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License to Deal
How to Land A Royal(ty) Flush
Roger Brown licensed his first invention from the trunk of his car. “There we were,” Brown recalls, “three guys in business suits standing around the trunk of a car with a device that looks like a rocket launcher.”
Brown developed the Super Sleever for his employer, Westinghouse Savannah River Corp. The nuclear facility requires protective plastic sleeves on hoses used in contaminated areas. Using slipping sleeves on hoses typically took two people up to 10 hours.
Brown’s device, a metal tube housing hundreds of feet of plastic sleeve, envelopes hose as fast as it can pulled through the Super Sleever. His invention saved the company $4 million annually.
With the go-ahead from Westinghouse, Brown sought licensing opportunities with others in the nuclear industry. Bartlett Nuclear, Inc. was first. The Super Sleever has been used at more than a dozen Department of Energy nuclear facilities since.
Over the past decade, the former comic book writer-turned serial inventor has licensed at least nine products, from toys to kitchen gadgets. And he’s done so without ever filing for a patent – heresy among some seasoned professionals in the industry.
Getting a new product licensed to a company represents the ultimate goal for many inventors. A licensing deal entails far less financial risk for inventors and frees them to move on to their next great idea while collecting royalty checks – mailbox money in the language of the business.
He’s landed all his licensing deals spending less than $100 on each item – some for as little as $8. Of course, that doesn’t account for the time he takes to research. He walks store aisles. He scours the Internet. He talks to consumers. He determines how big the market is for a particular product. He figures how his invention would complement a company’s existing product line. He does his homework.
The secret to Brown’s success is the sell sheet – a single 8.5 x 11-inch sheet of paper that clearly and concisely shows what the product does and how it will benefit the targeted company and consumer. Brown advises using professional photos. “I tell inventors, ‘Would you rather read a pamphlet or a novel to grasp an idea?’ If you can’t explain it quickly, how do you expect the consumer to understand it?”
Few would argue with Brown’s position on brevity. However, his position on the need for a patent is a point of contention among some in the inventing industry.
Brown is in the don’t-need-a-patent camp. He says companies he deals with offer licensing royalties between 3% and 5%, patent or no. “I know of companies that say they won’t look at something without a patent,” he says. “I don’t deal with those. There are enough companies out there that don’t require patents.”
Joan Lefkowitz, president of Accessory Brainstorms Inc., a New York-based licensing, marketing and sales representation agency for fashion, beauty and lifestyle inventions, disagrees. She only represents inventors whose products have at least a patent pending and a working prototype.
From an independent inventor’s standpoint, the best scenario to license an invention is with an issued utility patent, Lefkowitz says. The second-best is with a patent pending. “I have found that most potential licensees are willing to consider licensing a patent-pending product, but the inventor will receive a lower royalty percentage until the patent is issued,” she says. “If during the licensing period the patent is denied, the licensee ordinarily has the right to drop the product.”
Chris Clark, vice president at commercialization company Edison Nation, a sister business of Inventors Digest, says, “Having a patent is the easiest way to benefit financially from an invention.” He notes that because “most licenses are giving the licensee permission to do something, the grant of rights in a license should be for something that the licensee could not legally do without a license.” He says that an emerging trend is creative, flexible licensing agreements. These include contracts with escalating and de-escalating royalty rates, minimum sales targets, buy-back provisions, profit sharing, and joint venture-type provisions.
Flexible licensing deals is one of Lefkowitz’s “hot button” topics. She abhors exclusive agreements.
“Exclusive licenses are for marriages,” she says.
Instead, inventors should acquire multiple licenses and/or agree to limited exclusive deals. A license can be exclusive in a particular geographic area or manufactured for a specific segment such as youth or women. Another way to segment the market and leave the invention open to multiple licenses: Allows sales to specific market sectors such as department stores or large drugstore chains.
Lefkowitz cites Bumpits, a hair-poofing or “volumizing” product. Inventor Kelly Fitzpatrick crafted a deal that gave her selling rights to beauty supply and junior chain stores, while giving infomercial sponsors exclusivity in all other markets.
Licensing Winners & Losers
Product license consultant Joan Lefkowitz on what worked and what didn’t.
What it does: A hair tool that makes a ponytail appear full and spiky
Comment: I licensed this product to a big hair accessory company in 2006. The inventor received an advance on royalties. Fantail is still selling and the inventor is still collecting royalties. The company tooled and retooled it in a timely manner. The initial packaging was weak and they completely re-envisioned the packaging and used better photos. The line was extended to two SKUs by adding a smaller version for fine and short hair. The company built sales over time and kept adding accounts.
What it does: Keeps your hair in a bun
Comment: Hairstylist TED GIBSON made some unprecedented demands for his fully patented hairstick invention. He insisted, and we got for him, an unusually high up- front fee and his name on the packaging. A particularly entrepreneurial licensee got the manufacturing right on this in a short period of time. Packaging and publicity were well executed. A version for kids was added. Sales were strong for several years until the hairstick category downtrended.
Product: POP-UP MANICURE TRAY
What it does: Foldup nail polishing tray
Comment: Licensed to a large company specializing in personal care products. Beset by a number of roadblocks – the first mold wasn’t right. There was a big lapse of time before it was corrected. The packaging was an opaque box so you could not see the product itself. The product was illustrated on the box; there were no photos. There was little publicity. The retailers didn’t know where to place it so it went on the bottom shelf. The product, an excellent invention, withered on the vine.