The royal treatment – ty – patent license royalties – Direct Line – Brief Article
A patent is pending on my food-product invention, and more than one private-label business has expressed great interest in buying the licensing rights.
What can I expect in terms of licensing royalties as I negotiate with these businesses?
C. V., Farmingdale, N.Y. Several licensing experts say it’s tough to advise you without having detailed knowledge of your product and the prospective licensees you’re dealing with.
However, John Wiedemann, a Cleveland patent attorney, offered a few issues for you to consider before taking your place at the negotiating table–preferably with an attorney who would represent your interests.
He says royalties for a licenser are often around 25 percent of the profit a licensee can expect as a result of using the patented invention.
So, let’s say you have developed a way of making a better-tasting hot dog and that you and a licensee agree that using your patented approach will increase the profit on each hot dog sold by 10 cents.
Following Wiedemann’s rule of thumb, you might negotiate for royalties of 2.5 cents on each hot dog the licensee sells.
Whether you can expect more or less than that percentage depends on many factors, Wiedemann says. One crucial issue is whether your invention is perceived as an earthshaking development by players in the industry who might take advantage of it, or whether it is viewed simply as a small step forward.
Another common issue that can affect the value of the deal is your willingness to give a licensee exclusive rights to use your invention.
%u have to look at all the different business ramifications of granting the license,” says Wiedemann, an attorney with the firm of Calfee, Halter, and Griswald.
He also suggests that you consider these matters:
* If you give a manufacturer exclusive rights to your invention, make sure the contract provides for an annual minimum royalty payment. If a licensee has a bad sales year, you still would receive some financial benefit from your invention.
* If you’re dealing with manufacturers in a specific industry, find out how deals between licensers and licensees in that industry are usually structured. An industry norm can provide insights into what you can expect.
* Require any licensee to include your patent number on the product. If a third party were to steal your idea after seeing your licensee’s product, the presence of the patent number would help your case if you sued for damages for patent infringement, Wiedemann says. Without the patent number, you likely could collect only damages that applied to the time after you filed your lawsuit, he says, because the suit would be regarded as the first “official notice” of patent infringement to the other party.
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