Patent Attorney and Founder
Hi everyone, I’m J.D. Houvener, your host of the Bold Today’s Show. We’re here with the inventor, entrepreneur, business owner, getting your daily dose of inspiration to make the world a better place. Happy Friday, everybody. We’ve made it to the end of our five-part series about patent licensing, and this is about negotiating royalty rates. This is the fun part; this is where the rubber meets the road, and your patent attorney, your advocate, gets to step into the ring and negotiate the best terms possible for you, the licensee or licensor, in getting that best deal.
I want to talk today about what those terms are. Before we get to that, I want to hear from you about negotiation, and this is one of those things that sometimes comes naturally to some people. Some people just, it just kind of makes you feel awkward, and you just hate to ask. If you’re the kind of person, you know that loves to go to garage sales, for example, and always likes to kind of barter, tell us about that, but not the garage sale. Tell us about your most recent experience negotiating in business and what are some of the tips you have. We all, including me, can learn from each other. So put in the comments below if you’ve got the guts, share with us some of your negotiation tactics.
Alright, so today we’re talking about the royalty negotiation, right? This is the biggest part of the contract; this is what every inventor thinks about. How much money am I gonna get? What’s my percentage rate in the contract? Well, it’s not just about pulling a number out of the air, right? It’s about putting together a discernment over what the terms are. What is it you’re giving up? Or the scope of information, the ability for that licensee, what are they really getting in exchange for the money?
Some key terms will make up a lot to do with what the patent will be, but there are some high-level guidance. In general, more mechanical and simple inventions will warrant a lower rate than a safe pharmaceutical invention or a computer science software invention. That’s only to say that because of the general tendency and the ease of being able to get an invention granted through the Patent Office, it’s much easier with a mechanical or manufacturing method than it is to get a new pharmaceutical or a computer science business method through the Patent Office. So, those two we can kind of give you a nice high level summary.
But beyond that, looking much more into the details, what’s going to make a difference in terms of the rate you’re gonna get? Okay, number one, the strength of the patent or how strong is your patent? The claims themselves, are they valid? Do you have an opinion from an attorney that definitively outlines in today’s law that your claims are valid? That boosts the strength of the patent and it’s going to bring a higher percentage of royalty.
Number two, the scope of the claims. How broad is your invention? You could have the most bulletproof valid claims, but it could be just to the type of coating on a nut fastener. Okay, well, the breadth of claim there would be quite narrow and thus the percentage of royalty quite small.
Number three, is it exclusive or non-exclusive? What’s the type of right being given? Is this person going to be the only person in the world that has the ability to make and sell this invention? That makes a huge difference in terms of how much percentage you’re gonna get back as a licensee.
Number four, the territorial extent. How big, right? Are they able to what geographic area will they be able to sell to? Are you limiting their rights to sell just to the US or are you allowing them to sell in the whole world? How you give that license right will depend, of course, on how much money you get back in return of your royalty.
Last but not least, there’s a susceptibility to design around. This is a little bit of a gray criteria, but it means, you know, how many competitors are there in the market? And one of the products out there on the market, is this just an improvement over a current existing product, or is there’s a completely different game-changing technology? Again, this will weigh in very heavily in terms of how much royalty you get in return for your license agreement.
That’s how you negotiate, is making sure you break down the agreement into logical steps in terms of how much marketability this invention is going to have. Having a patent attorney by your side is key, and making sure you have a lot of your questions answered upfront is also important to us. So please visit our website at boldIP.com. There you can be able to find good information about the patent law system and about licensing, particularly. If you still have questions, I want you to book a free 30-minute consultation to get all your answers, all your questions answered, and then bring forward anything else you have questions about. Excited to hear from you. I’m your host J.D. Houvener and hope you all have a wonderful weekend ahead. Go big, go bold.