How to get started creating a patent. Our patents are located at 5,339,557 and 5,442,875
Jerry E. Jones created the manual below while we were in the process of getting our patents. We hope it will help you on your quest.
How to Collect Royalties from Your Invention Ideas
Many people, at one time or another, have had potential invention ideas that they were felt to be good product concepts, but for whatever reason, they did not follow through. And if indeed given enough time and the product idea has some use or value, someone will come along with the same concept and take the next step. Nothing is quite as gratifying as venturing into unknown territories to give birth to a new idea. Add to this the prospect of generating wealth from the idea, and the irresistible goddess of invention is born. Was this a missed opportunity by the person who chose not to take action? Absolutely.
Today’s inventions generate billions of industry dollars, much of which is attributed to individual inventors and entrepreneurs like yourself. In pursuit of my own project, I passed many people along the way who had good ideas, but fell short of realizing any money for their hard efforts. I later began asking myself why many inventions were not being developed and marketed to their full potential. I sat down one day and retraced my steps over the past few years, from the time I thought of my invention idea, through the patent process, to where I am sitting right know, with a license agreement that has an estimated royalty return of substantial dollars. I am going to share my lessons learned and provide you with valuable time and money saving steps that will increase your chances of success of collecting royalties for the life of your patent. I have prepared this guide from actual tried and proven experience in the real world, not text book theory.
Many individual inventions never see the light of day as a financial opportunity for many reasons. Some of the most common are: 1) lack of market research, 2) product lacks large market appeal, 3) product lacks novelty or uniqueness, 4) product lacks value, real or perceived and 4) selling price. Other areas that usually discourage the inventor or create real challenges are lack of marketing knowledge, undercapitalization and lack of knowledge of the options available to the inventor in order to realize the financial rewards of their creation.
The information contained in this handbook will address all of these issues and many more, with an easy to understand, step by step plan. This plan will help the inventor make educated decisions for a more productive invention process and minimize the financial exposure in pursuit of financial success. Believe it or not, getting a patent is the easiest part of the entire process of invention conception to marketing. The real challenge lies in making money with the invention.
This “How-To” manual is written to provide the entrepreneurial spirited individual with a road map from taking an idea and developing it to the point of having value to a potential licensee and collecting royalties. This document will cover the following areas:
Coming Up With an Invention Idea
Evaluating Marketability of the Invention Idea
Patent or Not To Patent The Idea
Build and Test a Prototype
Test Marketing Your Invention
Turning Your Patent into Income
License Options
Finding the Right Manufacturer or Distributor
How to Find the Right Direct Response TV Partner
The Licensing Process
Coming Up With an Invention Idea
A simple definition of “invention” is any thing, process, or idea that isn’t generally and currently known; which, without too much skill or ingenuity, can exist in or be reduced to tangible form or used in a tangible thing; which has some use or value to society; and which you or someone else has thought up or discovered.
Most inventions are conceived by a basic two step process: 1) recognizing a problem, and 2) developing a solution. Although this process may seem easy, recognizing a problem often is about 90% of conceiving the invention. “To be an inventor is to perceive need” In these situations, once the problem is recognized, conceiving the solution is easy. The only exception to this two step rule is the improvement invention, for example, improvements to an existing product to make it cheaper, more reliable, stronger, etc. In most cases, you will find it more effective to go about inventing using the two-step process of identifying a problem and solving it.
If you don’t have an invention, you should begin by exploring problem or “need” areas. This can often be done by paying close attention to your daily activities. Pay attention to how you and other’s perform daily task. What problems do you encounter and how do you solve them? What needs do you perceive, even if they seem simple to you. Ask yourself if something can’t be done more easily, cheaply, simply or reliably, if it can’t be made lighter, quicker, stronger, etc. Write the problems down and keep a list. Make sure you take the time to think about the problems or needs you have discovered. Just remember you do not have to be a genius to come up with a practical solution that could be a moneymaker.
Other areas of invention opportunity are found by examining the “problem” which may be the ordinary way something has been done for years, and which no one has ever recognized as a problem.
There are many accepted methods of doing things that have previously never been considered for improvement. One of my inventions fit’s into this category.
I am the co-inventor of a fishing product called Clear CatchÒ Bait Net. We took an age-old method of capturing live baitfish with a dip net and made a radical change to the material and functionality. The end result was a bait dip net made of all clear hollow materials, which made the net virtually invisible to the fish when submerged in the water.
The clear hollow tubing fills with water, thus making the process of catching live bait much easier, faster and more productive than all existing nets that had been around for over a hundred years. How did we recognize the invention possibilities? We first recognized that the existing dip nets were not effective in capturing live bait, because they were made of wood, aluminum and colored net mesh and they scared the fish away when placed in the water.
So we looked at this dip net from the fish’s point of view and decided to try some logic. Why not make a net that the fish could not easily see and therefore making them easier to catch. The next step was to prove the theory by building a prototype and testing. We made the dip net with 100% clear materials and the product worked 10 times better than the existing dip nets on the market. Two patents were granted and the rest is what is often referred to as history. There was, of course, more to it than that, but I wanted to give my own personal example of how we recognized a problem and came up with a practical solution. If you are curious about the example just given, and would like to see for yourself, visit our web site for more information at http://www.clearcatch.com
Don’t hesitate to go against the grain of custom or accepted practice if that’s where your invention takes you. You will probably find the going easier if you invent in fields with which you’re familiar. This will keep you from “reinventing the wheel”. Try thinking about uncrowded fields or newly emerging ones where you will find ample room for innovation. But, even if you work in an established area, you will find plenty of opportunity for new inventions. Many times, people believe there is only one way to do things. This may be true, or is there a better way just waiting to be discovered.
One important principle to successful inventing is to remember the acronym KISS (Keep It Simple, Sweetie). There are hundreds of examples of simple solutions to common problems that created fortunes. Usually the more simple the invention, the better it will be accepted from all aspects.
If you have thought of an idea, before you charge off and start developing, building, testing or revealing the idea to outsiders, the most important thing you need to do is make a clear written description of your conception.
Then sign and date it, and have this document signed and dated by two trustworthy people who have witnessed and understand your creation. Documentation throughout the entire process is absolutely essential for two reasons. The first has to do with the inventing process itself. The second involves the possibilities that you will need to be able to prove 1) that you are the inventor and 2) that you came up with the invention first.
There are two types of patents: a design patent and a utility patent. A design patent protects the ornamental design of a product, such as the particular styling of a product. Normally, minor changes can circumvent a design patent. The most valued and effective patent is the utility patent.
A utility patent protects any and all useful process, machine manufacture, or composition of matter, or any new and useful improvements. The term “new” implies novelty. The term “useful” means that the invention must have a purpose and it must work. A patent cannot be obtained on an idea or concept. The invention must be a real and workable item, composition, or process.
The patent process is an exciting adventure and they’re many resources available to help you do most of the patent research and preparation yourself. Remember, no one knows your project better than you. Although most of the patent research and patent claim preparation information can be done by the inventor, saving thousands of dollars, the final patent preparation and submittal should be done by a competent patent attorney.
Potential Patent Problems
There are a number of potential problems with patent law. A few areas to be cautious as follows:
* Co-Inventors and Co-Owners: When co-inventors are listed on a patent, each has full rights to manufacture, sell, and license others without regard to the other inventor/inventors named on the patent. The same rights extend to co-inventors of a patent, no matter how small the percentage of ownership. Patent law has no provisions for fair accounting of the invention when financial rewards are realized. It is better to make a separate agreement with the co-owners/co-inventors, stating mutual obligations and restrictions.
An example is that if co-inventors disagree on any part of the project and decide to pursue marketing or license opportunities independently, there will be serious problems sooner or later. A strong license opportunity may come along and the licensor will want exclusive worldwide distribution rights. The obvious problem here is neither co-inventor can offer exclusive rights to anyone without the joint consent of the other co-inventor. Independent marketing of the same invention will also create problems with the constant competition to win market shares to the point where neither party is profitable.
Assignment or Sale: Avoid an assignment or outright sale of a patent, unless you are happy with the initial payment. If you are going to sell, get all your money upfront. When a patent is sold or assigned, it becomes the property and asset of the assignee. If there are ever financial difficulties, the patent could be lost to a lender or to the satisfaction of debt.
* Infringement: When the owner of a patent becomes aware of an infringement, the owner must notify the infringing party, or risk losing the patent rights. However, when a party is accused of infringement, the accused party has the right to bring legal action against the accuser and claim an invalid patent. The patent owner will then have to defend the action in federal court. This is very expensive, sometimes costing in excess of $100,000 in legal expenses. If an infringement does occur, a patent attorney can notify the infringing party in a way that will not allow grounds for this type of counter litigation.
If you have an idea that you feel is patentable and has market potential, I strongly recommend that you go to a book store and pick up the latest version of David Pressman’s book called “Patent It Yourself”. I will be making frequent references to this book throughout this handbook so it would be useful for you to have a copy. This book has a wealth of information and a must have reference book for patent and trademark information.
This book tells you everything you need to know about the subject of patents. However, I recommend that you use the book only as a valuable reference to help you understand the process. Retain a competent patent attorney for the actual patent preparation and submittal. You will also find a tremendous amount of information about patents and trademarks on the Internet.
Evaluating Marketability of the Invention Idea
Before you start talking about how much money you are going to make with your great idea, I want to share my own experience about two opposing, but interrelated, myths. The first myth is the belief that if you invent a better mousetrap, the world will beat a path to your door. My observation from personal experience, is that the world will hardly notice. The second myth is that one has to be tremendously lucky to beat the odds against success with a new invention. In reality, much depends on how well you know the field of your invention (the political, economic and marketing factors), and then on the action you take to develop and promote it. A good product idea is important, but an average idea powered by well-targeted action is better that a great idea that stands alone.
Now that you have discovered a possible new invention, and have properly recorded your idea, it is time to do two things before you go any further: 1) evaluate your invention for commercial potential and marketability and 2) make a patentability search. I recommend that you do the easiest and/or cheapest one first. Why is a commercial evaluation and marketing analysis so important? Because the next steps you take will involve expenditure of money and effort.
Some of the easiest ways to evaluate your invention marketability is to look in trade magazines and catalogs that sell or advertise products that are in the same product category as your invention i.e. Automotive–Jewelry–Housewares–Electronics–Tools–Home Furnishings–Home Improvement Items–Hobbycraft–Sporting Goods, Sports Memorabilia–Health&Fitness–Medical –Self-Improvement–Self-Development–Music–Entertainment–Pet Products–any unique products, you get the idea.
You want to make sure your invention does not already exist. Also, go to local store outlets that logically would carry your product category of invention. You will also want to check the Internet and make sure your invention idea is not already being marketed. Many people sell their products exclusively on the Internet because it is relatively cheap to advertise a web site and can reach a very large audience.
At this point you should also be asking yourself, if in fact, my invention idea has never been done before, what are the realistic financial expectations of such an invention. I recommend that you research the market in which your invention logically fits and do some marketing research of the kind of sales volume that is currently being done, the size of the market demographically and any other information that supports a large need or consumer desire for your type of invention. Be careful about chasing invention ideas that are just of particular interest to you. If your true intentions are to realize some financial reward from your creation, you must be realistic about the market potential. A good test of an invention’s monetary value is whether are you are reasonably sure your invention could make you at least $50,000, or at least 20-30 times your cost of patent search, building and testing a prototype and preparing and submitting a patent.
Along with doing the marketability analysis, you should also do a positive and negative factor test. If you discover that your invention is not currently on the market, take some time and evaluate the positive and negative aspects of your invention. There may be a reason why your invention idea has never been marketed before, that is not obvious to you at this point. I recommend that you read Chapter 4. of David Pressman’s book, which goes into more detail about evaluating the positive and negative factors. If the positive factors outweigh the negative by a good margin this is a good indication your invention is ready to move on to the next phase.
After you have researched magazines, catalogs, the Internet and visited enough store outlets to satisfy you that your invention does not yet exist, and you have realistically determined that there is a substantially large market for your invention, then at this point you should move to the next step. That is to begin your patent search and start building a prototype. First, let’s discuss the patent search. I will briefly talk about the patent search process pretty much from my own experience and what I have learned from research. But here again, if you really want to know the process and understand the importance of the patent search, read Pressman’s book.
Patent or Not To Patent
There are two ways to conduct a search: have someone do it for you or do it yourself. If you have the time and you want to save money, I recommend you do it yourself, if possible. This will insure that it is done thoroughly and in your desired time frame. In addition to saving you money, you will accumulate valuable information about your invention classification and the prior art forms that already exist.
An important point and lesson learned about doing the patent search yourself is, that nobody will know your idea better than you. I promise you, if you take the time to do a thorough search yourself, you will not only know more about the invention category of prior art relating to your idea, but you will be able to better prepare your patent attorney with valuable information they will need to prepare a strong patent with claims of substantial substance. The content of the claims will determine the strength of the patent and also prevent others from making slight modifications to your idea that could potentially invalidate your patent.
There are approximately 72 Patent Depository Libraries in 46 states; chances are there is one near you. The David Pressman book I mentioned above list the library locations or you can contact the Patent and Trademark Office (PTO) in Arlington, Virginia and they will mail you a list of the locations.
The Patent Depository Libraries (PDL) do not have as complete of patent records as the PTO in Arlington, but you might want to start with a local PDL and do a preliminary search. If you visit your local PDL and you want to be absolutely sure, you could use a professional search company in Arlington, or the ideal solution is to visit Arlington yourself. The cost to have a professional search done in Arlington will be somewhere around $200-$500.
You can also do a preliminary search right from your home if you have access to the Internet. I have found patent search web sites on the Internet and one of the better ones is
http://www.patent.womplex.ibm.com/ibm.html, or go into any of the larger browsers and do a keyword search on “patent search” and similar keyword searches. This may be a good source for a quick look, but I recommend you not depend on the Internet as a complete and conclusive source for your patent search.
A word of caution, there are companies out there who claim they can do it all for you. They will tell you that they will do the patent search, prepare the patent, submit it and then market it for you. My advice is be careful using these types of services. I have talked to many patent attorneys and inventors who have said that this arrangement rarely works out. My advice is remember that the more you depend on others to do for you, the more money you will put at risk and make yourself vulnerable to a costly and disappointing experience. Paying someone else to do the work reduces your control of the project.
Another tip is try not to depend on your patent attorney to help you determine the marketability of your project. This usually is not their area of expertise and an honest patent attorney who is truly looking out for your best interest will tell you that.
Build and Test a Prototype
Often times a prototype is built before the inventor decides conclusively that the invention is patentable and there is a potentially large market for the item. There is nothing wrong with doing it in this order as long as you realize that making prototypes and conducting test will cost money. If you decide to build and test a prototype first, before conducting the patent search or maybe at the same time, be prepared that you may later have to abandon the project when you do your market research and discover someone is already marketing the product concept or it is not patentable, or maybe there is just not a large enough market demand to justify further pursuit. I can tell you from experience that when you initially come up with an idea, it is really hard not to start tinkering with a model to see if it will work. Simple inexpensive proof of concept efforts is fine while you are researching the market, and researching previous patents. However, many inventions require the expertise of professionals in the areas of manufacturing, mold building, engineering etc. Before you start retaining professional services for expensive prototype building processes, back up and do the previously discussed steps first.
Test Marketing Your Invention
At this point of your project, we will assume that you have determined that your idea is patentable and you have already submitted your patent. You may have also, by this time, built a working model, prototype or possibly made the commitment to manufacture a small inventory r of your product to sell.
Test marketing your invention is one of the most critical steps in determining whether your invention has the market appeal to justify further investment and expanding your advertising. A market study can indicate attributes about the product that should be modified or emphasized. It can point out distribution avenues, strengths, and weaknesses, suggest advertising appeals, and indicate potential sales.
This information is essential in determining how your marketing budget should be spent. Market research studies can be expensive if done by a market research company. Even the most basic study will cost around $2,500-$3,000. Marketing research done by outside companies can vary depending on the particular product and the scope of the information necessary to analyze market factors. If you have limited budget, there are several ways to inexpensively test market your product yourself to determine it’s marketability.
One of the most common ways to test marketability is to take your invention to a Science and Invention Show. These functions are great for initial product exposure and are going on all around the country. The great thing about these shows is that there are usually local media at the event, TV, local newspapers, free lance writers and companies who are looking for new and innovative products to either buy or offer a license arrangement and pay you a royalty. If you attend one of these shows and have a booth, don’t be afraid to invite the media over to your booth and give them a demonstration. You never know, your product may end up on the evening news or in the newspaper, or possibly a magazine. Remember, at this point of your project, you need as much exposure as you can get and free media coverage is one of the best ways to get exposure.
Another way to test market your invention is to submit press releases to magazines. This is FREE advertising so take advantage of the opportunity. I recommend you do this only if you have product inventory to sell when you receive calls to order your product. The easiest way to do this is go to the library or local bookstore and look at magazines that cover the subject matter or category of your product invention. Write down the name, phone number and address of the magazine editors that are listed. Then either call them and discuss your new product invention with them or mail the press release if you know what needs to be included. Most of the time, if the product fits the subject matter of the magazine, they will publish an article. If you are not sure what they need to do the article, ask them and they will tell you what they need to have included in the press release. Submit as many press releases as you can. Most magazines are eager to publish articles about new innovative products that they feel would be of interest to their readers. Popular Science Magazine is pretty good about publishing articles about all categories of new inventions, so don’t forget to submit a press release to the editor.
One of the most powerful indicators of potential success is actual demonstrated success in a micro-marketing environment. If it is feasible to build a small run, offer the product for sale through an appropriate end user purchasing outlet, right there in your own home town, if possible. Price the product as though it were in production, even though each sale may result in a loss. The information obtained by test marketing could dramatically document your product’s potential.
However, if the product is unrefined, poorly packaged, or inappropriately priced, the exercise could backfire and indicate poor sales of an otherwise potentially successful product. Moreover, many products do not simply disappear off the shelves when they are offered for sale. Instead, sales are generated by the marketing effort, which undoubtedly will be lacking in a limited trial run. But if your product can stand the test of unsupported exposure, there is no better way to demonstrate its potential sales.
The sales potential of a new product may not necessarily be a function of end-user appeal. Distribution factors could be much more significant. In fact, an ordinary product with good distribution may experience excellent sales, whereas a superior product that is not well distributed may fade away.
A popular adage in manufacturing circles is that one can sell almost anything, provided the price is right and the distribution is good.
Assuming that you conduct a limited test-marketing exercise, it may be possible to achieve more than valid sales data. A test-marketing effort could be parlayed into a purchasing commitment from a large retail chain. Depending on the product and the particular chain, many large retailers will test-market a new product (after it is in production) by placing it into a limited number of stores. If the product sells well, the retailer will then order appropriate quantity for the remaining outlets. Consider the effect on a prospective licensee if you were to negotiate a test-market through a large retailer, and on the basis of results, obtained a commitment to purchase the product for the entire chain. This would greatly increase the interest of the licensee and put you in a much better negotiating position.
Turning Your Patent into Income
After obtaining a patent, an inventor faces the prospect of marketing the invention to a manufacture, through a license arrangement or doing the manufacturing, marketing and supply processes themselves. In either scenario, in order to develop an effective marketing strategy, one must first see the world from the customer’s perspective. One thing to keep in mind is that statistics show that the majority of patents which make money aren’t sold or licensed until 2 years after issuance. Patience is essential in maximizing the earning potential of your invention.
From the licensee’s perspective, the key factors that determine idea’s success potential are its technical and economic feasibility, and its market potential. And regardless of a product’s technical and economic feasibility, success will ultimately depend on market factors.
Unfortunately, when a new product does reach the marketplace, according to industry statistics, nine out of ten fail. In the event of a failure, development and marketing expenses become a total loss. To put the impact of such a failure in business terms, consider that a manufacture must sell at least $10.00 worth of profitable goods for every $1.00 lost to an unsuccessful venture….just to break even on the loss. As a result, a great deal of the effort that goes into evaluating a new product idea is oriented toward heading off a possible failure. Moreover, a substantial investment of time and resources is required to properly evaluate a new product idea and estimate its potential success.
So when a company executive declines a seemingly good product idea, what it is probably declining is the expense of properly evaluating the idea, and after having paid these expenses, the prospect of embarking on an expensive commercialization effort that has a 90 percent chance of failing.
Despite the forgoing harsh realities, new products are essential if a manufacture is to remain competitive, and successful new products translate into new markets, increased market share, and greater profits. The key is to avoid failure while pursuing success. In order to comfortably move ahead, a manufacture must have accurate knowledge about the associated expenses, risks, and market factors. When soliciting a licensee, let the following guide your presentation:
* The most effective incentive is PROFIT
* The biggest obstacle is FEAR
* The most powerful antidote is KNOWLEDGE
A well-developed package of knowledge about the product and its market will provide a prospective licensee with essential information that he would otherwise have to develop. Most of the time they are not willing to take the time or spend the money to prove that there is a market for your invention that they see as your job.
The most common downfall of efforts in soliciting a licensee is the failure to develop a refined prototype and a well-targeted presentation (the package of knowledge). In a sense, the inventor must package the new product idea for the prospective buyer. And from the inventor’s perspective, two buyers exist: The end user and the prospective licensee. Consequently, the most effective packaging will contain elements that are directed to each of them.
Unfortunately, most new product ideas are unnecessarily penalized because they have not been rendered in the correct technology. They are usually not designed for production processes, and they have not been correctly packaged or professionally styled. Most manufacturers are rarely presented with anything resembling a production-ready, new product. The inventor with a well designed and well-built prototype will be miles ahead when it comes to soliciting a licensee.
Conversely, a poorly built prototype will psychologically project similar deficiencies into the product idea itself. The prospective licensee will then have to use his imagination to see the product in its finished (marketable) form. Along with a well-built product and presentation, you should consider producing a product video demonstration tape.
A video demonstration is a powerful tool to provide potential licensing companies. You should have the video done professionally, if possible, using broadcast quality film such as Beta SP format. This film format will give you quality copies over and over. A quality video that tells the story should also include honest and sincere testimonies from people who have used your product and believe in it. If you do not feel comfortable with your film and editing abilities, get some help from local film companies, the local cable TV Company or maybe a University in your area, that teaches classes on film production.
I cannot stress enough that your product, packaging, and presentation material need to be the best you can possibly afford. It could mean the difference of getting a license offer or being turned away. Your product presentation should tell the whole story, without requiring a lot personal explanation from you. The reason is that you may only get one chance to get their attention. Most companies will want you to mail product samples and literature for their review.
Do not assume that you will be invited to make a personal presentation on the initial introduction. If your prospective licensee is across the country or maybe several hours drive, it does not make sense to incur travel expenses for the initial introduction and product preview.
Most companies will want to look at the product and presentation material without you being there. This gives them time to review the product with other office peers, get opinions, analyze the product, maybe do some quick research, and contact current customers for feedback.
In summary, a professionally developed prototype and product presentation represents a bundle of knowledge about the product, and it represents development expenses that the potential licensee does not have to pay.
Licensing Options
Up to this point, all of the information discussed provides useful guidelines for anyone who has an invention that intends to bring their product to market regardless of the industry. How a product is ultimately marketed depends on the nature of the product, its targeted industry market and the effectiveness of the marketing media used. Some inventors will choose to manufacture, market and distribute the product themselves while others will utilize the options available through licensing arrangements.
There are a couple of options for licensing your invention. The one that is the most obvious is to approach companies that manufacture and market products similar to your invention. Typically, your best chance to secure a license with a company that is equipped to manufacture and market your invention is to present them with the best possible product packaging, marketing research and some sales history to support the demand for your product. It is possible to secure a license agreement on the basis of a patent alone, but this is usually a rare exception.
As discussed earlier, there are many considerations made by manufactures and companies who look at new products for license. Even after you have prepared a thorough product presentation, this is just the tip of the ice burg.
The prospective licensing company will be evaluating your product to determine such things such as: does this product compliment my current product line, will my wholesale or retail customers be willing to market a new and unknown product, how much will I have to spend in initial fees to get the product in the stores, does this product fit with my current distribution organization and how much advertising will be required to create product awareness and demand. Licensing directly to manufactures can be very difficult because, by nature, they do not usually take big risk when it comes to a new product.
Finding the Right Manufacture/Distributor
This step requires that you compile a listing of manufactures that you believe could manufacture and distribute your invention profitably. Your initial list should have all manufactures to the best of your knowledge, who meet the following three criteria:
* Geographically Close To You
* Already Manufacture the Same or Closely Related Product Category
* Not Too Large a Company
Local manufactures or within close proximity to your home that already make and sell products in your field of invention are usually the best. There are many benefits of using a local company to manufacture or license your invention. You can monitor their progress, consult with them frequently, and be able to assist quickly if any complications arise. Your best chances obviously are with a company, which has experience with products similar to yours. They already know how to sell products in your invention category, and are aware of the market and the competition, are knowledgeable of the pricing, and can fold your product into their existing product line.
There are some reasons why small to medium size manufacturers are sometimes better license partners than giant manufacturing companies.
1. Smaller manufacturers are more dependent on outside designers and more receptive to new ideas from private inventors. In other words, they do not have a strong inbred prejudice against inventions they did not think of themselves.
2. You can contact the decision-makers or the owner of the company directly and get feedback more easily.
3. Decisions will be made more quickly because the bureaucracies are smaller. You are more likely to be involved with the development of the project. If you are successful in getting a license agreement with a smaller company, you may be asked to become a consultant for the company on future projects or encouraged to bring them more licensing prospects which you will be compensated for.
The fact is once you have been through the entire process; you are a valuable asset to the company because of your knowledge.
4. Giant companies have a tendency to try to work around your patent by investigating and trying to invalidate your patent or look for weaknesses and ways to make the item without infringing it. Medium and small companies will be more interested in your invention’s profit potential and its effect on the marketplace.
The right size companies to target are ones that have 5 to 50 million in sales. These are usually the best. To find companies that meet the above criteria, start with your network of friends and business associates. Your close contacts just might know someone who is in the field of your interest. You might be surprised who knows who, when you ask around. With a few phone calls you might get the introduction you need with an instant referral. If this does not work, try looking in the local store outlets for manufacturers of products closely related to your invention, already on the store shelves.
This will tell you that these companies have a successful distribution and sales system in place. There are other sources to research such as the library for manufacture directories. Look first for companies close to home. The Thomas Register National Directory or Duns Million Dollar Directory are good sources to research manufacturers. Some of these may even be on the Internet. Also, check trade or hobby magazines for advertisements.
Once you have located an interested party to possibly license your invention, I strongly advise you to obtain the help of a competent attorney before agreeing to license terms or entering into any agreements. Many patent attorneys can also be good counsel for license issues but do your research and retain legal advice before you sign anything.
The other form of license arrangement opportunity is with the Electronic Retailing Industry which includes Television Shopping Channels, Infomercial Companies, and Direct Response Television, Multimedia Marketing and all of the service suppliers of this industry. For simplicity, I will refer to this industry as DRTV. In my opinion this is the best opportunity for a consumer type product. Licenses through DRTV typically will push a product into mass retail markets faster than any other form of license arrangement. A license arrangement through DRTV is uniquely different than the conventional license directly to a manufacture because DRTV partners are masters when it comes to product promotion through television media. This is their area of expertise and a successful TV campaign can turn a new and innovative product into a household name literally overnight. These marketers are by nature of their business, more likely to take risk more so than a manufacture. The other distinct difference between a license arrangement with a manufacture and the DRTV industry is that many DRTV companies are diversified in the promotion of many products and product categories, whereas the manufacturer may only market a few product categories and be only focused in one market.
For the right product, many DRTV companies are prepared to finance everything such as: Manufacturing – Television Promotion – Print Advertising – Credit Card Syndication – All Fulfillment Functions – Catalog Distribution – International Sales – Retail Distribution. However, they are very particular about the products they pick. If the product fits their criteria, and you have done your job in providing a well-prepared presentation, this could very well be your shot at big royalties and financial security.
The financial rewards of a joint venture partnership with a Direct Response Television company can be hugh in a relatively short period of time provided that the campaign is a success. A license arrangement with a DRTV partner depends largely on the product or service.
Many products do not fit the criteria for DRTV and should not be forced if the is not right and does not fit the general guidelines. Using TV as the advertising media for a product that is not suited for television almost always assures failure and a very expensive failure I might add. The categories of products that are pretty common to DRTV are as follows:
Automotive–Jewelry–Housewares–Electronics–Home Furnishings–Hobbycraft–Sporting Goods, Sports Memorabilia–Health&Fitness–Medical –Self-Improvement–Self-Development–Music–Entertainment–Pet Products–Gardening.
There are some basic rules and criteria used to evaluate potential products for DRTV which are provided as follows:
1. Margin
A product being considered for DRTV must meet a certain margin or mark up requirement. You must have an appropriate margin between your cost of goods and the retail price. Most direct response television advertisers work on a 5:1 margin. For example, your cost of goods for a $19.95 item sold on TV should be $4.00 or less. Selling a product on TV is quite expensive because of the cost of the media, telemarketing, merchant processing, etc. There has to be enough margin to support these cost.
2. Mass Market Appeal
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Television is a medium for everyone and without question the most powerful. Therefore, TV products must appeal to the largest possible market. Your product invention should appeal to large markets; niche markets usually do not work. Notice the products you have seen on TV. They are always products that have mass-market appeal.
3. Novelty
Not only must the product offer appeal to a broad-based market; it must have a unique selling proposition. Examples would be does the product fulfill a dream, make life easier, provide magical transformation, solve a problem common to most households and is easy to use, or offer immediate gratification. Prevention products usually do not work well on TV, example smoke alarms etc.
4. Value
The product must have a high-perceived value for the price you are asking. This can be the toughest rule to work with when you consider the margins that are required.
5. Price
The magic price range for impulse items is $19.95. If your product requires a price higher than $29.95, it is unlikely that your product will sell using one or two minute television commercials. If your price point is higher than what an impulse buyer will respond to, then your product will need an infomercial (28.5 minutes). If your product requires pricing which is higher than the magic impulse price of $19.95, your product had better lend itself well to high demonstration and testimonies. It is very hard say enough about a product in one or two minutes to create sufficient value in the customer’s mind.
6. Demonstration
The product must be explained in a story and be highly demonstrable. The demonstration must be dynamic and believable. If the product cannot be demonstrated and create enough perceived value, it probably is not right for TV merchandising.
If you feel your product fits most of the criteria for a TV product promotion, spend some time watching and taking notes of various different Short Form (2-minute commercials) and Infomercials. Write down things about the product being advertised, such as price, what types of channels it appears on, the demonstrations used and testimonies, and maybe most important, who the company is that is marketing the product. It will usually say who is marketing the product. If it does not, write down the phone number and call them and ask who is marketing the product. Most of the time the person taking the calls will tell you who the company is and how to reach them.
Ideally your product should have a patent because most DRTV partners will want exclusive rights to the product. They are usually not willing to risk large investments, on a product that is not patent protected. DRTV partners also prefer products that are not currently available to the public on a national level. This is usually not a problem because if you are seeking a license it is because you need the expertise of professionals to take your product nationally in the first place.
Overall, there is no better way to launch a new product than through television. The tremendous media exposure makes products very successful when place in retail outlets as well as after market catalogs. Typically, successful TV products generate 10 times more in retail sales than from TV sales.
Don’t Forget the Upsell
Have you ever noticed that without exception, direct response television marketers will make consumers a special offer when they call to order the feature product. Sometimes they offer the consumer a discount on additional items purchased, while others offer a savings on an attachment or related products. So don’t forget to think about the upsell items that can be offered with your product.
How to Find the Right DRTV Partner
The DRTV industry is a relatively small community of about 50 plus companies who specialize in short form (2-minute spots) and/or 30-minute infomercials. These companies vary in areas of specialty such as infomercial production, buying the airtime, marketing etc. The point is that the larger companies often times license the product from the inventor and coordinate all aspects of the product from manufacturing to marketing and everything in between. The not so large companies will sometimes create a joint venture among other companies to accomplish the same results.
The important thing to remember about considering a license arrangement in the DRTV industry is that they are always looking for new and innovative products to promote. They rely on new products to survive because without a steady supply of products to promote they have no business, period. On the other hand, manufacturing companies can sometimes get complacent and lazy and will not look for new products unless they are being threatened by serious competition. The beauty of DRTV is that they create the competition and a constant flow of new products.
When looking for a DRTV partner, remember that they are analyzing your product from the perspective of how well it will perform on the TV. We discussed earlier the importance of a quality presentation and product demonstration. A professionally done video obviously is your best sales tool to give the potential DRTV licensee the best impression.
Most companies in the DRTV industry know every one else and what they are doing. This is partially attributed to the organization that most DRTV companies are members of which is called NIMA International (National Infomercial Marketing Association). This organization was formed in 1990 by nine of the industry leaders in television marketing to ensure that all infomercials met the highest standards of excellence and credibility. Establishing the Marketing Guidelines and Self-Certification program has demonstrated that the industry was serious about policing itself. NIMA promotes the growth, development and acceptance of the $8.6 billion worldwide electronic retailing industry with a wide range of services.
Finding the right DRTV license partner is not that hard if your product fits the above-discussed criteria and you are prepared with the right tools of information. One of the best sources of information I discovered was a publication called the INFOMERCIAL MARKETING REPORT. They can be reached at (310) 472-5253 and if you call I bet they will send you a FREE sample issue to review.
This newsletter is published monthly and contains important information about what is going on in the electronic retailing industry, which infomercials are doing well and why, which ones have failed and why, important insider information about what works on TV and much more about the DRTV industry. This publication often includes interviews with top industry leaders explaining the success secrets. This newsletter is really a wealth of information.
Also the same people who publish the INFOMERCIAL MARKETING REPORT, put together a conference every year called “Sell Your Product on Television Treasure Hunt.” This conference is absolutely the best opportunity that an inventor has to get his product exposed to the world’s top television marketing giants all in one place. Some of the companies in attendance were Guthy-Renker, Home Shopping Network Direct, King World Direct, American Telecast just to name a few. I personally attended this event and was told before I left one of my meetings with a buyer, that they were very interested in my product and I would be getting a call on the following Monday to discuss the license details. Just like clock work, that same Monday following my return home form the conference, I began negotiations of a license agreement with one of the largest electronic retailing companies in the world,…was it worth the trip… you bet it was.
If your product meets the criteria that were earlier discussed and you have prepared a good presentation, this could very well be the chance of a lifetime. There is really no risk to you, because the buyers who meet with you are ready to provide all the financing–if you can provide them with the right product. All you need to do is negotiate the dollar amount that the product is purchased for –or let them handle everything and you get paid a royalty on every product sold.
An example of the powerful potential of this conference is the “TOTAL GYM”. You have maybe seen this infomercial on TV with Chuck Norris and Christie Brinkley. This product, at the time of this writing, has grossed over $60 million and still going. This product was discovered at the same TV TREASURE HUNT. As you can probably imagine, the royalties from this product are pretty good. The inventor of the “TOTAL GYM” is probably glad he attended the conference.
This conference is so intense and loaded with so much information, that you will be light years ahead of most people who are tinkering with inventions. The success of this unique opportunity is measured in solid agreements for 37% of all attendees. I might add that if you take my advise about attending the conference and the information sources that have been discussed, you will be prepared for immanent success, if you are persistent and don’t give up. Also your perspective of invention and marketing will also have been changed forever.
If you would like more information about the next Television Treasure Hunt, call
(310) 472-5253 and ask for more details or visit their web site at http://www.catalog.com/impulse/sellontv.htm
There are two more sources of valuable information I want to mention. The publishers of the INFOMERCIAL MARKETING REPORT also have something called the “Infomercial and Direct Response Television Sourcebook”. This publication contains a listing directory of all of the companies who are in the Infomercial/Direct Response Industry as well as important articles and insightful information about the industry.
The other publication that I have found to be very helpful is the “Response TV Directory of the DRTV Industry”. This magazine covers industry research and analysis, which is a report on infomercials that were monitored, top performing infomercials, top performing 2-minute spots, consumer buying trends in DRTV by year, the product categories that did the best, informative articles, Directory of the DRTV industry, and much more. Just call them at (714) 513-8400 and ask for a sample copy, they will send you a copy free.
I want to make something clear at this point. I do not receive one red penny from any of the above mentioned publishers or companies in the DRTV industry for promoting their service or product. I share this information with you because I personally have found these resources to be very valuable in locating the best licensing source for my own projects and the best sources of information to understand the industry and how it works.
The above mentioned sources of information are worth their weight in gold. If you think you currently have a product suited for TV promotion or if you are thinking about inventing something. Why not investigate into what the buying public wants and what categories of products are making the most money. Sure, I agree that inventing something can be the most rewarding feeling a person can have, but be smart about it. What is the point in spending lots of money on an invention that has little or no market potential.
By blending the personal satisfaction of invention with the potential of making obnoxious incomes that most people just dream about, to me, is the ultimate level of success.
The Licensing Process
Moving on to when you start receiving interest from companies who want to license your product. Make sure you retain an attorney that is knowledgeable about patent licensing, and better yet, an attorney who specializes in license agreements within the DRTV industry.
The license agreement for a DRTV product is a little different than a license with a manufacturer primarily because of the way business is done in the DRTV industry. One of the main differences with DRTV is that the company who agrees to license your product will most likely want exclusive worldwide rights.
The most obvious reason for this is because of the advertising media used to promote the product. Most successful DRTV companies have television contacts all over the world. The cost of media time is so expensive that any campaign targeted to a small geographic area will surely run into problems right from the beginning. For example, most TV product sales use a 2:1 media buy ratio. This means that for every $1.00 spent on media time, there has to be at least a $2.6 or higher product sale made. Believe or not, hugh profits are rare even with a successful TV campaign. The real objective of the DRTV campaign is to drive the product into mass retail. Consider that successful TV products generate 10 times more in retail sales than from TV sales.
This is why many TV campaigns make the majority of their money in retail after a successful TV promotion. If a DRTV company can break even on their TV advertising, it is considered a success.
Knowing that most DRTV license deals will require rights to exclusive worldwide distribution, it is usually smart to ask for a minimum performance clause. This can be accomplished by stating in the contract a minimum dollar amount you will receive on a yearly basis for them to retain exclusivity or it can be stated as a minimum number of product units sold on a yearly basis at an agreed percentage per unit. License agreements can be very lengthy and detailed while others sometimes are just a few pages. I have found that there is no such thing as a standard license agreement. They will differ from company to company. But be assured that the agreement they send you will be definitely written in their favor. It is important that your attorney review and consult you about all provisions of the agreement before signing anything. You will most likely have to negotiate with the licensee to get the agreement written so that it is comfortable to you.
They’re three basic areas of the agreement that address your primary objectives. They are as follows:
* Securing a Reasonable Royalty
* Recovering Patent Rights
* Minimizing Liability
Securing a Reasonable Royalty
Your financial expectations of received royalties through out the life of the agreement have to be reasonable. Keep in mind that the licensee will have to invest a substantial amount of money at the beginning, which is where most of the risk is assumed. If the product is not refined to the point of production readiness, you must give them time to coordinate manufacturing and sourcing. If molds or tooling cost are required, this will also require time and money. Then there is the production of the TV infomercial/short form spot, this takes time and money. Then the licensee will run a test airing. Keep in mind that the test airing usually will not make any profit. The test airing results will determine if a full-scale TV campaign is the next step.
The point being made here is even though you feel without question that your product is going to be a super success, in the mind of the licensee, they are still assuming a margin of risk until the test airing proves that the product has documented that it will be successful in a full scale TV campaign. Patience is important in the initial phases. I have known DRTV companies to back away from license deals because the licensor had unreasonable financial expectations or the licensor was just to hard to work with. So if you are offered a royalty percentage of between 3-5 percent of Adjusted Gross Revenues or Sales, this is the norm and don’t feel you are being sold short. Sometimes you may hear of people who receive upfront money with their license deal. I know this to be only the exception unless there is a bidding war among several companies for the same product, so do not count on any upfront money.
You may be wondering well how long does it take before you can expect royalty payments. It can take anywhere from 6 months to a year to see any money. The reason is that a TV product campaign takes a long time to coordinate all of the essential phases. But once the product starts making sales with the TV campaign, and the sales results determine that it is safe to expand the campaign, it is just a matter of time before your product goes to the home shopping channels and into retail and the royalties just keep rolling in.
Recovering Your Patent Rights if License has Problems
The license agreement should have provisions allowing you the ability to cleanly get your patent rights back, without strings attached, in the unfortunate event the licensor does not perform to the agreement or breaches the agreement in any way. It is always best to try and resolve any problems, but in the event that termination of the agreement is the only solution, you want the break away to be clean so that you can pursue a new license opportunity.
Minimizing Liability
You want to make sure the agreement does not contain language that specifies or implies that you are responsible, in any way, for the product or the actions of the licensee. The agreement will usually contain language about the licensee’s responsibility to ensure product quality, use of your Trade Mark (if there is one), and general marketing and product promotional conduct. The fact is, after you have licensed your invention to someone, you really have no control at this point and you hope there is not going to be any problems. Even if the licensee is complying completely with all of the contract provisions and is having great success is promoting the product, there is a chance that a consumer may decide to file against the company for possible injury or damages claimed to have been caused by the product. This remote chance is the reason you do not want to make any warranties or assume any liabilities if possible.
There will certainly been more discussion about the license agreement between you and the potential licensee, but the above mentioned areas are the ones that deserve close attention.
By the time you have been through all of the steps discussed to this point and have reached the stage of license discussions with your potential licensee, you will probably agree that this may have been the most challenging and interesting journey of your life and I hope the most rewarding.
I hope this information has provided some valuable guidance and information and I wish you great success with your inventions. Please post a comment if this helped you.
