Do you have an idea or product destined to be the next big thing, if only you were sure how to get it there? One popular option to consider is licensing it.
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Under a typical licensing agreement, an outside company will take over manufacturing and sales of your product, and you will collect an agreed-upon royalty as a result of having the idea. Negotiating these agreements can be a challenge, however, and a bad licensing deal can turn an exciting prospect into a nightmare.
To avoid a bad licensing agreement, Mark Jordan, an attorney at Invicta Law Group who deals with intellectual property law, has the following five steps for business owners to follow when they go into a licensing negotiation.
- It is all about relationships. "What is critical is that you do a little homework and know your business partner or your licensee," said Jordan. "I can draft a 100-page agreement to protect every little thing, but no one will ever sign it. It is really about the relationship of who you are doing business with. Are they honorable? Are they doing what they say they will do? If there is a problem, will they work with you?"
- Use legal counsel. "Many of the intellectual property terms contained in the agreement are counterintuitive, and they will not mean what you think they should," said Jordan. You'll need legal help.
- Make sure you understand all of your agreements. "Don’t just rely on your legal counsel to negotiate everything and assume everything is fine," said Jordan. "Oftentimes you work with an attorney for a particular contract and that attorney is not there after a while. At the end of the day it is your contract, not your attorney's."
- There is no standard agreement. "What will happen is that bigger companies will always push and say that there's an agreement that is standard for the industry. And that is absolute nonsense," said Jordan. "Virtually everything, including the royalty rates in these agreements, is negotiable."
- Be clear about what you need from a transaction. "I always say it is better not to make a deal than to make a bad deal," said Jordan.
Even before they enter into negotiations, Jordan recommends that businesses and inventors take several steps to protect themselves from those who might steal your idea or product.
"The first thing I would do is copyright, and the reason why is that it is fairly inexpensive to do and it arms the copyright holder with all kinds of rights and remedies," said Jordan.
"The second thing I would do is protect the name with a trademark. Lastly, it is important to protect your idea or trade secrets through a nondisclosure agreement."
Jordan also recommends that businesses in very specific circumstances look to patents to protect their idea.
"If you have a product that will have a long life and you are committed to putting a lot of money into it, then patents are something we think about," said Jordan. "Most small businesses can't afford the $10,000 to $15,000 for a patent. Also, because the market for what is desired changes so quickly, by the time you have an application submitted and off to the patent and trademark office, things are different and the patent you have applied for has very little appeal or usefulness. Patents are really useful if something has a longer shelf life."
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