THE TWO POSITIVELY GUARANTEED CAN’T-MISS TIPS FOR INVENTION SUCCESS

– article by Harvey Reese

Over the years I’ve dreamed up and licensed more products than I can remember, certainly more than a hundred. That’s how I have earned my living for decades. I don’t say this to be boastful — any one of you might invent just one product with more impact and earning potential than all of mine put together. However, in terms of sheer volume, and in terms of numbers of successful presentations made and agreements signed, I believe I probably have more experience than anyone I know of.

This experience has taught me two things that I’m happy to pass along, although I know that many of you will not be happy to hear it.

1. I have never licensed a product to a new company except through a face-to-face presentation. I took the easy way lots of times, sending the idea along through the mail – but not once did that ever pay off.2. I have never licensed a product to a company where this face-to-face presentation was not made to the person who can say “yes.” I wish I could have back the hours that I’ve spent with engineers, designers, purchasing agents, assistants and clerks. These gatekeepers all have the power to say “no”, but not one of them has the authority to say the words that any inventor wants to hear.

Because my company offers to evaluate the ideas of other inventors and sometimes offers to act as their agent, we get to see a great many new product concepts. Some are licensable and some are not – but never have I seen a product that was so wonderful and so utterly exciting that any company would fight and scratch for the privilege of manufacturing it. A product idea or invention is a commodity that has to be sold like any other one. Presentation material must be prepared, questions anticipated, facts determined, proof of validity offered, and reasons to buy developed. And then, just like any other salesman – you have to hit the road. If you send your stuff in the mail to folks who didn’t ask for it in the first place (like invention submission companies do) or think you’ve done something wonderful by making a website for it, you can spend your life sitting by the phone. It’ll never ring. The only person who will see your submission letter is a minimum wage clerk, and nobody who matters will ever see your website. As we say where I come from – fageddaboutit.

Unlike many inventors that I’ve met, I actually like calling on companies because I have NEVER made a personal presentation to a decision maker that wasn’t worthwhile – even when he thought my product was one of the dumbest ideas he ever saw in his life.

1. If he did think my idea was stupid, maybe he’s right. Isn’t that worth knowing? Why waste your time on a non-starter? Move on – if you can come up with one idea, surely you can come up with another one. And that might just be the blockbuster that everyone’s looking for. It happens a lot.2. Maybe the idea isn’t stupid, but maybe it’s just not for him. That happens often, and just as often the chap you’re with will offer the name of a company the idea IS right for. “That’s not for us,” he might say, “but I think it’s something that Worldwide Amalgamated would be interested in. Show it to Tom Kelly, and tell him I sent you.” Now you know what company might be in interested, the right person to see, and a perfect key to open the door. “Mr. Kelly? Hi. Frank Johnson at U.S. Sales sends his regards and suggested that I might have something that you’d be very interested in.” How can you beat that?

3. If your idea isn’t for the person you’re meeting with, not only might he give you entree to someone for whom the idea would have value – but during the conversation he’s quite apt to tell you what his company WOULD be interested in. “No, this idea’s not for us,” he might say, “but if you could come up with a gadget to do (fill in the blank) then we might be quite interested.” Because I’m in the business, even if the subject doesn’t come up naturally, I always ask. Inventing is usually the easy part – but the key is in knowing what to invent. There’s no knowledge more important to an inventor than to know what problem a certain industry would like to have solved. And there’s no better way to find out than by hearing it from an active company executive in that industry.

I see lots of product ideas from folks that have apparently been invented for no other reason than that the inventor knows how to do it, without any real knowledge as its need or commercial viability. I understand the appeal of inventing as a hobby — it’s creative and it’s satisfying. However, inventing for profit is a business like any other business, and the result of the inventor’s efforts has to be a product with enough commercial potential to persuade the manufacturer to invest his resources in moving the idea forward. If it’s not something that’ll cause him to say; “WOW!” as he rubs his hands together in greedy anticipation, getting his signature on a licensing agreement is not likely to occur.

Hearing “WOW!” doesn’t happen by accident. Successful inventors spend far more time in looking for creative opportunities to explore than they do in the actual inventing; and there’s no better way to find these opportunities than while presenting ideas in face-to-face meetings. Flying blind, hoping to simply pop into an unknown industry with exactly the product that everyone in that industry has been waiting for, almost never happens, and almost never brings the rewards that the inventor’s talents would otherwise entitle him or her to.

The toy industry relies on freelance professional inventors and product developers more than any other industry that I know of – and they will routinely send these folks a “wish list” telling them the category and type of new products they’d like to see for the coming season. Other industries may not have such a formalized approach, but every company has a wish list. If you’re already in the executive’s office, showing him your brilliant idea, he’ll gladly tell you exactly what his company is looking for. And when you call him a few weeks later and tell him you’ve got it, he’ll welcome you with open arms. That’s the whole secret of this business – first learn what a company wants, and come up with it.

4. And finally, the fourth benefit of the personal meeting is that the executive your seeing might like you and might like what you’re showing him, and will want to go forward with it. What to do when that happens is the topic of another article; but the point I want to make in this one is that you are not likely to ever hear “yes” without sitting down face to face with the person who has the authority to say it. Sending your information through the mail is almost always a waste. Nobody will write you a letter back to tell you that your idea is stupid and that you should move on. Nobody will write back suggesting another company to show your idea to, and the name of the person to see. No company will write back to tell you what type of product ideas they’re looking for, and definitely no company is going to write back with a contract and check enclosed.

Except in the toy industry where the companies only want to deal with professionals, I don’t know of any other industry where you can’t get an audience with someone in authority. Your second best alternative is to have someone like me do it for you. However, as good as I am at it, and as much as I enjoy doing it – the truth of the matter is that no one can sell your own idea better than you can yourself. If by inclination or circumstance, going out to sell your idea yourself is not possible, then a professional agent with a track record is a good option. However, whether you do it yourself or get someone like me to do it for you, your chances for success are increased enormously by having your idea personally placed into the hands of the right person in the right company at the right time. Nothing else even comes close.

Happy inventing – and I’ll see you again soon.

ARE YOU INVENTING FOR FUN OR FOR MONEY?

– article by Harvey Reese

Inventing is fun for lots of people – you see a problem or a perceived problem and have the satisfaction of dreaming up a solution. The work is interesting, creative, and often even productive. How can you beat it? I admire problem solvers and totally understand why this is such an engaging and fun activity. However inventing for fun is to inventing for money as taking a Sunday drive is to racing at the Daytona 500. Both are perfectly worthwhile things to do, but it’s not difficult to tell who is doing what. The differences are obvious.

DIFFERENCE NO. 1

The person who’s inventing for fun dreams up zillions of ideas – he almost can’t help it. One day it’s for a new garden product, the next it’s a laundry room product and the next it’s something for the car. Flitting here, flitting there, without a clue about any of these industries and where his inventions might fit in. The person inventing for money understands that inventing is often the easy part and that the real creativity is in knowing what to invent. He or she understands that before trying to invent anything the inventor for money must first really study the industry in which the new invention is intended to compete. A company intended to branch out into a new field would never do so without first intensely investigating the new industry to determine where its targets of opportunity lie. Since that’s so logical for a company, why shouldn’t it be just as logical for the inventor?

Before even thinking about a new product idea, the invent-for-money guy first learns how the industry operates, how products are distributed, the industry’s cyclical selling periods, the trade discounts, which companies are on the rise and which are on the decline, which products are hot and which are not, which products flopped in the past and which are on the rise. Only after he has determined a need, a target of opportunity or an undiscovered niche, does the inventor-for-money set out to invent the actual product. To invent for an unknown industry usually results in inventing what’s already been invented or solving a problem that no one cares about. It’s like a custom tailor making a suit and then looking for someone it fits.

DIFFERENCE NO.2

The inventor-for-fun looks at his creation and proclaims, “It’ll sell in the millions!” The truth is, he really hasn’t the foggiest idea if the product has any commercial value at all, and isn’t even aware of who his product really has appeal to. “The consumer of course”, he’ll say, as if only a fool would see a reason to ask. However, that’s the wrong answer. The person inventing for money understands that a licensable product is invented for the licensee. That’s who he has to please. Pleasing the consumer is beside the point. That’s the licensee’s job, not the inventor’s. The person inventing for money understands that a product’s marketability and its licensability are not the same thing.

The hard truth is that companies don’t like to sign licensing agreements. They’ll only do it, kicking and screaming, if the idea is fresh and exciting, if the start-up costs are in proportion to the anticipated returns, and if the idea brings new profits to the company instead of simply switching sales from one product to another. You’ll notice I haven’t said that the invention has to improve the lives or the well being of the consumer. Worry instead about improving the well being of the licensee. After all, he’s the one signing the checks – and anyway, he knows a lot more about pleasing the consumer than you do. That’s why you brought your product to him in the first place.

DIFFERENCE #3

The invent-for-fun person will do everything to avoid personal face-to-face rejection. He’ll run to get a patent and send out a bunch of unsolicited letters to names out of a directory, or he’ll seek advice on Internet newsgroups from others who also have never licensed anything, or he’ll surrender his bankroll to an invention submission company, or he’ll build a website and put his trust in the miracle of the Internet. None of these activities brings results. They never have and they never will.

On the other hand, the invent-for-money person will do everything possible to get himself and his invention in front of the boss of the company that can best sell his product. He’ll do it himself or he’ll get someone like me to do it for him – but either way he knows that nothing happens unless a face-to-face presentation is made to the person who has the authority to say yes. There are no shortcuts and no substitutions.

I’ve created and licensed more products of my own and those of other inventors than I can count, certainly more than a hundred, and can honestly report that I never closed a deal in any way other than a face-to-face meeting. I used to try calling and mailing the material but it was so hopeless that I long ago gave up trying. I can also honestly report that I never closed a deal unless I met with the person who could make the decision. Engineers, sales assistants, folks from the design department – they’re all just gatekeepers who have the authority to say no, but haven’t the authority to say yes. And the truth of the matter is that they’re all your enemy. The gatekeeper feels it reflects badly on him if the boss gets excited about an idea from an outsider since he’s the one being paid a salary to dream them up. It’s predictable that he’ll do his best to facilitate your failure.

There’s certainly nothing wrong in inventing-for-fun; it’s a creative and engrossing activity. If you want someone to pay you for the results, then I hope you will consider the fact that inventing for money is first and foremost a business with all the failures and successes that every business experiences. However, if you keep sight of your goal, and if you maintain your approach to it in a businesslike manner, there’s no reason why you won’t start achieving the kind of successful results that you will have earned by your efforts.

TEN MAKE-OR-BREAK POINTS IN ANY LICENSING AGREEMENT

– article by Harvey Reese

In a past Inventor’s Digest article I wrote about the ten non-negotiable demands that every inventor has the right to insist upon when entering into a licensing agreement. Each demand that I discussed is perfectly reasonable, and the omission of any would be reason not to execute the agreement. Non-negotiable demands include receiving a non-refundable advance against royalties, an agreement that royalties must always be based on sales (not profits), having the right to inspect the licensee’s sales books and being named on the licensee’s product liability insurance policy.

However, as I pointed out in that article, a licensing negotiation does not mean that the inventor dictates terms of surrender to a hapless licensee. No good will come of that. The licensee has legitimate rights, and a licensing agreement works best when both sides leave the table satisfied with the result. If you can come up with one good new product idea, you can come up with another, so if accommodating your licensing partner in ways that don’t punish you unjustly will help establish a pleasant working relationship, it’s an investment well made. Just as there are ten absolute demands, there is another set of ten that you must be prepared to negotiate.

1. How Large is the Advance?

How high is up? How long is a length of string? Up is as high as people agree it is, and the string is as long as it is supposed to be. You and the licensee might agree that there should be an advance, but you won’t initially agree on how much. If you each wrote a number on a piece of paper, there’s not one chance in a thousand that both of you will have written the same sum. Knowing this, you should never ask the licensee what he’s prepared to offer as an advance. That would be like owning a clothing store and asking the customer what he’d be willing to pay for the new suit he’s trying on. You’re the seller; it’s your job to put a figure on the table. I can’t tell you what that figure should be because there are too many variables, but I can tell you what it should represent.

There are two purposes for the advance. The first is to establish the seriousness of the licensee. It’s what we used to call “earnest money.” The advance should be large enough to convince you that the licensee is serious, yet not so large as to cause him to have second thoughts about the deal. The other reason for the advance, since it is non-refundable, is to compensate you for your time if, say, six months down the road the licensee changes his mind and decides not to produce your product. As a purely arbitrary rule of thumb, I try to calculate what a year’s royalty might be and ask for an advance that represents about 25 percent of that amount. That seems to work in my own negotiations and the sum that is finally agreed upon is usually not far from that amount.

2. What Percentage Should the Royalty be?

The reason these points are negotiable is that there are no hard-and-fast rules. If what you’ve licensed is a high-volume, low profit type of product, you might be happy to get 3 percent. If it’s a slow moving but high profit item, you might be entitled to 10 percent. None of the products I’ve ever been involved with have strayed beyond either of these extremes, and most wind up in the 5 percent area.

I developed a wonderful negotiating strategy that you’re free to use. Let’s say I ask for 6 percent and the licensee complains that competition will be able to undersell him because of the high royalty. I tell him that if and when competition comes along, if he’s not competitive, I’ll cut the royalty. I even know from experience that if and when competition does come along, it is usually based on features rather than price – and even if it is price, this clause is long forgotten as time passes and the product has evolved into something entirely different. But my suggestion sounds good when offered at the negotiating table and shows a sense of willingness to cooperate.

3. When Do You Get Your Royalty Payments?

My contracts always state that I’m to be paid monthly. Company salesmen get their commissions monthly, so why shouldn’t I get paid the same way? Some small companies might agree, but larger ones never will. There’s too much bookkeeping involved and most will insist on quarterly payments. It’s a reasonable request and I always agree. The only reason I don’t change my contract to read “quarterly” is to offer the licensee a small victory.

4. How Long Does the Licensee Have to Bring Your Product to Market?

I apply the same principle as with the royalty payment schedule. My contracts call for the licensee to have the product on the market in six months. They always balk and I always change it. Six months is usually not enough time, particularly with a seasonal product, and I’m prepared to allow as much time as seems necessary. Nine months is usually a reasonable time for the kind of products I’m involved with. The only reason my agreement still says six months is to provide further proof of my flexibility and willingness to oblige. Your invention might be more complex, involving a year or more in production, so you have to give the licensee the amount of time that’s reasonable and fair, but not so much time that he has no incentive to move ahead at a brisk pace.

The longer the delay, the less chance your idea will become a reality.

5. What Territory Are You Awarding?

My contract routinely award licensing rights to the United States, Canada, and Mexico, which is fine for some companies but not for others. A company with worldwide operations is going to want to sell your product all over the place. That should be alright with you — why not? However, many smaller companies may sell abroad without a really strong international presence. My suggestion is to structure two separate agreements with performance guarantees built into the international one. That way, down the road, you can remove the international rights for non-performance, without interrupting their domestic activities where, hopefully, they’re going great guns. If they’re not doing a job for you overseas, they won’t care if you take it away.

6. What Performance Guarantees Should You Ask For?

If you’re licensing a product that is not patented, you can’t ask for any guarantees. Once your product is on the market, it’s fair game for any company that wants to knock it off. Since you can’t re-license it elsewhere, you’re stuck with the guy you gave it to in the first place. However, if your product is strongly patented, you can move it around and are entitled to ask for minimum royalty guarantees. How much should it be? Who knows? It’s an arbitrary figure based on what would be a reasonable amount in sales. The licensee should be able to make an estimate based on experience in the business, and you should be able to judge his estimates based on sales of similar or competing products.

7. How Long Are You Entitled to Receive Royalties?

I take the position that as long as a company is selling my product, or variations thereof, I should get royalties. Fair is fair. Some companies disagree. They figure that, since they are taking all the risk, and they’ll be putting money into constantly changing, improving and adding to the product, at some point in time enough’s enough. Actually, years ago my accountant found a loophole in the law that gave me great tax advantages by using a finite time and calling it a sale rather than a license, but that loophole has since been closed. There may be others, so if a great deal of money is potentially involved, you may want to discuss this with a tax attorney or your accountant.

8. Who Pays the Legal Fees to Complete Patent Work?

Let’s assume your product is not patented, but that it could be, or that you have filed a Provisional Patent Application. It’s not unreasonable to negotiate with the company to pay for the application for a conventional utility patent. The patent would be issued in your name and you would assign marketing rights to the company. You have a good chance of doing this with large companies who have patent attorneys on retainer and less of a chance with small companies where the legal fees are a burden – but it’s worth putting on the table for discussion.

9. Who Pays Legal Fees in the Event of Infringement?

If you’ve licensed a patented product, another company might ignore the patent and simply knock it off. Or, if your product is not patented, you may have innocently infringed on an existing patent. Who pays the legal fees to defend the patent or defend against the infringement issue? Presumably, as the licensor, that’s your responsibility, but I urge you to never, never sign a contract that obligates you to take legal action. It will cost you a ton of money if you lose the case, and will probably also cost you a great deal of money if you win. Duck the issue entirely if you can, but if it does come up, you have to simply tell the licensee that the two of you will deal with the issue if and when it arises. You cannot and should not obligate yourself to take legal action to defend a 5 percent royalty. If you do, I can almost guarantee you’ll regret it.

10. What About Remaining Inventory?

There’s an old business axiom that you can never count your profits until the entire inventory is out of the warehouse. Products tend to have a natural life span, and when it’s over, the manufacturer is invariably stuck with merchandise he can’t sell. If he has to dispose of this merchandise at a cut price, do you still get your regular royalty rate? Frankly, it would be mean-spirited of you to insist on receiving the regular percentage, and I believe it will come back to haunt you. My suggestion is to use this simple formula: If the licensee has to sell the remaining merchandise at a 25 percent discount, you should also take a 25 percent discount in the royalty percentage. If he sells at a 50 percent discount, then you should also take a 50 percent discount. And so on. There probably won’t be a great deal of money involved, and the licensee will remember your fairness when the next deal comes along.

The overriding intent of a licensing agreement, aside from the obvious desire to get what’s reasonably deserved, should be to have a friendly, equitable deal that makes the licensee as satisfied as you are. Listen to the other side’s legitimate needs, and be prepared to compromise when it’s not too painful to do so. You’re going to invent something else for this guy, and something else again after that. Your reasonableness at this first negotiation will set the tone of your on-going relationship; you’ll be rewarded for it many times over as time goes by.

Professionals like to deal with other professionals. The less you allow emotion to dictate, and the more businesslike your attitude in addressing these issues, the more assured of success you’ll be.

Don’t Take Honest Advice as a Personal Insult!

– article by Harvey Reese

Listen to What Professionals Have to Say

“Harvey Reese Thinks He’s a Genius!”

That was the heading to a recent Inventors Newsgroup posting by a furiously irate inventor. This gentleman submitted his idea and I sent him a polite, three page personal letter carefully explaining why I knew I’d never been successful in getting it licensed. I also included my New Products Worksheet which pointed out how his idea failed on almost all of the 30 points this Worksheet touches on.

Almost at once I received back a blistering email telling me that that I missed the point because my form didn’t provide him with enough space to describe the idea completely.

First of all, my form clearly states to add any additional description or pictures needed to adequately explain the concept. It’s not a complicated direction. And second, believe me, it didn’t take a genius to understand what he had in mind from his couple of sentences. There isn’t one among you who would have arrived at a different conclusion about the commercial value of his product idea. Even the few who bothered to answer his posting told him the same thing.

I won’t identify the idea or its originator because the purpose of this article is not to embarrass him, but to use it as a cautionary tale about how any of us can become so enamored with our ideas that we refuse to listen to what professionals have to say. I’m sure when this particular person told his wife about his idea, she smiled sweetly and said how wonderful it was. And probably when he told his friends, they also clapped him on his back, proceeding to say what an inventive rogue he is. Those opinions aren’t worth a damn in the real world. Only a successful operator in the business; someone not trying to sell you anything and someone with nothing to gain by keeping the truth from you, will offer an opinion that you should listen to.

I’m not saying this to drum up business – I have all the business I need – but no matter where or how you find him or her – I urge you to seek unbiased, expert advice before investing real or emotional capital in your project. And if you learn that it’s not a wonderful idea – put it aside and move on. I dream up lots of products and I license lots of products – but it’s not an uncommon occurrence for me to present a new idea to a company and, upon hearing the prospective licensee’s observations, to know instantly that it’s a loser. I have shelves and shelves of losers, but I don’t fret about them. The winners more than make up for them.

The person who submitted the product idea that prompted this article is probably still fuming about how stupid I am, and how stupid those who responded to his posting are for not understanding the genius of his idea. If he’s reading this article, I don’t believe it will change his mind, but I hope it had some instructional value for the rest of us.

I’m not an inventor – I’m in the inventing business – and have been for decades. I’ve earned a lot and I’ve learned a lot – and I only know of one way for others to cash in as well.

1. Before you invent anything, learn the market in which you have an interest. Read the trade magazines, go to trade shows and seminars, and do whatever else you can to immerse yourself in the standards, procedures, markups, distribution channels and seasonal timing of the industry in which you’d like to participate. That way you don’t waste your time inventing something that has already been invented, or something for which there isn’t a sizeable market.

2. After you’ve found a niche and a new product opportunity, do the inventing. Inventing means creating an idea and reducing it to practice. Companies don’t pay royalty money for ideas, suggestions or notions. You have to deliver the goods. And after you’ve developed your product idea, do your damndest to make sure it hasn’t been invented before.

3. Before spending money with patents and trademarks, get someone in the industry to give you an honest appraisal. Invention marketing companies offer “free” appraisals, but they’re worthless. Obviously they will tell you that your idea is brilliant. How else can they proceed to sell you their other services? If you’re thinking of marketing the product yourself, I’m not the only expert you can turn to – but I may be the only one who can evaluate an idea based on its licenseability. Lot’s of ideas are marketable, but few are licensable. I know the difference.

4,5,6. etc. Depending upon what you’ve learned up to this point, you can abandon the idea altogether, improve it, change it, get it patented, get a professional prototype made, decide if it’s something you want to market yourself, go out and look for a licensee – or whatever other steps makes sense.

But before you get to steps 4., 5., and 6., you must do steps 1., 2., and 3.

That’s all for this issue. Happy inventing – and I’ll see you again soon.

Your Licensing Agreement’s 10 Non-Negotiable Demands

– article by Harvey Reese

If you ask patent attorneys why licensing negotiations come undone, they will tell you without hesitation that it’s because of the overreaching expectations of the inventor. And if you ask the inventors, they will tell you without hesitation that it’s because of the posturing of the attorneys. Both are right and both are wrong. Many inventors DO grossly overvalue their inventions, and many attorneys DO get so involved in the oneupsmanship of the negations that they lose sight of the purpose.

Sniping aside, I maintain that the principle reason licensing negotiations often end badly is because the inventor and the attorney, if the inventor has one, both lose sight of the true purpose of the negotiation. I’ve always believed that the end purpose is of course to wind up with an agreement that gives me what I’m reasonably entitled to – but to do it in a way that recognizes the legitimate entitlements of the licensee. And, most important, to use the negotiations as a method of establishing the kind of amiable, working relationship with the licensee that will encourage him to view my next product idea favorably, and to make the next contract signing merely a formality.

I’m not an inventor – I’m in the inventing business. I intend for the guy sitting across from me at the negotiating table to be a long time customer. If I let ego get in the way and start to think my new product idea is sandwiched somewhere between world peace and a cure for cancer, the relationship I’m seeking will never happen. And if I used an attorney and allowed him to battle each point to the death, then it won’t happen either. A license negotiation is not a take-no-prisoners war. If both sides don’t win, then nobody wins.

When I sit down to work out an agreement with a potential licensee, the negotiation seldom takes more than a half hour. An hour tops. As the licensor, I always provide the contract. Since I wrote it, and since I’ve used it so many times, I know by heart what ten points I must be prepared to negotiate, and I know exactly what ten points are non-negotiable. The 10 points to be negotiated such as the royalty percentage, the amount of the advance, etc., are the subject for another article. What I’d like to review now are the 10 non-negotiable points.

When a union goes into negotiation with a list of non-negotiable demands, no one takes them seriously. They know it’s merely an opening gambit. However, for a licensing agreement, the demands I’m about to lay out are deadly serious. You are absolutely entitled to all of them – and being denied ANY of them is enough reason for you to walk away from the deal. I’ve done that several times and never regretted it. There is sweet reason to justify why each and every one of these points should be granted to you without argument. If the licensee balks, it’s time to reevaluate your relationship.

1. Royalty percentage should always be based on sales – never profits
It sounds logical when the licensee offers to share profits with you, but proceed down that path at your own peril. Profits can be creatively interpreted – one way for the tax man, another for the potential investor, and another for you. Sales, however, are absolute, detectable, and irrefutable. Whatever profit the licensee claims or denies for his own purposes is his business. Your concern is sales, and that’s what royalties should always be based on.

2. Sales are sales. Period
There is only one acceptable definition of sales – and that is whatever the licensee’s customers pay him when they purchase your product. I have had licensees demand to deduct costs for things like catalogs, trade shows, commissions, travel, etc., and I always say “no way!” That’s a slippery slope and you should never get on it. Sales are sales. Period.

3. Retain the rights to examine the books
The profits that a licensee makes on the sale of your new product are his business – but how many he sold and at what price is your business as well. Not only must the agreement specify your right to look at the sales records – but if you have to sue the licensee to collect royalties due – the licensee must pay your legal fees. You shouldn’t have to pay a $20,000 legal fee to collect $5,000 in royalties. Overwhelmingly, licensees are legitimate and will therefore not object to this clause. If you come upon one who does, I suggest you think twice about entering into a relationship with him.

4. Defining your product properly
The agreement will naturally call for a definition of the product for which royalties are to be paid, and it’s vital that you do it properly. Products evolve and change over the years and you’re entitled to receive royalties notwithstanding the fact that the product five years down the road bears scant resemblance to the product the licensee started with. When defining the product, be sure to add “and all subsequent changes and variations thereof” or else an unscrupulous licensee will easily find loopholes to cut you off from the royalty stream.

5. No end to royalty payments
“It’s very simple, Mr. Licensee, as long as you’re selling my product, or variations thereof, I expect to be paid royalties. I don’t care if it’s one year or twenty – if you’re still selling it, I expect to continue getting paid my small share.” I’ve had licensees want to put a cap on the number of years they have to pay royalties, and if I couldn’t change their minds I ended the negotiation. If someone else is making money from your creativity, why should there be a limit on how many years royalty payments are to be made? Monopoly was invented almost seventy years ago and Parker Brothers still pays royalties to the inventor’s heirs. Fair’s fair.

6. Product approval
You must have the right to sign off on the product before it’s distributed to the public. Not only is your reputation at stake, but there are safety issues (law suits) that must be addressed. This is a great responsibility and you must understand that you cannot withhold approval for esthetic reasons. If you refuse approval because you don’t like the shade of purple the licensee used, he will absolutely sue your pants off. However, if the product is out-and-out unsafe, you must have the right to withhold approval until the problem is corrected.

7. The non-refundable advance
I will never sign an agreement unless it calls for a check to be put into my hands immediately thereafter. It’s to be non-refundable and is considered as an advance against future earned royalties. How large the advance should be is for the article on points to be negotiated. In principle it’s what in some circles is called “earnest money.” It should be large enough to represent a significant commitment to your idea on the part of the licensee – yet not that large to become a stumbling block. Without the non-refundable advance you’re at the licensee’s mercy. Suppose five months down the road he suddenly decides not to proceed? Without the advance he will have stolen five months of your time without penalty. You can’t allow that and I strongly believe that you should never sign a licensing contract unless an advance is part of the deal.

8. You must have a date-certain when your product will be on the market
My standard agreement states that the licensee must have my product on the market in six months or I have the right to cancel the agreement and take my product elsewhere. The advance is mine to keep for my troubles. Six months is arbitrary, and I’m prepared to lengthen it if the licensee has good reason to need more time. What matters is the principle. A licensee can’t simply let the project drag on and on without subjecting himself to consequences. Without the advance and without the performance date, you don’t have a contract.

9. Product Liability Insurance
No sane company would sell products to the public without plenty of product liability insurance. The assumption is that if something can go wrong – it will, and if there’s even the remotest chance for someone to injure himself by using the product, that someone will find a way. If that happens, the lawyer for the injured party will look to sue everybody connected to the product, including YOU. It’s not expensive for you to be added by name to the licensee’s insurance policy, and the licensing agreement should legally obligate him to do so.

10. No obligation to sue
It’s entirely reasonable for a licensee to say “suppose a year from now we discover that we’re infringing on someone else’s patent? Will you protect us?” Or, particularly if your product is patented, he might say, “Suppose one of my lousy competitors tries to knock us off? Will you go after him?” One of my advantages in supplying my own agreement is that I don’t address these issues and the licensee rarely brings them up. But sometimes he does and I have to tell him point blank that I cannot and will not contractually obligate myself to go to court as a blanket obligation. I tell him that it’s a matter to be addressed if and when the situation arises, and that circumstances will dictate the action that he and I should take. We’re partners, I assure him, and we’ll do what’s best for both of us.

Does that sound like doubletalk? Well, it is. There’s no faster way to personal bankruptcy than to obligate yourself to take legal action to protect your licensee. It’s easy to imagine a scenario where you’ll spend $200,000 in legal fees to protect $20,000 in royalties. You owe it to your licensee to have made every reasonable effort to make sure your idea is free and clear before bringing it to him. But you should never guarantee anything beyond that. If you do, a good night’s sleep will be a thing of the past.

Certainly there are other points to be discussed that apply specifically to your own invention or new product concept – but if you enter the negotiation firm in your conviction that you are morally and reasonably entitled to these ten principles, then you are well on your way to winding up with an agreement that both you and your licensee can live with for many years to come.

Invention Licensing Help:”Dealing With Idiots”

– article by Harvey Reese

Adventures in the Product Licensing Game

I’d like to tell you a little story that doesn’t necessarily put me in a favorable light, but illustrates a few important ideas better than any way I can think of:

I live in Philadelphia and there’s a little company here that makes a few products for the big stationery supply companies like Staples, Office Max and Office Depot. I had a product idea which I thought might interest this company, and although their competition was bigger, I decided to give them the first shot, if only because they were so close to home. Lazy slug that I am, it seemed like a sensible move.

I did what I always do – I called the company and told the operator that I had to send a letter to the president and needed his name. She readily supplied it and a few days later I called again asking for “George Allen” (not his real name). A few clicks and the operator was back again. “May I ask what this is in reference to?” “Sure,” I said, “we’re a product development company and have come up with something that I know he’ll be very interested in seeing.” Again a few clicks, and then: “I’m sorry, Mr. Allen has stepped away from his desk. Can you call back later?” This was obviously a stall – but I’m a big boy.

Over the next few weeks I called Mr. Allen more times than I can remember, always to be told that he stepped away from his desk. It became a game. I put him on my speed dial and whenever I thought of it, I pushed the button, laughing to myself with the knowledge of what the response would be. Finally, I sent Mr. Allen the following fax:

Dear Mr. Allen:

Over the past few weeks I’ve called you more times than I can remember, only to be told each time that you were “away from your desk.” If I were thinner skinned I’d think you were avoiding me – but then I ask myself: “Why would he? We’re an internationally known product development company, creating new product concepts for some of the most famous names in American merchandising. If I’m calling Mr. Allen (I tell myself) because I think we’ve come up with a new product idea that would interest him, why in the world would he avoid me?”

Since I could not come up with a reasonable answer, I must assume that it has actually been a case of miraculous bad timing – and that each time I called you really were away from your desk. That being so, I’m faxing now to request a brief (about 10-15 minutes) appointment. If you’ll fax me with two or three available times, I’ll pick one and confirm back.

(Signed) Harvey Reese

The very next day I had a message on my voice mail from a Ms. “Jane Smith” (another fictitious name) identifying herself as the Director of Marketing for the company. This prompted the following fax:

Dear Mr. Allen:

I had a call on my voice mail from Jane Smith, presumably in response to my previous fax to you.

Please extend my apologies to Ms. Smith (whom I don’t know), but I won’t be calling her back. If I wanted an appointment with her in the first place, that’s who I would have called – and frankly I find it disrespectful of you to turn me over in this manner.

However, apparently you’ll be pleased to know that I won’t bother you any more and will simply move on. Fortunately, there’s no scarcity of companies who know us and are always anxious to see whatever new product ideas we’ve developed for them.

(Signed) Harvey Reese

And that’s the end of the story. I never did meet Mr. Allen and moved on to place the item elsewhere, just as I told him I would. This was no great triumph for me, but it serves to illustrate two important points:

1. The first point is to assure you that this is an EXTREMELY rare event. Over the years I’ve set up hundreds of appointments for myself, and I can literally count on the fingers of one hand the number of times I didn’t sit down in front of the person I wanted to see. The lesson is to NOT be afraid to make the call, and NOT to be afraid to ask for an appointment. If you do it right, you’ll almost always succeed. Mr. Allen turned out to be an idiot; the exception to the rule. Almost always, the person will take your call, will treat you with respect, and will be happy to see your new product idea. All he or she wants is to be convinced that you’re not weird and that won’t be wasting his time. There are tricks how to do this and I refer you to my article on appointments – or my book, How To License Your Million Dollar Idea. There is NO substitute for a personal visit – and if you can’t or won’t do it, then you should try to get someone like me to do it for you. It’s what I enjoy.

2. The other point is to stress the fact that you cannot be successful if you are not meeting with the decision maker – and to assure you that it’s a waste of your time to meet with anyone else. Mr. Allen’s company was a small one – and I know from long experience that in small companies, no matter how many titles are given out, the person who makes the decision is the owner. I could have met with Jane Smith, and she’d have dutifully taken the information, but I know I’d be wasting my time. The Jane Smith’s of the world are gate keepers. They have the authority to say no, but are never given the authority to say yes. In small companies if you don’t see the guy who signs the checks, you’re wasting your time. Besides – if you go to the design or engineering departments, you’re consorting with your enemies. These folks do NOT want the company to accept your idea because they feel it reflects badly on them. After all, the company is paying them to dream up clever product ideas, so why should they pave the way to make a star of an outsider?

I moved on and licensed the concept elsewhere, as I told Mr. Allen I would. The man’s a fool and it’s his loss, not mine. There are far more companies looking for fresh new ideas than there are folks who can supply them. Just remember – don’t be put off if you run into a jerk once in a while, and make sure you only turn on your charms to the person who can say yes.

I’ll see you next time, and as always I welcome your comments and suggestions.

WILL IT SELL?

– article by Harvey Reese

The Dirty Little Secret About Product Marketability

Lawyers don’t take themselves on as clients and surgeons don’t operate on loved ones. Both professions understand that where personal emotion is involved, good judgment often flies out the window. Why then do inventors think that they can objectively evaluate their own product inventions? Does anything involve more personal emotion than the creation of an idea?

Why do so many inventors still spend money on books and software purported to help them determine if their product idea will sell? No matter how many checklists they fill out, the result is always going to be a forgone conclusion… the idea is brilliant! I’m not suggesting that the folks who write these books or develop this software are being deliberately deceitful — it’s just that the facts speak for themselves. These books and programs don’t work. They never did and they never will.

Almost as bad is the habit of relying on the praises of family, friends, and patent attorneys, all of whom have a vested interest in saying what you want to hear. Friends and relatives want to please you, and NO patent attorney I’ve ever met will volunteer that your idea stinks. Why should he? What merchant tells a customer not to buy? And invention submission companies — forget it! Naturally they’ll tell you your idea is brilliant. How else can they sell you all of their services?

I appear on lots of radio talk shows and the host almost always asks what should be the inventor’s first step when he or she has an idea. My advice to them is FIRST get a disclosure number from the Patent Office and then immediately go to a business expert — someone with no vested interest in you or the success of your idea — to see if it really has merit. And if he tells you it doesn’t, and if he has the credentials to know what he’s talking about, my best advice is to drop the idea and move on. Don’t waste your time or your money. Attempting to prove the experts are wrong works once in a while — but it’s usually simply an expensive, wasteful pursuit. If you can come up with one idea, surely you can come up with another. Be a pro.

But wait! Suppose the expert say your idea will sell! Then what? This is where the dirty little secret comes in. If the expert say it WON’T sell, that’s valuable information. But if he says it WILL sell… that’s only of modest value — and is certainly not a green light to plunge forward.

If because you’ve been told that the product will sell, you are thinking of starting a business, first consider this: If you ask a Harvard marketing professor to name the four most important requirements for starting a successful business, he’ll tell you that the salability of your product idea comes in dead last. The most important requirement is to have sufficient capital. The next most important is to have the knowledge and aptitude to run a business. Third is to have boundless energy, an entrepreneurial spirit, and an unstoppable determination to succeed. And then, finally, lagging far behind, is the salability of your product idea.

If you ask why that is, the professor will explain that if you have the financial backing to keep going, and if you know how to run a business, and if you have the burning desire to succeed… even if the product idea you started with turns out to be lousy, you have the time, knowledge, and ambition to turn it into a successful one. However, if your idea’s great, but you don’t have sufficient capital, or you don’t know how to run a business, or you’d rather be on a golf course than putting in fifteen hour days, you’ll soon find the salability of the idea alone is not enough to keep your little company out of serious trouble.

The second part of this dirty little secret is that even if a product IS marketable, that doesn’t mean it’s licensable. In an affluent America, where we’re awash in discretionary income, almost any reasonably decent idea — if well designed and well packaged — will sell. In America we buy everything! However — that doesn’t mean it can be licensed.

The fact that your product idea will sell is only an entry level qualification.

Let’s say that you’re a marketing executive for a company that makes housewares gadgets and you come up with a new design for picture hangers that’s superior to the traditional hanger currently being sold. If you presented the idea at a new products meeting, the company president would probably pat you on the back and announce that they are going ahead with it. Why not? Tooling won’t cost much, and whatever they sell will be to the good. Spending money for a patent for such an itsy-bitsy item, of course, would be out of the question.

However, let’s assume you go as an outsider to the same company with the same picture hanger idea and tell them you’ll permit them to make the product if they give you a $10,000 advance and a royalty for every hanger sold. Suddenly the bar gets raised much higher and caution reigns. The same tooling, considered modest when the idea was an internal one, now is viewed as enormous. The attitude of “whatever sells will be to the good” is replaced by a shrug and a complaint about how modest the picture hanger market is. And, while when it was an internally suggested product, the decision to patent it was dismissed as a needless expense — it now looms as a large detriment when the outside inventor shows up with an unpatented hanger idea.

Yes, the product is an improvement over existing hangers — and yes, if the company produced it they would enjoy some sales success — but it really doesn’t meet the requirements of licensability. And more to the point, if the inventor had done his homework and learned something about marketing, he would have known that before he started and would have turned his creative energies elsewhere.

At least 75% of the products presented to us are marketable — but we know from long experience that very few can be licensed. It’s not because we’re so smart, it’s because it’s our business to know this, and we make a continuing study of market movements and trends. Further, from a personal viewpoint, having owned large, successful manufacturing companies, I know what these company presidents are looking for.

However, any inventor could know what we know if they first took the time to become knowledgeable about marketing and distribution in general and about their specific market before trying to invent for it. First learn — then invent.

Let’s go back to my picture hanger illustration. The reasons why a product isn’t licensable varies from instance to instance, but with the picture hanger there are two obvious factors that conspire against it ever being licensed. First is the fact that this is a zero-sum business. Having a better design doesn’t mean that more hangers will be sold; it only means that sales of the old hanger will suffer. “Yes,” you might say, “but wouldn’t the licensee with the better hanger get a bigger share of the business?” That’s a logical question, but the answer is probably not. The companies who sell picture hangers sell fifty or a hundred other gadgets. Retailers buy the line from a particular vendor because overall his quality and prices are good and his delivery is reliable.

The K Mart buyer doesn’t cherry-pick specific items because he knows his vendor can’t have the best and be the cheapest on every item, but he does overall. In other words, K-Mart wouldn’t buy twenty housewares gadgets from one company and just this new picture hanger from someone else. And the buyer certainly wouldn’t dump his primary gadget supplier over something as insignificant as a picture hanger. It’s not going to increase K-Mart’s sales. If someone wants a picture hanger, he’ll buy whatever’s on display. Adding a new vendor into the computer for companies as large as K-Mart is very expensive, and they wouldn’t do it just for a picture hanger.

If the product were invented internally the gadget company would probably go ahead because it’s not a big deal to do so — but licensing IS a big deal, and licensing the rights to this picture hanger, as wonderful as it maybe, offers no benefits to the manufacturer or the retailer — so why bother? If I owned the company I wouldn’t license it either… and if the hanger was presented to us today as a new idea, we wouldn’t take it on as the inventor’s agent. Not because it isn’t intelligently conceived or well designed, but because it won’t license. It’s hard to explain all of this in a rejection letter without hurting feelings, but we do our best.

As I say, this is one instance. There are others for other products. The point is, however, that this is not secret information. It’s out there for the learning. The purpose of this article is not simply to dissuade you from buying books or software to determine if your product will sell — but to convince you to instead use the time to study the marketplace. Your customer is not the consumer — your customer is the manufacturer. Worry should be in pleasing him — and let him worry about the consumer.

Learn the manufacturer’s problems and his needs — and design products with that knowledge in mind. Like it or not — this is a business. Yes, it’s nice for some book’s checklist to tell you your product will sell — but it’s far more important for you learn about the nature of sales, distribution and business trends. The more you know about how companies operate and the market forces that affect their decisions, the more likely you are to create the kind of products that they’ll love to license — and for which they’ll be happy to shower you with royalties.

It really does happen to others — and there’s no reason why it shouldn’t happen to you.

Marketing Your New Invention:”The Heimlich Maneuver”

– article by Harvey Reese

Back in the late 1930’s and early 1940’s, second tier studios like Universal-International and Republic made B movie after B movie with a recurrent theme:

The kindly, gray haired inventor, toiling selflessly in his basement laboratory, finally discovers A) an incredible new military weapon, B) a formula to cure hemorrhoids, or C) a secret device to turn camel dung into hard, brilliant diamonds. Getting wind of the discovery, Otto Heimlich, the evil president of Trans-Global Megalith, sends henchmen to break into the inventor’s lab to steal A) the Secret Death Ray Machine, B) The Secret Formula, or C) The Secret Plans! The thugs are caught in the act, a tussle ensues, and the aged, brave inventor is left A) dead, B) blind, or C) in a blue funk.

Grief stricken, swearing vengeance and hurling herself at the impenetrable gray walls of the vile conglomerate is sweet, pretty Mary Wilson, who is either A) the inventor’s daughter, B) his niece, or C) his ward. The evil president and his thugs laugh fiendishly at the futility of Mary’s rage. Then, from out of nowhere, appears a brave soul who rushes to her side. It is A) the handsome, fearless detective, B) the handsome, fearless reporter, or C) the handsome, fearless patent attorney.

I won’t bore you with the rest of the tale except to say that it represents an extremely odd phenomenon. Some evil specter implanted this story into the brains of naïve, young inventors-to-be where it became almost impossible to dislodge. Now grown, millions of inventors will swear that Otto Heimlich still exists, maneuvering to steal their discoveries and inventions.

Never mind that poor Otto would now be well over 100, needing a walker to lurk about. In their minds, he’s still out there ready to steal their inventions, and for sure they’ll A) die, B) go blind, or C) go into a blue funk. When someone innocently says, “Tell me about your invention.” You can see the panic flash in their eyes.

I try to combat this paranoia with sweet reasoning, but I fail more often than not. Heimlich’s maneuvers are too powerful! (Maybe his goons really are everywhere!) Undaunted, I press on, even achieving an occasional success. I use what I call Four Irrefutable Reasons Why Otto Heimlich Will Not Steal Your Idea:

1. Why Should Otto Invite a Lawsuit?
Even without a patent, courts have ruled time and again that if you reveal your product idea to a company in good faith, they can’t simply steal it and throw you out into the street.

The trick is to have proof that you thought of the idea first. You’re smart enough to know how to do that. You have documented, witnessed notes. You’ve registered the idea with the Patent Office. You’ve left a paper trail covering your dealings with the nefarious Otto Heimlich. In order to combat your mountains of evidence, Otto would have to manufacture fake documents and try to get his employees to perjure themselves in an open courtroom. That’s much too risky for the sly Mr. Heimlich.

If I had an appointment with Heimlich to show him my product, the minute I got back to my office I’d send him a thank you letter confirming our meeting and reviewing the selling points of my idea. When Heimlich got the letter, he’d know it wasn’t sent just because my mama taught me to be polite. He’d recognize it for exactly what it was: another particle of evidence showing the true ownership of the idea. He’d know I was laying out a paper trail, which is exactly what I’d want him to know. The thicker my correspondence folder gets, the less inclined Heimlich is to get cute.

I’ve been licensing new product ideas to large and small companies for almost twenty years and no company has ever tried to steal an idea from me. It’s not because the presidents of these companies are such wonderful, upstanding folks.

It’s simply not good business.

2. You Can Be Bought Cheap
Heimlich can pinch a penny as hard as the next guy, but you’re the biggest bargain to come down the pike in years. Let’s say you get 5% royalty. That’s chicken feed to Heimlich. For example, assume your product costs $2.00 to produce. That means Heimlich will sell it for five. Do the math. You get 25 cents, he gets $3.00. Who wouldn’t go for that deal?

But wait, here’s the beauty part: your 25 cents doesn’t even come out of his pocket. It comes out of his customer’s. In other words, when Heimlich is figuring the cost to produce your product, the 25 cents is included right along with the nuts and bolts, the plastic and the steel, the labor and the shipping. Your royalty is just one more entry in a whole list of costs that gets totaled up, marked up, and passed on to the customer. Why try to steal from you when it’s so painless to simply pay the royalty?

3. You May Go Elsewhere
Let’s say you have an appointment with Heimlich and show him your unpatented idea. “That’s old stuff,” says Heimlich, lying through teeth. “We’re already working on exactly the same idea.” Not only is Heimlich risking legal action (see pint#1), but he’s risking something even worse. Figuring you struck out with Trans-Global Megalith, what’s to prevent you from taking the idea across the street to Heimlich’s archrival, the fiendish Whitwell McCade from Fearsome Industries? So now, not only would Heimlich be risking a legal battle, he’d no longer have an exclusive on the very idea that he’s attempting to steal.

It’s simply not good business.

4. The Biggest, Most Important Reason of All
Assume the product idea you presented to Heimlich was pretty good. It’s one he could make a nice profit on without a big investment. If you can come up with one good idea, you can probably come up with another one, and another after that. If your first idea was pretty good, your next one might be sensational. Why would Heimlich jeopardize a potentially valuable relationship just to steal a few bucks? He may be a mean old bastard, but nobody ever said he was stupid. Get the idea?

Stealing is simply not good business.

That’s really the whole point. The people who run these companies may be mean, but they aren’t stupid. They won’t steal your idea because it’s not a smart move, pure and simple.

Please understand: there are still plenty of crooks around and you certainly should patent your idea if it’s warranted. However, many ideas (maybe even most) can’t or shouldn’t be patented. So now what? Every idea has value to someone, if it can be successfully and profitably marketed, but you’ll never know if you don’t show it!

I beg you, please don’t panic and freeze in your tracks when a company refuses to sign your non-disclosure agreement. Most of them won’t. You have to assume that companies aren’t run by neo-Heimlichs, waiting to steal your idea. It’s far more profitable for them to do business with you as an ally instead of having you feeding ideas to their competitor.

If you’re not comfortable going out to sell your idea yourself, that’s OK; we’re not all cut out to be marketing people. Instead, get someone like me to do it. That’s my business. But whether you do it, or I do it for you, is beside the point. The main thing is to get your idea in play. If your product idea’s good, if it makes commercial sense, some company out there will be willing to pay you for letting them market it.

But first they have to see it.

Marketing Your New Invention:”The Chicken or the Egg?”

– article by Harvey Reese

I have lately been browsing the inventors’ newsgroup on the Internet, and although the level of intelligent discourse is impressive, the subject matter is sadly revealing. Someone will post a question about the patenting process, and like flies to honey, immediately a half-dozen patent lawyers or semi-pro patent appliers join in. “Should I get a PPA?” “What about an NDA?” “Can someone clarify the First to Invent laws here in America?” “How about a utility patent, or should I get a design patent?” “And what about the PCT?” “And the PTO?” And on and on. It’s not that the questions aren’t sincere, or that the responses aren’t informed, it’s just that so much of it is so screamingly repetitive and totally beside the point.

Assuming, of course, that the point is to make money by licensing ideas.

So much attention is paid to process that no one seems to have the time or inclination to ask about the business of inventing. No one asks, “How can I get an appointment with the chief executive?” “How should I prepare my presentation?” “What kind of questions should I be prepared to answer?” “How do I handle the not-invented-here syndrome?” “Do I need a prototype?” “Should it be in a consumer package?” “Do I need to worry about store displays?” “How do I line up appointments at a trade show?” “How do I get a professional appraisal of my idea?” “What are price points?” “Discounts?” “Markups?” Nobody asks these things; they only ask about patents and for advice about how to prevent someone from stealing their idea.

It’s not surprising that so few patented products are ever commercialized. Many, of course, are simply not worth a licensor’s time, but more often the inventor simply hasn’t a clue about what to do next. Inventing they know; patenting they know; everything else is a dark void.

Years ago, when Singer talked about his new sewing machine, he said he didn’t give a damn about the invention; it was the money he was after. Many inventors, I’m afraid, have it the other way around. How can they invent for the marketplace when they know nothing about it? Does that make sense? Does a tailor custom make a suit and then look around for someone it fits?

I don’t consider myself an inventor; I’m in the inventing business. I don’t invent for the joy of inventing; I create new products solely for companies to profitably manufacture and distribute. Whether any product of mine winds up with a patent is only incidental. Some do, some don’t. But that only has to do with the nature of the idea. It has nothing to do with its value. I don’t know how many products I’ve licensed over a long career (certainly more than a hundred) and while I can’t claim to have successfully licensed every product I’ve presented, I can say that I’ve never been turned down based on whether my idea was patented or not.

Someone in the inventors newsgroup recently posted that he and his wife created a new product that couldn’t be patented, and wondered if it was worth pursuing. Someone else immediately logged on to tell this poor guy with great authority to forget it. “No manufacturer would pay to license a product that his competitor could knock off without penalty.” This is utterly wrongheaded advice and serves to illustrate how woefully uninformed many inventors are about the business world. It should be obvious that manufacturers introduce non-patented new products every day of the year. In this fast moving economy of ours, they understand that the one who’s first with a product can add millions to his bottom line before the competition even learns of the product’s existence. You show a marketing executive a great product, patented or not, and he’ll be ready to do a deal. Those who run these companies may be venal, but they’re not stupid.

If your inventing activities haven’t yet brought you the rewards you feel you deserve, let me gently suggest a different approach. First, don’t invent anything . . . at least not yet.

Before you do anything, select an industry that interests you. Next, wander through stores, go to trade shows, read industry magazines, talk to retailers and wholesalers and keep at it until you feel confident that you understand how that industry works (along the way, it wouldn’t hurt if you also read a book or two about marketing.) Next, assured that you understand the industry, select a company that’s close enough to home so that you can easily get to it, and concentrate on inventing a product for that company.

Repeat after me: Learn the market first, then create the product. When you do it the other way, you wind up supplying solutions to problems that don’t exist and providing answers to questions that have never been asked. When you understand the dynamics of the marketplace, how products are bought and sold and how profits are made, you won’t waste time inventing a product that could never attain sufficient volume to warrant a licensor’s capital investment. Also, before investing your time and money, get an expert without an ax to grind to give your idea an honest appraisal.

Next, because you targeted a company close to home, you’ll be able to make a first-hand, first-class presentation. When I present a new product idea to a prospective licensee, more time is spent in discussing how to market it than on the product itself. I show a great prototype in a great consumer package. I show him what it’ll look like in a store. I tell him what it’ll cost to produce, what kind of mark-up he can get, how my product beats out the competition, and a best-guess estimate as to how much volume he can expect to do. I give a turnkey presentation with all the bells and whistles. All my prospect has to do is nod “yes.” I even have a contract in my briefcase and have more than once walked out with a signed deal and a check in my pocket.

If you try to make a presentation by mail, nothing will happen. Your presentation will probably wind up in the wastebasket. If you visit personally, there can only be a few outcomes, all of which are beneficial.

The worst-case scenario is that the guy will think your idea stinks. So what? Maybe it does have a fatal flaw . . . isn’t it good that you found out? Move on. Be a pro. If you can come up with one idea, you can come up with another. In the meantime, you’ve developed a contact.

The next scenario is that the executive won’t like your idea, but if you listen closely, you’ll learn what he would like. “Nah, I can’t use this, but I’ll tell you what . . . if you could come up with . . . (fill in the blank) . . . then we’d really have something to talk about.” Now you have some direction. With the problem recognized, the solution is just a matter of application. Next, maybe there’s nothing wrong with your idea, you’re just in the wrong place. “Nope, it’s a nice idea but I’m afraid it isn’t for us. But you know what? If you show this to Universal Whiplash, I think it might be right down their alley. Ask for Frank Snerdley, and you can tell him I sent you.” Well, not only do you now have one contact, but you’re on your way to making another.

Finally, the best thing that can happen is the guy loves your idea, and is ready to do the deal. None of these events happens through an unsolicited mailing.

The professional product developers I know all work in this manner. Before I sit down at the drawing board to create a new product, I’ve already selected the industry, selected the target company (plus a few back-ups), and wandered through stores until I sensed a niche. Before I embark on a voyage of creativity, I know exactly where I’m heading, why I want to get there, and what to do when I arrive. There’s nothing serendipitous about it.

If you’re not yet successful, perhaps you’re going about this inventing business in the wrong way. Don’t get hung up on the process of inventing and protecting. Yes, of course certain products warrant patents and ordinary precautions should be taken. However, before worrying about the patents and the non-disclosure agreements and first-to-invent laws and the fears that someone might steal your idea, worry about its place in the market and the needs and requirements of the guy you hope will license and produce it. He’s the one writing the royalty checks. If you make him happy, everything else will fall into place.

Don’t worry about the egg, worry about the chicken.

Are You a Real Inventor?

– article by Harvey Reese

I’ve been creating and licensing new product concepts to companies around the world for more than a decade and thought I knew just about all there was to know about the process. After all, I’ve always been pretty successful at it. A few months ago, however, I almost made what I thought would be a modest career shift, and was almost instantly made aware of how little I really knew about the state of inventing and licensing.

For the first time, I decided to offer my services as an agent for other inventors whose products I like. The number of submissions has been overwhelming and with almost each one I find myself shaking my head in amazement. At the smaller end, I’m amazed at how wonderful some of the ideas are, and I get excited about getting great licensing deals for these folks. But, alas, it’s my amazement at the bulk of the submissions, which I’d like to comment on. It’s amazing how little knowledge many inventors have of the nature of a licensable invention itself.

First of all, an inventor must understand what the licensee is paying for. The licensee, usually a manufacturer, gets up every morning thinking about ways to get ahead of his lousy competitor across town or across the country. He’s constantly trying to exploit the other guy’s weaknesses while promoting his own strengths. It’s a very serious battle, and it never stops. Simply stated, if you come along with some kind of weapon that will give one of these warriors an edge over the other, he’ll gladly pay you for it. What he’s NOT going to pay you for are mere suggestions, simple product adjustment, tweaks, or ideas that he has to do the work on. He wants you to give him a new sword for his battle, not just a pound of steel and a rough pencil sketch.

Here’s an example of what I mean: “Hey, Harvey, I have this great idea for a new toy. It’s a teddy bear, with green fur, and when you squeeze its paw, he jumps high in the air, does a double flip, lands on his behind, opens his mouth and says, ‘YO, MAMMA!'”

“Wow, that sounds great!” I say. “How does it work?” The inventor looks at me funny and says, “I already told you, . . .there’s a motor inside and you squeeze his paw to start it.”

Here’s another example. There’s a certain product that comes in 6 oz. and 12 oz. sizes and the “inventor” determined that there would be a great sales increase if the manufacturer also made it available in 4 oz. sizes. It made perfect sense to me – until the inventor asked me to get her a royalty deal on each 4 oz. size sold.

Many of the product submissions I receive are like that; they are informal little suggestions, ill-conceived “inventions” and ideas that are at best fodder for a helpful hint column. It makes me wonder what people’s perception of inventing and licensing is really all about. I don’t expect an inventor to know how to make a dramatic visual presentation, how to get to the right licensee, or how to negotiate a contract. That’s why there are people like me. However, I DO expect to see something of value, a fully formed idea based on some experience or knowledge. My company will dress up the design, make the prototypes, draw the pretty pictures, make the mock-up packaging, and knock down the doors. However, the inventor has to at least supply us with something real, something that works, and something that gives the licensee enough of a competitive edge so that we can get his signature on the contract.

AND PLEASE ….. make sure it’s something that hasn’t been thought of before.

It’s so automatic for me to confirm the originality of my own product ideas before moving forward that it astonishes me how seldom others do it. Wouldn’t this be a logical first step? Isn’t that what you do when you invent something? After all, virtually all of today’s fresh, new ideas stand on the shoulders of yesterday’s breakthroughs – so no matter what you think up, there’s always a good chance that someone beat you to it. I’m not even talking about a patent search, which understandably most people know nothing about. I’m talking about a common sense search – visiting stores, looking through catalogs, talking to people in the business.

I hate to write rejection letters because I understand the passions and hopes that are invested in each new idea, but I wouldn’t be doing these inventors a favor if I gave them anything less than the truth. However, it’s one thing to turn down an idea because of insufficient potential, but quite another when the rejection is simply because the inventor didn’t make the effort to see if his idea was truly original.

If none of this applies to you, thanks for reading this far. But if you think it might, follow these few common sense steps and you’ll greatly increase your chance for licensing success.

Before you start dreaming up a new product, you should really study the market in which you expect it to be sold. Only after you really begin to feel like an expert should you turn your attention to looking for niches and new product opportunities; that way you don’t try to solve problems that have already been solves or provide answers to questions that aren’t being asked.

One of the most difficult concepts for folks not otherwise involved in the commercial world to grasp is the amount of sales to expect from any given product. This is a very imperfect science and I can only hope for common sense to prevail. I see some perfectly logical inventions designed to solve the most obscure, teensy-weensy, nit-picking little problems that you can imagine. When you consider the tooling, the production, the inventories, the packaging and merchandising, bringing any new product to market represents a major investment and no licensee will do it unless there’s hope for a decent payoff at the other end. By studying the market and seeing the space given in shops to respective categories, I think you can get a sense of sales proportionality.

A licensee is far more interested in seeing a good idea in a hot category than a brilliant idea in an obscure one. A ten percent share of a $100 million business is a lot better than a 65 percent share of a $500,000 one.

The owners of companies may be blood-sucking capitalists, but no one ever accused them of being stupid, blood-sucking capitalists. If you think they’re going to send you fat royalty checks just for laying out a problem for them to solve, then you’d better think again. You’re the inventor, you’re the one who has to invent the darn thing. I mean really invent it, down to the last nut and bolt.

And finally, assuming what you’ve created is wonderful, the first thing any sane potential licensee will want is assurance that the idea is truly new and original. The minimum you should do is an extensive practical search and a free patent search.. Most new product ideas, by their very nature, are designed to solve a problem. Wander into a store, engage the owner or manager or salesclerk, say nothing about your own idea, but ask if they know of any products that already exist for that purpose. In moments you’ll be well on you’re way to getting the information you need.

Many of the product ideas I see cry to be patented, but just a quick look and some common sense tells me that it’s impossible that it hasn’t already been done. I’ll suggest to the inventors that they do a free patent check at the IBM or Patent Office website before we go further, and they almost always come back, angrily, to report that someone beat them to it. You just had to look at the idea to know that would be the case. Why do I have to be the bad guy?

I love to say yes to great new ideas. I love it when I can tell an inventor I think his idea is terrific and that we’ll be honored to be his agent. Someday I hope I’ll see one of your ideas . . . and if you’ll just follow these few simple guidelines, there’s a good chance we’ll be on our way to making a lot of money together.