How Inventors Mess Up Licensing Deals
Over the years we've seen it happen at least half a dozen times. We find an invention we like, we find a manufacturer who likes it, we set up a meeting with the inventor and manufacturer, the manufacturer makes a good offer and the inventor walks away - only to come back 6 months to a year later and say, "on second thought, I'll take that deal." At that point the deal is dead. Trust is gone and the manufacturer has moved on.
It happened again last month. The inventor hasn't come back yet but I fully expect him to. The answer will likely be "no." It's incredibly frustrating. Here's the story. Names have been changed to preserve privacy.
In June 2015 Matt Matthews signed up for a Brutally Honest Review and submitted his travel product. I-City's Dan Fulford handled the review and found Matt's invention to be promising but not yet a "yes." Dan gave Matt some suggestions on how to improve the invention and invited him to come back. A month later Matt reconnected with Dan and emailed images of an improved prototype. Improvements did the trick and Dan and I agreed we should try and put a deal together. We set up a meeting with a manufacturer/distributor two weeks later.
On the scheduled day Matt woke up at 5 am and drove six hours with his wife to the manufacturer's office. He got a little lost along the way and arrived half an hour late, sweaty and stressed out. We started talking at 11:30am and continued until 3:30pm with just one bathroom break. By the end of it Matt had a real deal in hand but had a hard time believing it. "Do I have a deal?" "Yes Matt, you have a deal."
It was my job to write up a formal contract based on what had been agreed to. This was easy because my company WorkTools was in the process of licensing an invention to that same manufacturer and the terms for Matt's deal were exactly the same as the deal I was doing for WorkTools. When he received the written agreement a week later he questioned the terms. I reassured him. "Matt, you already agreed to this and besides you're getting the exact same deal with the exact same terms that I negotiated for myself. I've been at this for over 25 years and can tell you that it is a good deal." But this was a problem for Matt. He wanted to take the deal he'd already agreed to and turn it into a starting point for new negotiations. "No Matt," I explained, "this deal is an end point. There can be trade-offs of more here, less there and vice versa, but the deal is balanced, I know it's fair because I agreed to it myself and if you start trying to re-negotiate basic concepts it will fall apart." He couldn't accept that and the deal fell apart. He was so worried he might get screwed that he screwed himself.
But it's even worse than that. The manufacturer was a perfect fit for Matt's travel invention. David, the company's President, traveled a lot, loved the idea, was a great engineer himself, had fantastic manufacturing partners in China and would have developed and commercialized Matt's invention faster and better than anyone I know. It's hard to put a value on passion, but finding someone who will be passionate about your invention matters far more than an extra percentage point for royalty. In this deal Matt was getting both a great royalty and a passionate licensee. David was heading off to China the day after the meeting. I told Matt, "You should do a handshake deal right now and hand David your prototype. He'll be in China this weekend and will get started on it next week. Things never go this fast but you're in luck. Timing is everything. The timing for you and your invention is right now."
But Matt wasn't yet ready to do the deal. I-City's error was failing to recognize that. Emotion is a big part of deal making. Once you get someone excited and ready to say "yes" you want to keep things moving smoothly down the track, get the deal and then help to keep moving it forward. You should be sure you're ready to say "yes" before you start.
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