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Million Dollar Baby: Licensing Terms to Protect Your Ideas

You have an idea, a million dollar invention! You have applied for and received a patent to protect that invention, but now what? One way to make money with your invention is to license your intellectual property rights to a third-party for production or use.

This license could define how your invention earns you money for years to come, so it is important to have a lawyer look over the contract before you sign. Should you, however, opt to draw up the contract yourself and have a lawyer simply review, consider focusing on these three issues: royalties, term and termination, and dispute resolution.

A key mistake made in negotiations is neglecting terms that detail how the royalty payments will be made. One important term to consider is how do you want the payments? Lump sum? Per unit? Per unit progressive or flat? Defining the royalty can help you as the licensee earn the profits you deserve. It could be used to get the money up-front to fund your next great idea or to ensure a minimum amount of money goes in your pocket each month. If the license is exclusive, minimum guarantees are a good way to put a floor on your earnings.

The second key issue is term and termination. How long will the contract last and what will happen when it is up? For instance, you may want a clause allowing you to terminate if sales fall below a certain amount of units, allowing you to seek a better deal. Or if you have worked in a minimum royalty for the year, you want to be sure the licensor cannot avoid that minimum payment by terminating the contract the day before it kicks in.

Finally, disagreements do happen from time to time. In the event you and the other party cannot work them out, it is important to have a well-defined dispute resolution process. Arbitration can be a useful tool to avoid the cost of discovery and trial and is helpful in settling limited, well-defined issues. However, arbitration can come with its own drawbacks and expenses. Be sure to fully understand all the pros and cons before agreeing to a particular form of dispute resolution.

Have an invention idea but are worried about protecting it? Contact a Foster Swift intellectual property attorney to help you work through these issues.

Categories: Intellectual Property, Licensing, Patents, Startup

Posted by: Cody Mott (Summer Associate)

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