Patent It Yourself - PDF Archive

448 | Patent it YOURSELF
Lump Sum Payment
If you’re offered a single lump-sum payment for all your
rights (this is rare), should you take it, and if so, how much
should you get? To answer the first question, only you can
decide if a relatively large bird in the hand is worth more
than a potential (but by no means assured) stream of
smaller, but aggregately heavier, birds in the bush over the
years. To grapple with the second question, estimate the
potential sales of your invention for the life of your patent
application (one to three years), plus the term of the patent
(approximately 18 years), then apply your royalty to this
figure. Be willing to take half of this as a single payment lump
sum for a fully paid-up license.
For example, suppose you expect your widget to be sold
for the next 20 years (two years during patent pendency, and
18 years during life of patent), for an average factory price of
50 cents and an average yearly quantity of 150,000 units, and
that a patent royalty of 5% is fair. Applying the formula, the
substitute lump-sum payment for your royalty would be ½ x
20 years x 50¢ unit price x 150,000 units x 5% rate, or $37,500.
If you are offered much less than this, it may be unwise to
sell.
Don’t make Mary Jacobs’s mistake. She invented the bra
(out of two hankies and a ribbon) and was able to sell her
patent for $15,000 in 1914. Although this was a princely
sum then, she practically gave it away since (as you know)
her invention soon took hold and her patent eventually was
worth $15 million!
The disadvantage with the alternative lump-sum
calculation is that it’s very hard to estimate anything about
what will happen in the next 20 years. Will sales go up or
down? Will the product become obsolete or even more
popular? Will competition affect its price, etc.? These are just
some of the imponderables and unknowables, so, as stated,
be extremely careful before selling your rights for a single
lump-sum payment.
CAUTION
If you do have an opportunity to sell your
invention, you should use the assignment form (Form
16-3), changing “For value received” at the beginning of
the form to “In exchange for $ .” For obvious
reasons, make sure you actually receive the money by
certified check or money order before you sign. Do not,
under any circumstances, assign your patent in return
for a series of payments. If your assignee defaults in the
payments, you’ll be left without your patent or your
money, but with a big legal headache—getting your
patent back. If someone wants to buy your patent for
a series of payments, see a lawyer or legal forms book
and make a suitable license with an agreement to
assign only after all payments have been made.
6. the product required a lot of development
7. the invention substantially pervades the product
8. the licensed territory is a large, significant, or
important market
9. the inventor will furnish considerable services,
materials, parts, and/or tooling
10. there is no competition between licensee and licensor
11. this industry respects patents
12. it would be difficult to avoid the patent—that is, the
patent is strong
13. negotiating the license agreement was difficult—for
example, you expended considerable time or attorney
fees
14. the licensee will save money on costs
15. the inventor has a strong reputation in the field
16. the product will have a long life
17. the start-up costs to produce the invention are low
18. the inventor has a number of patents or patent
applications
19. consumers will pay a premium price for the product
20. the product can be sold at lower cost than its
competition, and
21. a higher up-front payment will reduce the rate and
vice versa.
Of course, your bargaining skill will transcend all of
these considerations. As business negotiating seminar
leader C.L. Karrass says: “In business, you don’t get what you
deserve—you get what you negotiate.” An excellent guide
to negotiating is “Take It or Leave It—The Only Guide to
Negotiating You’ll Ever Need,” Inc. Magazine, August 2003.
Also, the custom of the industry will dominate—for
example, toys usually get an exclusive royalty rate of 2.5%
to 4%, medical products 6% to 7%, and software inventions
up to 10% and sometimes more. An exclusive license will
entitle you to about 50% more than a nonexclusive license.
In some industries the royalty rate may be a fixed (or
per-unit) amount. For example, a patent owner may grant a
license to a television manufacturer for a payment of 50¢ for