Patent It Yourself - PDF Archive

ChaPter 16 | OWNERSHIP, ASSIGNMENT, and LICENSING of INVENTIONS | 447
C, the antishelving clause, is very important. This protects
the licensor in case the licensee stops production for 1.5
years, or doesn’t start production within 1.5 years from
the date the license agreement is signed. In these cases, the
licensor can terminate the agreement.
Clauses like this one (and others) are designed to
put teeth into the agreement to deter the licensee from
defaulting: it is not enough to make a fair agreement;
all agreements should also be structured to ensure the
other party’s performance by giving an incentive for
performance, or a penalty for nonperformance.
Part 16: Notices. This clause states how and where notices
under the agreement are to be sent.
Part 17: Mediation and Arbitration. This clause provides
that if the parties have any dispute, they shall submit the
matter to mediation. If mediation can’t resolve the dispute,
the parties must submit the dispute to binding and final
arbitration. In no case will the dispute go to a court for
resolution, since litigation is extremely expensive and thus
works to the detriment of the independent inventor.
Part 18: Transfer of Rights. This clause allows the licensor
to assign (legally transfer) its rights to anyone without
permission, but the licensee needs advance permission of
licensor to assign the licensee’s rights unless it makes an
assignment to its successor in business.
Part 19: Controlling Law. This clause specifies that the
laws of licensor’s state shall govern interpretation of the
agreement. Normally, state law on the interpretation of
contracts doesn’t vary much, but since a licensor is usually
at an economic disadvantage, I’ve given it the benefit here.
Also, it specifies that any lawsuit on the agreement shall be
brought in licensor’s county.
Part 20: Good Faith. This states that neither party shall
take any action that hampers the rights of the other and
that both parties shall engage in good faith and fair dealing.
This clause is supposed to be read into any agreement, but
I’ve expressly stated it in order to increase cooperation and
reduce disputes.
Part 21: Rectification of Mistakes. This states that in case
of any mistake in the agreement, it shall be rectified to
conform to the parties’ intentions. The clause is designed
to save a misdrafted agreement that otherwise might be
thrown out.
Part 22: Supersession. This makes it clear the agreement
supersedes prior or concurrent oral, or prior written,
understandings.
Part 23: Counsel Consulted. This one states that the
parties have carefully read the agreement and have
consulted, or have been given an opportunity to consult,
counsel and that each has received a signed original. This
makes a challenge to the agreement more difficult.
Other terms that can be added to the Agreement, if
necessary, are Definitions of Terms (use if any unusual
terms are present in the Agreement), Other Obligations of
Licensee (e.g., Licensor has the right to approve the quality
of Licensee’s product, Licensee will spend certain efforts to
commercialize product, etc.), Improvements (if Licensee
or Licensor make improvements, who owns these and is
royalty adjusted?).
All that remains is to sign and date the agreement. Each
party should get an original, ink-signed copy.
Tip
Again, I remind you that while the Universal License
Agreement incorporates most of the customary terms and
covers many common licensing situations, it probably won’t
be appropriate for your situation without some modification.
Obviously, if your arrangement won’t fit within the terms of
this agreement, or if you don’t like any of the “fixed” terms, such
as the 80 hours of consultation (Clause 6), the 15% market share
(Clause 6), compulsory arbitration (Clause 17), etc., you should
propose changes, or hire an expert to help you.
I. How Much Should You Get
for Your Invention?
Many inventors seem to believe that patents are almost
always licensed at a royalty rate of 5%. The 5% royalty
generally means that you get 5% of the money received
by the factory for its sales of the item embodying your
invention. This is sometimes termed 5% of the “ex-factory”
price. This assumption is simply not true. While 5% is often
used as a starting point in many license negotiations, very
few licenses are granted at this rate. I’ve seen them run from
0.1% to 15% of the factory price of licensed hardware items
(as high as 30% of the retail price for software).
As you’ve guessed, many factors affect the royalty rate.
Obviously, the more desirable your invention is to the
licensee, the better royalty you’ll get, subject to industry
norms. Here’s a list of some factors that militate in favor of
increasing the royalty rate. Use as many of these as possible
in your negotiations:
1. the product has a potential for large sales volume
2. the product can be offered at a low selling price
3. the product will not have much competition
4. the product will have a high profit margin
5. the product is ingenious and novel