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By J.D. Houvener
Patent Attorney and Founder

hi everyone I’m JD Houvener welcome to the bold Today Show review the inventor entrepreneur or business owner get your daily dose of inspiration to make the world a better place all right we’re here in our series talking about patent licensing and yesterday we talked about the first part right the first part of moving that transaction forward which is the upfront payment today we’re going to talk about the types of agreements that come to mind that are most familiar with people when they think about licensing and that’s royalties being received based on sales all right and before we get to that I want to ask I want to put a bold challenge out there for you as we listen to this series on patent licensing this is an essential part of the way you’re gonna be able to follow and track with this in your industry of course I’m thinking the industry that you’re moving forward with with your business or your inventions think hard about the top two to three players who are the big-name players out there in your market those are the think about the players that you wouldn’t mind if you couldn’t move for of your business but you wouldn’t mind licensing your invention to companies that you think are reputable that move the market have built-in supply chains already and you’d be proud to see your product being offered on their shelves once you identify those two two three that is that is a goal so put that in mind and put it into your business plan as a potential outcome for your innovation and think about that as we move forward and talk about royalties and putting a contract in place that might make you a lot of money over time let’s dig into it a little bit all right this is patent law or talking about licensing and even within licensing talking about the royalty agreements this is the section of the contract that talks about when you receive payments so there’s a few things to think about here if it’s being based on sales you’ve got to know that better there could be quite a bit of a lag time between when you actually complete the contract right give up your rights to either make you sell or import your invent to this other party the license or and when they actually sell it so make sure you put in there as we talked about yesterday an upfront lump sum whether it be cash or through stock or through stock warrants lots of different options but make sure that you get payments or these compensation right up front because there could be a long time of written further research and development it could be quite a bit of time between when it gets manufactured tested it’s any government regulation as with pharmaceuticals for example that’s when it actually gets into consumers hands and the license or receives compensation so put that timeline in place and make sure you’re considering all of that with your business analysis when you do your contract now let’s talk about what is what sales mean you can’t just say sales in the contract you’ve got to put the other terms such as net sales or gross sales now gross sales based on gross receipts is the easiest way to do it that means that there’s no funny business there’s no accounting or bookkeeping going on it’s truly the amount of money that they receive from compensating others with their goods right if you pay two dollars for a can of soda the gross receipts for that company has two dollars right there’s nothing else to think about now if you’re looking at net sales he gets a whole lot more confusing because you’ve got to subtract out things like operation taxes excise tax use tax any tariffs that are on the product this could include you know things like you know insurance or shipping fees distribution lots of things that could come in to add on to make up the cost of doing business so my recommendation if you want to keep it simple base your royalty on gross receipts not net this is going to provide you the the easiest way to calculate and forecast what your cash flow will look like all right the next major section of royalties is of course when the payments will be coming in the installment period as as most licensees are looking for more frequent the better you can want to be able to generate this sort of steady stream of income just like you would for any other investment much like a rental property or even outflow from an annuity from a retirement account it’s having good expectation be able to build that into your cash flow management you know with its every year or even once a quarter the amounts can tend to spike and have been flow and it’s hard to predict when those amounts are coming in further it’s harder to deal with when it comes to filing taxes so I’ll send then look for higher frequencies with royalty and think about net payment they want net sales when you’re looking at royalty contract terms as you can tell we’ve just kind of scratched the surface of this clause and of course just scratching the surface of the whole License Agreement as a whole it’s important to have an attorney especially a patent attorney that can understand that nuances of the technology as you begin to craft your license agreement so please get ahold of us if you have any further questions about your potential technology and how you might license it or any other question related a patent law we’d be happy to chat our website is that bold patents calm and feel free to book a free 30-minute consultation we’d love to chat I’m your host JD Houvener of the bold today show have a great day go big go bull


About the Author
J.D. Houvener is a Registered USPTO Patent Attorney who has a strong interest in helping entrepreneurs and businesses thrive. J.D. leverages his technical background in engineering and experience in the aerospace industry to provide businesses with a unique perspective on their patent needs. He works with clients who are serious about investing in their intellectual assets and provides counsel on how to capitalize their patents in the market. If you have any questions regarding this article or patents in general, consider contacting J.D. at