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Preparing To Get a Patent

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After filing for your patent (s) you need to organize your business. This is important to prepare for the inevitable conflicts you will have over patent infringement. Large businesses strengths are their marketing organizations and their deep pockets. Both give them an advantage over you if they decide to infringe your ideas. You need to neutralize that advantage. I recommend that you form one or more corporations to shield your assets from any attack a well healed infringer might launch. Being well shielded from attack is a big deterrent that often will keep your adversary from launching one in the first place.

I believe it is best to hold patents in your own name rather then assigning them to your company. You should form a corporation whose purpose is to market the inventions. Have a contract that licenses the right to market the patents and any products created on a non-exclusive basis to your marketing corporation. This contract needs to specifically state that it is not transferable to new ownership of the corporation and that it is renewable at six month or one year intervals at the licensor's sole discretion. The purpose of the contract is to create a situation where a judgment against your marketing corporation is worthless because the right to market the invention is not transferable. This approach reserves the right for you to license the patent to others if your first corporation comes under attack by an infringer or for any other situation such as product liability.

The purpose of the corporation is to shield you and your patents from a company that has deep pockets and tries to break you with harassing litigation. Your marketing corporation should have minimal assets. You must operate the corporation precisely as proscribed by federal and state laws. This means that all the necessary meetings and paper work must be done in the manner dictated by laws where your corporation is formed for it to limit your liability.

If you have other substantial assets you should consider putting them in their own corporations. In my case I have a laboratory in which I develop product and a farm where each is separately incorporated. Also consider having ownership held jointly if you are in a secure marriage. Your spouse should not be active in the corporate operation to prevent your opponent from suing them. In many cases judgments may not be executed against jointly held property until it is liquidated.

I would strongly recommend that you establish a relationship with a good CPA, a general business background attorney, and one or more patent attorneys early on in your quest to become a professional inventor. Patent attorneys come in two basic flavors, one type excels at filing patents and the other at dealing with infringers. I strongly recommend that you locate a litigator that works on a contingency basis and show him your patents before you start marketing. Having a contingency litigator available will deter infringers. You should also establish a business activity that will supply cash flow and sustain you during your effort to license your patents. Expect to work at licensing at least one to three years before you sign up your first licensee.

You can manufacture and market your idea yourself while the patent is pending. Some company's will not license a patent until it is granted. If you chose not to manufacture and market the idea yourself then you will probably have to wait until the patent office grants the patent.

There are four basic marketing strategies.
1) Manufacture and market the product exclusively yourself.
2) Grant an exclusive license to one party.
3) Sell the patent outright.
4) Grant non-exclusive licenses to any party.

If your patent gives you a lock on a large market number 1 or 2 will encourage other companies to infringe and or attempt to invalidate your patent. It may be necessary to grant an exclusive license if a significant startup investment is required to bring the idea to market. Outright sale removes most the burden of defending the patent but could result in dramatically less income for you if the patent is very successful. You can still be charged with inequitable conduct and dragged into litigation even after you have sold the patent.

Non-exclusive licenses remove much of the market pressure to get around the patent and ensures that you are compensated proportionate to the success of the patent's idea. In most cases a non-exclusive license is most profitable for the inventor and therefore the best method of marketing your idea. One other consideration is that income from an exclusive license that is properly drafted may qualify as long term capital gain resulting in lower taxes.

Producing product yourself is often more profitable then licensing. It may be necessary to produce a product to prime the market if it is a new technology. Promoting a product yourself will help to generate interest by potential licensee's. One drawback to producing product yourself is that the demands of running a business may leave you little time to create new inventions. I often joke about the fact that I don't own the business, it owns me.

Many people who get a patent expect money to start flowing without any additional effort. It doesn't work that way. Getting a patent is only 10% to 25% of the job; now you must market your idea. Marketing takes more effort than getting the patent. You must identify companies that would have an interest in your idea, and you must identify the proper person to approach within each organization. Sending a blind letter is usually wasted effort.

One good resource for inventors which stands out for it's coverage of marketing and business issues is TEN Online (www.tenonline.org) InventorWorld, founded by Bill Nasset is another good resource. Mr. Nasset does a great job marketing his own patents and since marketing is a larger effort than getting the patent it behooves all inventors to study good examples like Mr. Nasset. You may reach him at 3923 Lancaster Drive, NE #5, Salem, OR 97305, (503) 391-4464 or for orders only (800) 789-6335, Fax (503) 391-4887, InventorWorld.

Marketing Your Invention by Thomas Mosley available from Upstart Publishing 155 N. Wacker Drive, Chicago. IL 60606 $21.95 (800) 235-8866, (312) 836-4400, fax (312) 836-1021 is recommended reading. Yet another good book is "Will It Sell" (http://www.willitsell.com/) by James E. White. An excellent source for all books about inventing is Inventors Bookstore http://www.inventorhelp.com .

If you don't have the necessary market background you should consider hiring someone that is knowledgeable in that market. Make sure you have them sign a contract that protects your idea from theft and forbids them from disclosing the information to any other parties. Check the Caution page before sending you money to any marketing company.

The next step is finding a market for your patent. This is where you will discover which companies are reputable and which are not. At least half will fit into the disreputable category. Make sure you create a clear paper trail of all your contact with each person of every company that you attempt to license or sell product.

The paper trail should take the form of personal notes, followup letters, and tapes of telephone contacts and meetings where such is legal. See http://www.rcfp.org/taping/index.html for a reporters guide to taping.

Try to get them to sign a nondisclosure agreement before you divulge much information. If they are honest this won't bother them. If their honesty is marginal it will show them you are serious and may deter them from trying to steal your ideas. If they do steal, the documentation will make a much better case and it is much more likely they will settle out of court. If they don't settle it makes your chances of winning much higher. A clear paper trail will make an attorney much more likely to handle your case on a contingency basis.

A patent requires a long term commitment. Be ready to invest years, thousands of man hours, and thousands of dollars to successfully bring your idea to market. Don't get discouraged; all worthwhile things in life require perseverance.

Revision 15
Excerpted from revision 14 of Acquiring & Defending Patents, the 9th draft was published in PCIM - Dec 94

Copyright 1994 - 2000 by Ronald J. Riley

 

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