Patent Development Corporation of America
License Review Process
Our review process includes several steps to ensure that the opportunity falls within PDCA's area of technology and scientific focus and strategic direction, with the goal of establishing a mutually-beneficial partnership with your company.
In the screening phase of our evaluation, the details of the opportunity are reviewed to determine if your proposal complements our principal businesses.
The opportunity is then sent to key internal experts for assessment of the technology and, as appropriate, commercial potential before contacting you with next steps.
If a strategic fit is recognized and is championed by the technology, scientific and commercial organizations, the opportunity is fully explored via due diligence to determine if a mutually-agreeable partnership can be formed.
Discussions and negotiations then take place to determine appropriate terms for the proposed venture and, after contract negotiations and finalization, deal closure and integration planning occurs.
Ultimately, a mutual vision of the partnership is reached and commences according to the executed licensing agreement.
Licensing
Product licensing, when done right, can indeed lead to fast new profits for both the Licensee (a marketing or manufacturing company) and the Licensor (an inventor or product developer). By saving the time, energy and expense of research and development, and envisioning new products while shepherding them through the initial stages of realization, licensing allows the manufacturer to acquire innovative items and bring them to market more quickly than otherwise possible. Resources that would have been spent on early stage development are now available to maximize marketing and advertising efforts and to stake out and solidify market share ahead of competitors.
For the product developer, licensing to an established firm greatly compresses the time required to realize a return on investment. By taking advantage of an existing company's marketing clout, manufacturing capability and distribution system, the independent product developer can continue to focus on what he or she does best, i.e. product innovation. The best licensing agreements are therefore, strategic alliances wherein each party contributes its strengths and sidesteps its weaknesses, leading to faster and more certain profits for all concerned.
In many regards, it's quite similar to leasing wherein a company acquires the right to hold and make use of any asset that will contribute to the company's bottom line. This is sometimes referred to as "technology transfer", "patent licensing", or "intellectual property licensing". The basic arrangement is quite simple. One party, an inventor, patent holder or product development firm, owns and controls the rights to a new, improved or innovative product or invention.
A second party, perhaps a consumer goods company, wishes to add the item to their own product line. The company's assessment is that this new item will be a profitable one for whomever brings it to market. So rather than making the often uncertain investment in developing a new product of equal potential, or risk having a competitor acquire the innovative item and bring it to market, the firm opts to secure rights to the products at its current, advanced stage of development. Licensing is the means by which this is accomplished. Through a formal, contractual arrangement, called a "licensing agreement", the owner of the property (product, invention or innovation), grants to the company the right to manufacture, market and profit from the product or invention. Such arrangements are common. Moreover, while there are great many variations from one agreement to the next, a few principles are generally accepted across the board. Since the company acquiring the rights will ultimately make a far greater dollar investment to manufacture and market the product than the inventor made in developing it, the company will retain the lion's share of any profits generated.
A loose rule-of-thumb states that in addition to an acquisition fee (upfront payment), royalty payments to the developer should equal roughly 5-8% of profits, which, depending on the specifics of the product, translates to a royalty rate of anywhere from 15% to 20% of invoiced selling price. Normally the less developed the product, the less royalty the inventor is entitled to, and visa versa. The larger the geographic territory or number of distribution channels included in an agreement, the more royalty the company should pay, and visa versa.
The best agreements are cooperative, not adversarial. Each party is making a critical contribution. Maintaining a respectful and trusting relationship paves the way for other, equally profitable agreements in the future. Some companies, once they have successfully worked with a product developer, will actually "order" new inventions from that developer by discussing the parameters of the types of products they would like to acquire. Such an arrangement essentially provides a low cost R&D department for the company, while providing the inventor with an almost guaranteed outlet for his or her innovations.
Why should a successful company pay a royalty and probably up-front fee as well, to acquire the "rights" to an unproven product? Good question - simple answer. Because all companies need new products, be they extensions of current product lines or new items targeted to existing markets in order to stay competitive and profitable. In many cases, licensing can be the easiest, fastest and least expensive way to acquire these products. "Business has only two basic functions - marketing and innovation."
Both functions have the express purpose of generating sales, cash flow and ultimately profitability, the final measure of value for the owners of any business declines. While most businesses are fairly good at marketing, far fewer have mastered the intricacies of innovation. The reality is that management's time and efforts are primarily occupied by operational functions. Every business owner or executive knows they need new products, but they seldom find the time to address this all important issue.
The downsizing and restructuring of American business over the last two decades has left very few small or mid-sized firms with anything resembling a realistic R&D department. So the new products that a company brings to market, are usually the result of either a long and drawn out development process, often punctuated by numerous dead ends and false starts, or are acquired from sources outside the company. The benefits of taking the latter approach, particularly through the utilization of a licensing agreement, can be substantial.
Executives are left to handle that which they do best. The company no longer wastes time and financial resources trying to come up with next year's exciting new product. Instead, the company that lets it be known that they are open to licensing new products, now has at its disposal, the entire universe of independent product developers. Upfront payments for most licensed products are far less than most companies would spend to have even a single employee R&D department. Royalties are no more than revenue sharing - after the sale is made. After all, when a business partner provides an opportunity to generate income that a company would not otherwise have, paying out a small percentage of those revenues to the partner is just smart business.
The major components of a licensing agreement are:
1. The Product Description - describing the product and affirming the Licensor's ownership and right to convey.
2. Grant - wherein the Licensor (inventor/product developer/owner) grants certain rights to the Licensee. The grant typically specifies both the territory (ex. Worldwide, North America, Europe, east of the Mississippi, Florida) and the right granted (to make, to use and/or sell). In some situations, one company may be given a right to manufacture and another given the right to market.
3. Consideration - what upfront monies will be paid and the ongoing royalty rate payable to the Licensor.
4. Term - the length of the agreement, which could be for as little as three or four years, for the term of the patent, or for as long as the company continues to manufacture and market the product.
5. Warrants and Obligations - defines the ongoing responsibilities and contributions of both Licensor and Licensee.
6. Records - giving the Licensor access to company records, only as they pertain to the agreement.
7. Termination - discusses the conditions under which the agreement may or will be terminated. Any of these standard clauses may be called by a different name or contain other terms not included above. Also, there will likely be numerous additional clauses, covering such things as product quality, minimum royalties, product liability, assignments, severability, jurisdiction, etc.
Licensing agreements are like any other type of business arrangement. There are many ways to accomplish the desired objectives, and everything is subject to negotiation. The key is that successful licensing agreements are predicated on both parties benefiting from the relationship. As long as all concerned proceed in a professional and respectful manner, a well-structured agreement should be easy to administer and profitable for both parties. The advantages of acquiring either a product or a partner to manufacture and market far outweigh any possible drawbacks to going at it alone - especially when your product line needs a fast infusion or innovation, or your invention needs entree to the marketplace.
Many of the most successful products in history, from MonopolyŽ, to GatoradeŽ, to the zip lock plastic bags, were licensed by an inventor for a company that wanted to expand its market share and its profitability. This same synergy can be yours too, just as soon as you secure the right licensing agreement.
Manufacturer Benefits
Speed - cuts product development time significantly and allows a company to acquire new products further along in the normal product development cycle. Savings - transfers the burden and expense of funding and maintaining an in-house product development effort to outside sources. Selection - companies receptive to licensing from independent inventors and product developers will see far more product concepts than they could generate internally.
Inventor Benefits
Money - provides the financial muscle that any new product needs to be manufactured and marketed, a capability the inventor may not otherwise be able to provide. Expertise - connects the inventor with post development expertise, such as packaging, distribution, advertising, etc., critical to the success of the product. Markets - takes the invention to market, the final proving ground, wherein the inventor's concept has a chance to prove its worth and generate the desired and sought after profits for all concerned. A well-structured licensing agreement represents the best in win-win business thinking. For the company or inventor, yet to avail themselves of this unique form of joint venture, it presents a wonderful opportunity to generate revenues that might otherwise not be part of either party's income picture.
Thank You,
Tony
D. Anthony Bright / CEO / Founder [About the Founder]
PDCA Holdings, LLC
2765 Michigan Ave Rd
Cleveland TN 37323
Office # 423-473-1525
Cell Ph # 423-716-5829
FAX # 423-473-1090
e-mail->tbright@pdcaholdings.com
http://www.pdcaholdings.com/
Inventor Help - New Business Development
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