer you.” Bingo again. I was through the brick wall. The subject of private label never came up again.

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