By Mike Drummond
Roger Brown licensed his first invention from the trunk of his car.
In a scene out of Casino or a James Bond film, he demonstrated his Super Sleever to a couple of officials from Bartlett Nuclear Inc. in a covered parking garage.
“There we were,” Brown recalls, “three guys in business suits standing around the trunk of a car with a device that looks like a rocket launcher.”
Brown developed the Super Sleever for his employer, the Westinghouse Savannah River Corp. The massive nuclear facility along the South Carolina/Georgia border requires protective plastic sleeves on hoses, pipes and other materials used in contaminated areas.
Slipping sleeves on hoses and the like typically took two people up to 10 hours.
Brown’s device, a metal tube housing hundreds of feet of coiled plastic sleeve, envelopes hose as fast as it can pulled through the Super Sleever. His invention saved the company $4 million and reduced waste by 90% annually.
With the go-ahead from Westinghouse, Brown sought licensing opportunities with others in the nuclear industry. Bartlett was first. In 2001, it inked a licensing deal, of which Brown got 25%. The Super Sleever has been used at more than a dozen Department of Energy nuclear facilities since.
Over the past decade, the former comic book writer-turned serial inventor has licensed at least nine products, from toys to kitchen gadgets.
And he’s done so without ever filing for a patent – heresy among some seasoned professionals in the industry.
Getting a new product licensed to a company represents the ultimate goal for many inventors. A licensing deal entails far less financial risk for inventors and frees them to move on to their next great idea while collecting royalty checks – mailbox money in the language of the business.
The downside, of course, is that the financial rewards typically are not as great compared to developing, manufacturing, marketing and selling a new product on your own.
Brown’s licensed products include the Pebble Peeler vegetable peeler, Pizza Scissors, Knockout Hockey, Power Pitch Horseshoes and the Quick Clip sunglasses holder. He has two more products slated to hit store shelves this year.
He’s landed all his licensing deals spending less than $100 on each item – some for as little as $8.
Of course, that doesn’t account for the time he takes to research. He walks store aisles. He scours the Internet. He talks to consumers. He determines how big the market is for a particular product. He figures how his invention would complement a company’s existing product line. He does his homework.
“I go into stores and see what products are taking up the most shelf space,” Brown says. “And then I look to what’s right next to them. The makers of those products are hungry for that type of shelf space.
“I like approaching small- and medium-sized companies,” he adds. “I can talk to the CEO without a lot of hassle. You can’t do that with a Mattel without a toy agent and a lot of bureaucracy.”
Targeting smaller manufacturers and retailers has other benefits. Chain stores, for instance, don’t want single stock-keeping units or SKUs – they want product lines.
Moreover, with a smaller company, your product’s shelf-life is longer; as much as six to eight years, compared with one to two for a larger company, Brown notes.
And then there is the issue of sales. For a major toymaker, say, sales of 500,000 units is a failure.
“With a smaller company, selling 500,000 units would make mine their flagship product and they’d be less likely to drop me.”
The secret to Brown’s success is the sell sheet – a single 8.5 x 11-inch sheet of paper that clearly and concisely shows what the product does and how it will benefit the targeted company and consumer.
Brown advises picking the right company and using professional photos.
“Use a picture,” he says. “It tells more than text in less space. More is not better. More adds confusion.
“I tell inventors, ‘Would you rather read a pamphlet or a novel to grasp an idea?’ If you can’t explain it quickly, how do you expect the consumer to understand it?”
Few would argue with Brown’s position on brevity. However, his position on the need for a patent is a point of contention among some in the inventing industry.
Brown is in the don’t-need-a-patent camp. He says companies he deals with offer licensing royalties between 3% and 5%, patent or no.
He notes that if he were to have filed for a provisional patent application on the 240+ products he’s pitched, he’d be looking at more than $24,000 in application fees alone.
“I know of companies that say they won’t look at something without a patent,” he says. “I don’t deal with those. There are enough companies out there that don’t require patents.”
Joan Lefkowitz, president of Accessory Brainstorms Inc., a New York-based licensing, marketing and sales representation agency for fashion, beauty and lifestyle inventions, disagrees.
She only represents inventors whose products have at least a patent pending and a working prototype.
From an independent inventor’s standpoint, the best scenario to license an invention is with an issued utility patent, Lefkowitz says. The second-best is with a patent pending.
“I have found that most potential licensees are willing to consider licensing a patent-pending product, but the inventor will receive a lower royalty percentage until the patent is issued,” she says. “If during the licensing period the patent is denied, the licensee ordinarily has the right to drop the product.”
Chris Clark, vice president and general counsel at product-development and commercialization company Edison Nation, a sister business of Inventors Digest, says, “Having a patent is the easiest and cleanest and usually simplest way to benefit financially from an invention.”
Clark notes that because “most licenses are giving the licensee permission to do something, the grant of rights in a license should be for something that the licensee could not legally do without a license.”
In other words, a patent identifies a product as having unique characteristics, making the product potentially more valuable.
A patent also is an official stamp signifying that a product works and adds a degree of certainty. This sort of comfort zone can help when crafting licensing deals.
Clark and others say an emerging trend is creative, flexible licensing agreements.
“I am seeing fewer and fewer boilerplate deals done on form contracts and more innovative deals done,” he says.
These include contracts with escalating and de-escalating royalty rates, minimum sales targets, buy-back provisions, profit sharing, joint venture-type provisions and multi-party deals.
Flexible licensing deals is one of Lefkowitz’s “hot button” topics. She abhors exclusive agreements.
“Exclusive licenses are for marriages,” she says.
Instead, inventors should acquire multiple licenses and/or agree to limited exclusive deals.
A license can be exclusive in a particular geographic area or manufactured for a specific segment such as youth or women.
Another way to segment the market and leave the invention open to multiple licenses: Allows sales to specific market sectors such as department stores or large drugstore chains.
Lefkowitz cites Bumpits, a hair-poofing or “volumizing” product. Inventor Kelly Fitzpatrick crafted a deal that gave her selling rights to beauty supply and junior chain stores, while giving infomercial sponsors exclusivity in all other markets.
But Wait! There’s More!
The direct response television or infomercial industry offers an ideal space for many independent inventors to license their products.
Media billings for short-form DRTV spots – 15 to 120 seconds – dropped 10% in the third quarter of 2010 compared with the same time in 2009. Short-form spending topped out at $9.7 million, the ninth-consecutive quarter of decline, according to figures reported in Response Magazine.
Although the DRTV market has fallen on hard times, it still has a voracious appetite for new, low-cost consumer products.
And product, to cite the cliché, is king.
In the fast-paced world of infomercials, speed to marketplace tends to take precedence over patents, which can be a speed bump, says Earl Pardo, partner at infomercial company Media Corp. in Overland, Kan.
A big seller recently has been the Magic Mesh, an easy-to-install screen partition for backdoors that Media Corp. licensed from a small company in Australia. Magic Mesh has no patent and, in fact, had been selling in catalogs for years, Pardo says.
Indeed, more important than intellectual property is whether a product already as a sales history, Pardo says.
Has your invention sold in catalogs, the Internet, shopping networks or tradeshows? If so, that demonstrates consumers have an interest in your product – and so may DRTV companies.
Another major consideration: margins. DRTV companies prefer to see multiples of five, meaning they can sell your product for five times what it costs to manufacture it.
These numbers are a part of business reality. Pardo and others say that too often, even seasoned inventors harbor unrealistic expectations when it comes to royalty rates.
Most licensing royalty rates are 2% to 5%.
“One of the biggest mistakes inventors make is getting afraid of a licensing deal because they hear 2-5%,” Pardo says. “They don’t understand that even 1% of an As Seen On TV product is worth hundreds of thousands of dollars.”
Companies that license take on the risk of manufacturing, quality control, distribution, marketing and inventory, among other things.
To test a product on DRTV can cost $50,000. If the product doesn’t test well in these limited TV runs, then the inventor typically gets the product back. But the DRTV company is still out the fifty grand.
Moreover, TV sales are not the real moneymakers, Pardo adds. The real money comes from landing space on retail shelves.
“We’re losing money on the TV side to create awareness on the retail-distribution side,” he says.
Even a successful DRTV run doesn’t guarantee retail success. The Jupiter Jack mobile phone device did well on TV, but didn’t when it hit the retail channel.
And in that case, “we have to take that product back,” Pardo says, “or mark it down.”
The same hot passion that drives inventors to invent can also blind them to stone-cold market and business realities.
Chris Clark, the VP from Edison Nation, says he confronts this almost daily. While more companies are looking for new products, so too are more inventors trying to get their inventions to those companies. The consumer market is crowded. The competition is intense.
Clark recalls a recent conversation he had with an executive from a major toy manufacturer.
“He told me, ‘Inventors don’t realize how not unique their inventions are.”
Editor’s note: This article appears in the September 2011 print edition.
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