Asking for advice here, selling an idea

[lendaddy]

Our company developed a piece of equipment which we use in everyday operations. It works well for a certain niche of work. The worlds largest manufacturer of this type of equipment is interested in it. They would prefer to "own" the patent and pay us a commision on each sale. They are talking 10% of sales price on each piece sold ($25-35K meaning our end is $2,500 on up). Now some here would like to make the equipment here and use the afformentioned company for sales and distribution. They have agreed to do this either way. The problem is we have never built nor supported any equipment meant for sale to the public. We have built hundreds of machines but only for our use. This thing in its current state is not ready for sale, it needs its corners smoothed out if you will. We have no prints etc... We are not talking about a huge volume of sales here, maybe 2-10 units a year but who knows. We have one person here with the training to build this thing (my brother) and his time is already thin. I lean toward taking the money and asking for maybe $10k upfront to cover initial development costs. I believe the sucess of this piece will be much better if this huge and respected company throws its resources at it to get to market faster and in greater saturation, then we simply collect a check. Am I being short sighted? Oh yea, all they want for our 10%, is to come in and look at our unit and have us sign off on the patent. Seems like a great deal to me. I have known these people for 4 years and they have never been anything less than honest in the past. If we build it, there is potentially more money, but again we have never done this. Anyone ever been through something like this, if so what are your afterthoughts? Thanks.

[id10t]

Get a lawyer. That being said, IANAL, but your co. should retain copyright/patent/etc. and license production of your gidget to the other company.

[Doug Zielke]

First, read a biography of Nicola Tesla.

[speeder]

Lendaddy, What business are you guys in? How complicated is it to build the invention? Is it something that requires a lot of engineering to be reliable/durable?

Sounds like it could be a great revenue source for your company depending on the answers to the above questions. Since you and your brother are already stretched thin, would the invention+patent be worth hiring a new employee, (engineer), for? (If you guys are that busy, maybe new hire could do other things as well so that you 2 can go to Hawaii more often w/ the invention $$).

[911pcars]

I think many would agree that having a product is one thing and marketing, selling and supporting it is another; they are mutually exclusive and have an impact on the success of the product. Can your company do it all? You might have to balance your equation by the number and ease of contacting prospective customers. Looks like 10 units/year? That's $250,000/year minus manufacturing, support staff, advertising, training, marketing and all that. You can always hire consultants to assist the start up phase or even study other potential market(s). OTOH, collecting the small sales commission is easy and safe. Like it10d suggested, retain the patent and license the rights to the big company; yeah, and get a lawyer experienced in this area.

Sherwood

[Aurel]

My ex-boss who has been very succesful in licensing a battery technology used the following conditions: we retained patent rights, charged an upfront licensing fee, and got royalties on each unit sold. It is good to get upfront cash mixed with an interest in the production. In our case, there were many companies interested in this group of patents, so he redid the same trick several times. You should study how much the company can make with your patent, and negotiate your upfront fee accordingly. See if it could interest other companies, in which case you should retain licensing rights. You don`t want the company you are dealing with go resell your invention !

Aurel

[nostatic]

Talk to an IP attorney...not a typical corporate counsel type but someone that specialized in intellectual property (if you need some names, I can get you some). If you don't do this right, you'll be hosed. Forever.

[dtw]

In any case I'd recommend retaining rights to the IP.

That said, get some lawyers and/or accountants to evaluate which income stream is optimal - keep in mind that sales price versus overhead and variable costs on producing and servicing the machines may or may not be profitable - the 10% license fee from outsourcing the production 'could' be a better deal. Keeping even a well-managed inventory on-hand to feed production, could tie up the company's assets to a signifant degree. Also consider that producing the machine in-house would divert other resources (people, space, equipment, etc.) away from your core business (and presumably core revenue generators). Also make sure to examine any potential differences in tax treatment between the two scenarios. Get a scenario analysis and examine them in the context of what your organization's goals are.

[lendaddy]

Great information here guys. There are so many dynamics at work here that it is pointless to try and get them across in a post. That being said, even with the limited info I gave you guys really helped out. I will keep you updated and thanks again.

[vash]

can i refer you to, IMHO the hardest working patent attorney on the planet? i wil PM you.

[RickM]

What Aurel and Dave said....