How Rating for Royalty Is Figured.
Many patents are more profitable by being placed upon royalty than by any other means, and quite often the patent can be placed this way when it is not possible to sell outright at a satisfactory price. In determining what royalty the patentee should receive,p. 36he should carefully estimate, in connection with the probable number of sales, what profit the manufacturer can probably make on each, or a number of the articles containing the patented improvements, and should require about twenty-five per cent. of the profits as royalty. Another method used by some inventors is to ascertain the price at which the article can be retailed, and figure the royalty at between one-twentieth and one-tenth of the retail price. Either of the above should give the approximate figure to ask for exclusive royalty contracts. For non-exclusive rights the patentee should ask about one-half of that for exclusive rights.
Stock in Stock Companies.
There is another class of patents that can be best realized from by organizing the proper kind of joint stock companies, and manufacturing the invention, the inventor taking a certain amount of the stock and assigning the patent to the company. The patentee should receive between one-fourth and one-half of the capital stock in consideration of his assigning his patent and rights to the company.
The inventor should see that a good portion of the stock is subscribed for and the amount actually paid into the treasury of the company before making the assignment. As a rule, inventors' stock is full paid and non-assessable.p. 37
Prices for Territorial Rights.
In calculating the prices for territorial rights, the application of the invention to that section must be taken into consideration, as well as the advancement in manufacturing, etc. If the invention belongs to that class of inventions which may be generally adapted in all States alike, such as domestic articles and articles of wearing apparel, then the population will form a very satisfactory basis for valuation.
There are other inventions, however, that apply almost wholly to a certain section of the country, while still others apply more to one section than to another; thus, for instance, mechanical contrivances of the higher order, such as writing machines, mathematical instruments, etc., the North and East are the most valuable; for mining and agricultural implements, etc., the West; while such as the cotton-gin, seeders, and presses apply almost wholly to the South. States and counties having large cities and large towns are also usually more valuable than other States and counties of same population.
Valuation Tables.
The following tables are given as a general estimate of the relative value of the different States and divisions in the majority of cases; however, these tables are only arbitrary at best, and cannot be applied to all classes of inventions satisfactorily, though theyp. 38may serve to materially aid the patentee in determining what price to put upon each State in his own case. Having determined the value of the patent as a whole, the aggregate of the State prices should be about two-thirds more, as there are always some States that cannot be sold separately, while others may have to be sold at a discount.
TABLES FOR ESTIMATING PRICES OF STATE RIGHTS
States andTerritories.Price as a Whole.$1,000$5,000$10,000$15,000$20,000Maine35175350500700New Hampshire30150300450600Vermont30150300450600Massachusetts502255007501,000Rhode Island20100200300400Connecticut35175350500700New York653006509501,200Pennsylvania653006509501,200New Jersey40200400600800N. Atlantic Division.$370$1,775$3,700$5,450$7,200
p. 39
TABLES FOR ESTIMATING PRICES OF STATE RIGHTS—Continued
States andTerritories.Price as a Whole.$1,000$5,000$10,000$15,000$20,000Delaware20100200300400Maryland40200400600800District of Columbia1575150200300Virginia35200400600800West Virginia35175300500700North Carolina35150300450600South Carolina35150350500700Georgia40200400600800Florida1575150200300S. Atlantic Division.$270$1,325$2,700$3,950$5,400Ohio603006009001,100Indiana552755508001,000Illinois653006509501,200Michigan45200350600800Wisconsin40150275400500Minnesota45200350600800Iowa40175350500700Missouri45225450650900North Dakota2575150200300South Dakota30100200300400Nebraska30150300450600Kansas40175300500700N. Central Division.$485$2,325$4,525$6,850$9,000
p. 40
TABLES FOR ESTIMATING PRICES OF STATE RIGHTS—Continued
States andTerritories.Price as a Whole.$1,000$5,000$10,000$15,000$20,000Kentucky40200375600700Tennessee30175350500700Alabama30150300450600Mississippi30150300450600Louisiana35175300500700Texas35175300500700Oklahoma20100200300400Arkansas2075150200300S. Central Division.$230$1,200$2,275$3,500$4,700Montana15100175250300Colorado40175350350700New Mexico1550100150200Arizona1550100150200Utah1550100150200Idaho105075100200Washington1550100150200Oregon2075125200300California50250450700900Western Division.$235$975$1,800$2,750$3,700Grand Total.$1,600$7,600$15,000$22,500$30,000
p. 41
While the inventor may put much hard study upon his invention and make many costly experiments, this part of his work is usually a pleasure; and in securing the patent he invariably has able counsel in his attorney with no anxiety on his part; but with the commercial proceeding of selling his patent, which involves the greatest prudence and care in managing, it is different, and here is where the inventor's real work begins if he expects to reap the benefit of his invention.
Patent-selling Agencies.
For the benefit of unexperienced patentees it is deemed expedient to give a word of warning here regarding the host of so-called patent-selling agencies, which under various imposing titles, coupled with an apparently honest and straightforward method of business, tempt each patentee, upon the issue of his patent, to place the same in their hands and authorize them to negotiate the sale thereof. Their propositions are very attractive and temptingly prepared; their offers appear to be "gilt edge"; their circulars are high-sounding andp. 42rose-colored; their contracts are formal looking, and drawn up in an impressive way, highly advantageous to the patentee; but it will be noted in all cases that they will require the patentee to pay down a certain sum under some pretence,—such as to cover the cost of advertising the patent, to have circulars printed, to secure copies of the patent for distribution, to have a cut made illustrating the invention, or for membership fee, and so on, it matters not what, so long as it is an advance fee. Many will also agree to sell both the United States and Canadian patents, if the patentee will file the Canadian application through them; it is evident, however, that this is only a scheme to get the patentee to take out the Canadian patent through them—they having no facilities for disposing of either of the patents.
The writer is not prepared to say that there are no honestly conducted patent-selling agencies, but from long experience and observation, has never known where a patentee was ever materially benefited by placing his interests in the hands of these concerns, and has yet to learn of them ever making a sale solely through their own efforts. Very few of these concerns have any facilities whatever for selling patents; all of their time being taken up in mailing their weekly circulars to inventors immediately upon the publication of theOfficial Gazette, and working inventors up to thep. 43remitting point which usually ends the matter so far as they are concerned, unless they believe they can get another fee out of the patentee.
There may be exceptions, but patentees should fully satisfy themselves as to the integrity of these firms before placing business in their hands, as the Assistant Commissioner of Patents in his report in the Webberburn case, 81 O. G., 191 K, clearly pointed out that the methods of these concerns were such as to sell the patentees rather than their patents.
The Patentee the Best Selling Agent.
That the patentee himself is the best selling agent there can be no doubt, for he is familiar with the construction and operation of his invention in every detail, and knows its merits and superior points far better than anyone else, besides manufacturers and others wishing to purchase patents invariably desire to deal with the patentee himself. Business men, it may be said as a rule, do not think very much of an invention which the inventor has abandoned to others to negotiate, moreover the personal push of the inventor is, in nearly all cases, essential to the successful termination of a sale.
Subtract the personal energy and presence of the inventor from the successful inventions of the past and of to-day, and the chances are that they would not have succeeded as they did. It is notp. 44only a question of material interest, but also of enthusiasm and confidence, and each patentee, having but one patent or a set of patents to push, can lend thereto that individual attention which insures good work and success.
In Case the Patentee Cannot Undertake the Selling.
However, if from any reason the patentee is unable to handle his own invention and must engage the services of an agent or salesman, he should select one from among his own acquaintances, in whom he has confidence. He should if possible get a person who has had experience in the line of the invention, as such a person would likely understand it and the trade better than others. It is not really necessary that he should have had experience in selling patents; if he is a good talker, knows how to approach business men, and thoroughly understands the invention, he will probably make money for the inventor and himself. The patentee should have him submit all offers of value for his consideration, and should not give the agent power to sign or collect. The patentee should name a reasonable price for the patent, allowing the agent a liberal commission upon the price, and encouraging the agent by allowing him a certain percentage of all he may be able to get over and above the price named. This will encourage the agent to work for the highest price obtainable. The inventor should make every effortp. 45to be able to personally attend to the details of selling, and keep the business under his personal supervision.
Methods of Selling Patents.
There are a number of plausible methods to which the patentee may resort in disposing of his patent without the aid of questionable selling agents, and it is the purpose of the following pages and succeeding chapter to set forth such methods as have in the past proved beneficial to patentees; those along which success have been achieved, and such as are employed by the most successful inventors of the present time in handling their patents.
It is true that no definite method or system can be given that will apply to all patents alike, as the method in each case will depend more or less upon the character of the invention, and to the particular art to which it belongs; however, from the following pages the patentee should be able to judge what particular methods will best apply to his individual case, and proceed along these lines.
There are many patents issued which the patentees thereof can as successfully dispose of from the smallest hamlet in the United States as from New York, Chicago, or any of our larger cities, while, of course, there are others which only those directly connected with the largest and wealthiest corporations can hope to dispose of successfully. The main thing is not to become discourp. 46aged or give up until one succeeds in making a sale.
About Advertising.
To make the merits and importance of an invention publicly known is, in many cases, one of the best ways of bringing about the introduction and sale of a patent. If the inventor has a patent on an invention that manufacturers or others want, and can make its merits and superior qualities known to them, negotiations will soon follow. There is no way for patentees to place themselves in communication with prospective investors quite equal to an advertisement in the proper medium. Here it may be well to state that patentees who decide to advertise their patents for sale or otherwise should place their advertisements in publications of known standing, such as the leading daily newspapers. A brief, well-worded advertisement in the "Business Opportunities" column of these papers bring quick and good results, though, perhaps a better class of inquiries may be obtained by advertising in the trade journals of the class to which the invention relates, and while the trade journals may not bring about as many inquiries as the dailies, those that answer will be more apt to be interested and talk business. Either of the above are good mediums, but in advertising patents for sale patentees should carefully avoid those publications that are published at uncertainp. 47intervals, and usually for the express purpose of circulating among inventors for various purposes. They do not reach the class of people that invest in patents. Inventors should know the class of people that would be likely to become interested in their inventions, and advertise in such mediums as have the largest circulation among that class.
How to Write an Advertisement.
In the construction of an advertisement there is often too much waste by using too much verbiage, too many unnecessary words or sentences, sometimes too much display. Prudence in the arrangement, and care in editing an advertisement, will save much expense. The size of an advertisement of this class has really little to do with its pulling qualities.
The statements should be assuming, and at the same time truthful, as any deception in an advertisement is sure to work an injury. There should not be more claimed in the advertisement than sounds reasonable, even though it be stating facts; if an advertisement sounds unreasonable it will not have the desired result. Inventors sometimes become so enthusiastic over their inventions that they exaggerate unintentionally. A good rule is for the inventor to read over the advertisement, and ask himself, "If this statement was read by me, would I believe it; would it convince me?" etc.p. 48
Putting one's self in the purchaser's place is always one of the best factors in writing good advertisements. The inventor should put himself in the place of the purchaser of the patent, and reason what would induce him to investigate its merits; what would likely cause him to take it up, and so on; he should think and write fully along these general lines, incorporate these reasons into an advertisement; then boil it down by cutting out the unnecessary words and sentences; prune, remodel, and rewrite until he has a brief advertisement, clear, concise, and to the point.
Correspondence as a Means of Bringing Patents before Interested Parties.
While to advertise, as suggested in the foregoing pages, would require a very moderate outlay, and be, perhaps, the better course to pursue: however, in connection with it, or if the patentee does not feel that he can afford the expense of advertising, a very good plan is for him to secure copies of a number of the trade journals of the class to which his invention relates, and carefully look over the advertisements therein, and select a list of such manufacturers as would seem likely to be induced to purchase the patent in question, or manufacture the article on royalty. In this manner the patentee will probably get the best up-to-date list obtainable, and it may be set down as a fact, with very few exceptions, that if manufacturersp. 49and dealers who make and handle just such articles as the patent calls for cannot be interested, it is very hard to interest others not engaged in such line, except when the invention is large, and requires a great deal of capital to work the same.
How to Correspond with Manufacturers.
To each of the parties of the list thus selected, or to a number of them, the inventor should write a well-composed and convincing letter setting forth the invention in its best light, and stating just why it would be to the interest of the parties solicited to investigate the same. Some time should be spent on this letter before attempting to write it, and the writer should weigh well in his own mind what would be best to say, and the proper way of expressing it. He should be as brief as possible, consistent with legibility. The statements should be assuming, yet in every respect true. He should state in brief terms just what the invention is, what it will do, the points and advantages it has, and at the same time endeavoring to get the parties interested so that they will inquire into the invention, rather than attempt to come to terms in the first letter.
The letter should be brief and pointed, and plainly written upon business-size paper; and if the inventor has a typewriter, or access to one, he should use it. If he has printed circulars he should send one with his first letter, which willp. 50enable him to make the letter briefer and more business-like.
In correspondence it is well not to name a price until the parties are interested, and first endeavor to get them to make an offer. The patentee should be patient and should not expect to jump right into a bargain at once. If the invention is a meritorious one there will be more than one of the manufacturers to whom the patentee may write, who will become interested, and when such a state exists, the patentee can begin to be more exacting as to his demands since competition has been created between the manufacturers.
Circulars.
A few dollars invested in circulars will frequently be found of great value to the patentee if he intends to negotiate the sale of his patent mainly by advertising and correspondence, as they will save a great deal of writing and explaining as well as appear more business-like and attractive, and may be the means of more readily effecting a sale.
Illustrations.
If the patentee can afford the additional expense of an illustration, it will greatly increase the appearance of the circular, and make it more readily understood and interesting. The cut should be neat and set forth the invention in its best light. It would be better to entrust the procuring of the cut to the printer, for he will know just what is wanted and can sep. 51cure the same at a better price. A sufficient number of well printed circulars, with illustration, can be obtained of any printer for a few dollars.
About Getting up Circulars.
The circulars should be attractive, convincing, and logical; nicely arranged, and neatly printed upon good paper. A mistake is often made in sending out trashy-looking circulars, poorly printed upon cheap paper; they repel rather than attract, and do not have the desired effect.
The circular should have good head-lines so as to attract the attention of its recipient at a glance, and his interest should be held by having the uses and advantages of the invention well written.
Many of the pointers suggested in advertising and letter-writing will equally apply to the writing and getting up of the circulars, and need not be treated further here, except that the patentee should dwell especially upon the merits of the invention, its uses, and advantages over like articles. This should be done in the most interesting manner possible, describing it so that its value will be fully understood.
Uses of Printed Copies.
It will be well for the patentee to order some printed copies of his patent, as manufacturers and others usually ask for them if interested, in order that they may examine the patent, or have an expert to examine it, to ascertain its validity, novelty, andp. 52what protection is really afforded by the patent. It cannot be denied that in either case the invention will suffer a cold-blooded rigid examination, and must stand or fall solely upon its merits. If, however, the invention is adjudged to have real merit and properly protected by the Letters Patent, business negotiations will likely begin, and the patentee will perhaps speedily make a satisfactory deal.
First Impressions All-Important.
Some inventors use printed copies of their patents instead of circulars, but, while they fully set forth the invention in a technical way, it cannot be said that in all cases it is advisable to send copies of the patent until called for. Many parties who become interested in patents are not familiar with mechanical drawings and technical specifications, and very often do not get a very favorable impression from a copy of the patent; and it is very important that the first impressions should be favorably created, for upon this much will depend. If parties become sufficiently interested to fully investigate an invention, they are very apt to form a favorable opinion of it.
Value of Models.
There is no way of so easily creating a favorable impression and gaining the interest in an invention as by a neat and perfect working model of the invention. Man never loses the child-love for toys, andp. 53a perfect miniature machine of any description will attract more attention than one of full size. With a model the inventor has the full and immediate attention of his prospective purchasers at once. If the patentee, or his agent, intends visiting manufacturers, or to sell the patent by territorial rights, he will find a model of his invention almost indispensable.
Inventors should be very careful about sending models to unknown parties, and should mark the number of the patent and their name and address upon the model. It should invariably be understood in advance who is to pay the transportation charges, before sending a model with any charges to collect.
While models are very helpful in setting forth an invention and making sales, high prices exclude many inventors from their use. Model-makers usually charge fifty cents per hour for each man working upon the model, and market price for the material used; from these figures the inventor may make a rough estimate of what a model of his invention will cost.
Working Drawings.
Working drawings are different from those forming a part of the patent in that they are more detailed, giving the size of each piece and the material of which it is constructed. While working drawings are not quite as expensive as models, they do not show the invention top. 54the advantage that models do, and are of little value to those who do not understand them. On the other hand, working drawings have the advantage of being easily sent through the mails, and can be duplicated at small cost. Manufacturers prefer working drawings to models in quoting prices on manufacturing the invention in quantities.
p. 55
In conducting the sale of patents, the greatest difficulty is most frequently experienced in getting manufacturers or others sufficiently interested to look into the merits and possibilities of the invention. If the inventor can get the parties to actually consent in their own minds to the proposition of taking up the invention, the question of terms and conditions can soon be arranged. Until the parties solicited can see beyond a doubt that there is large profits in it for them, the price of the patent is out of the question; therefore, the first step is to demonstrate its merits and commercial value, and get the parties thoroughly interested.
Patentees should not labor under the impression that because a patent is offered at a very low price that it will be quickly snapped up as a bargain; as before stated, if a patent will not bring in money by manufacturing and selling the article, it is worthless; and its real value is in exact proportion to the amount of profits that can be made from its manufacture.p. 56
Should the patentee find that his patent has no commercial value, it is almost useless to spend more time and money in trying to realize anything from it; he had better start again, and endeavor to invent something that has value and can be sold.
Value of Personal Influence.
Inventors should use the full extent of their personal influence to spread particulars of their inventions as far as possible, for this indirect work is often a leading factor in creating a favorable impression that frequently results in the adaption of an invention.
However unacquainted he may be in a business way, every patentee can, more or less, in his immediate neighborhood, consult with merchants, friends, and others in the line of his invention, who can post him upon the right parties to submit the patent to, and the best way to see them about it, and perhaps go with him to visit such as might be interested in the invention.
Personal Solicitation Advisable.
In nearly every case it is more satisfactory for the patentee to call on the manufacturers or interested parties personally whenever it is possible for him to do so. This brings about a more satisfactory understanding between them. Many inventors, however, prefer opening up communication by correspondence, and after the parties manifest a willingness or desire to look into the inventionp. 57more closely, then arrange to visit them personally.
Having determined upon a visit, the patentee should endeavor to get a friend known by the parties to go with him to make their acquaintance. If the friend cannot go with the patentee, he will probably give him a note of introduction. It may happen that his friend does not know the parties whom the patentee wishes to see, in that event he may know of someone who does, to whom he can introduce the patentee and who in turn may either go with him or arrange to make him known to the parties solicited. An introduction, of course, is not absolutely necessary, but it invariably has a good effect and is generally worth the effort.
The patentee should be prepared to make a straightforward, business-like presentation of his invention by means of a suitable model or drawings; carefully explaining its merits and advantages, showing as clearly as possible just what the value of the invention is and what can be made out of it, and giving tangible reasons why it would be to the interest of the parties solicited to invest in the patent. If the patentee is dealing with a manufacturer it is well to point out not only the possible advantage he may have by securing the control of the patent, but also the possible loss that his business may suffer by allowing one of his competitors to obtain its control. Many busip. 58nesses have been hopelessly crippled by an enterprising firm securing control of a good patent and introducing a like article that can be sold cheaper, or one that will do its work in a better and more satisfactory manner.
Selling Outright.
Many inventors prefer to sell their patents outright; that is, in consideration of a specified sum of money the patentee assigns his entire interest in the patent, in the same manner that a person would sell a piece of real estate. This is a very good method and one of the quickest ways for the patentee to turn his invention into money, though it must be remembered that to sell a patent outright is usually for a very much smaller sum than could be realized if handled by other methods.
The day for obtaining enormous sums or fortunes from the sale of a patent outright is past; at present to realize any considerable amount, the patentee generally has to share in the risks as well as the profits, unless the invention is very highly developed, and even then he cannot expect to get as much out of an outright assignment as he could by sharing in the success of the invention commercially. If, however, the patentee is content to take the utmost cash his patent will bring him outright, he is assured of a principal or lump sum, free from any chances of the article not selling well when placed upon the market.p. 59
Before signing and delivering the assignment, the patentee will, of course, see that he has the consideration, or its equivalent, for which the assignment is made. If the transaction is made through correspondence he should send the assignment duly executed to the purchaser through the bank or express C. O. D. for the amount.
Assigning an Undivided Interest.
In a preceding chapter, the dangers and disadvantages of an undivided interest are set forth, and it cannot be considered a wise course under any consideration to part with any undivided interest in the proprietorship of the patent, unless unusually well paid, or there exists an agreement of copartnership between the patentee and the assignee. By such an assignment, no matter how small, the patentee loses control of his patent.
Dividing a Patent into Different Classes of Rights.
Many patents, from the nature of the invention, can be subdivided into different classes of rights, and each class sold or granted separately as the patentee may choose. Thus, the patentee of a tire, or other appliances for a bicycle, could license one party to make the same for bicycles and another for automobiles. In like manner a car-coupler could be divided between those who build railway equipments and those who build street-cars, and so on.
Goodyear, the inventor of the process of vulp. 60canizing rubber, divided his patent up into many different rights, licensing one company for manufacturing rubber combs, licensing another for hose pipes, another for shoes, another for clothing, and a number of other different rights, for which each company or partner paid a tariff. Lyall, inventor of the continuous loom, also divided his patent into many different rights; one company weaving carpets, another corsets, another bags, another sheeting, etc.
In every case where the invention covers articles not in the same line of manufacture, the patentee should not fail to divide the rights into different classes, granting each party only such rights as they may be interested in. In this way the patentee can quite often double or treble the receipts from his invention.
The patentee may, if he desires, have his machines built and require the purchasers to pay him a regular annual rental on each machine, or a tariff upon the goods produced, in addition to the price of the machine. Companies are sometimes organized to manufacture an invention, and employ travelling men to place the article on annual rental instead of selling.
Selling by Territorial Rights.
Another method is to sell State and county rights. This consists of a license whereby the patentee, in consideration of a certain sum of money paid him, grants unto another person orp. 61persons the exclusive right to make and sell the invention, and to authorize others to make and sell the same, within a specified territory, during the life of the patent. This plan of disposing of a patent has often been highly profitable, but it must be said that these territorial sales have been conducted in such a manner in the past, as to bring the whole system of selling patent rights into disrepute, and in recent years patentees have found some difficulty in making sales in this way, unless the device is of unusual great novelty and attraction to householders or the general public.
Occasionally, however, there are patents issued for meritorious inventions that are susceptible of this mode of procedure, and which can be disposed of to the greatest advantage by territorial grants. Such inventions as household novelties possessing great merit and utility have been most successfully placed upon this plan, but it must be remembered that the value of the system rests upon its capabilities of effecting sales of the manufactured article to a vast proportion of the people.
In selling territorial rights it is a mistake to begin with the small places with the idea of working the business up and effecting larger sales on the basis of the smaller ones; it is better to shove the sales, as much as possible in the start, and afterp. 62the more valuable portion of the territory is disposed of, proceed with the balance until it ceases to be profitable.
Experience teaches that it is usually advisable to accept any reasonable offer made for a small right, even if it does not come up to the patentee's estimate of its value, as he has plenty of other territory left, and may lose much time and money in finding another in the same territory willing to pay more; besides, the purchaser of such a right may, by his energy and good judgment, advertise the invention in such a way as to greatly benefit the patentee in making further sales.
Some patentees employ good and reliable special agents to travel and dispose of the patent rights; others advertise for and appoint State agents to sell their respective county rights. In either case these agents expect to make money by the operation, and require a liberal proportion of the proceeds for their remuneration; generally speaking, they will require about one-third the selling price, unless the patentee can show that the rights will sell readily, in which case the rating can be made lower.
Granting Licenses.
The patentee may also sell licenses under his patent; that is, in consideration of a certain sum, the patentee licenses a manufacturer to make the invention at his own place of business; it being a personal privilegep. 63and is not transferable unless its terms so state.
Unless there are a great many manufacturers in the line of industry to which the patent relates, and unless the invention has real merit so that it will be readily adapted by the manufacturers, the patentee cannot hope to realize any considerable amount from selling shop-rights alone. As a general thing, patents for mechanical inventions can be disposed of to better advantage by other means, or by selling shop-rights in connection with other methods; for example, if the patentee was selling his patent by territorial grants, he might grant shop-rights in such territory as he has not sold; or if he is placing the patent upon non-exclusive royalty contracts, he could grant shop-rights in such portions of the territory as he does not contemplate using otherwise.
Some inventions, such as methods or processes, as a general rule, have to ultimately be sold by licenses. Such patents can be employed most profitably by selling licenses, county and State rights; thus, in the case of a method of constructing fences, the patentee could sell State and county rights to parties, who in turn could grant farm rights, etc.
Placing upon Royalty.
The license and royalty plan is perhaps the best and most popular method with inventors for realizing from their inventions. This, in effect, inp. 64volves a contract between the patentee and the manufacturer, by which the latter in consideration of a license to manufacture the article covered by the patent, agrees to pay the patentee a certain specified sum as royalty for each article manufactured or sold bearing the patented improvement.
Placing a patent on royalty is ordinarily taking chances, but if the patentee has full confidence in his article selling well, he should by all means take royalty in preference to selling the patent in its entirety. Many valuable patents are sold by their owners for from $1,000 to $10,000, which yield the purchasers, when the article is on the market and selling well, as much as $25,000 annually in profits. This calls to the author's mind a patent for which at the outset was doubtfully offered $3,000, but before the negotiations terminated, the patentee succeeded in placing it upon an exclusive royalty basis. The royalties paid to the patentee during the first four years amounted to over $50,000, and the manufacturers subsequently made an offer of $100,000, for the patent.
In making royalty contracts with parties, the patentee should investigate the standing, rating, and capabilities of the manufacturer, and, above all, should be certain that the parties have the right motive in view, and that the contract is so drawn that it will fully protect his own interests.p. 65Many patentees have been caught by manufacturers offering large royalties for the sole purpose of gaining possession of the patent, that they might pigeon-hole it, in order to keep the article out of the market, so that the sale of some similar article in which they are interested would not be interfered with by the introduction of a similar or better article, such as the patent anticipates.
There are others who propose and make royalty contracts with patentees with no other object than that of making the special tools, patterns, dies, etc., for which they charge the patentee an extortionate price.
The best and safest way for the patentee to guard against having his patent tied up is to bind the parties to do certain things in the way of pushing the sales, making the necessary tools at their own expense, and commencing its manufacture within a reasonable time, paying an advance royalty, or annexing some such condition to the agreement by which they will be the loser should they fail to push the inventor's interests.
Unless it cannot be otherwise arranged, the patentee should not transfer his rights merely in consideration of receiving a certain sum on each article sold, as however sterling the character of the manufacturer, there would be no certainty of the sales being pushed. The patentee should endeavor to get the manufacturer to guarantee thatp. 66the royalties shall amount to at least a certain pre-stipulated sum each year, or within a period of time, and that such sum shall absolutely be paid to him by the manufacturer, irrespective of sales. This insures that the manufacturer will be obliged to push the sales of the article, and do it justice, since if he neglects his duty purposely, or from lack of energy, he is out of pocket, and the patentee is sure of a certain income, with the addition of a possible fortune that unprecedented sales may yield him. However, manufacturers are not always willing to agree to this condition, unless the guaranteed amount is exceedingly reasonable; they will usually simply agree to do their best, and if the sales do not reach a certain figure each year, the patentee shall have the option of cancelling the agreement, and receiving back the patent free and clear.
Royalty licenses can either be exclusive or non-exclusive; that is, with an exclusive contract the manufacturer has the exclusive right to manufacture the article, excluding all others; non-exclusive is simply a shop-right, in consideration of which the manufacturer agrees to pay the patentee or owner of the patent a stipulated price or percentage upon each article made or sold. The license can also be exclusive in a certain section, county, State, or a number of States, as may be agreed upon.p. 67
Any number of conditions that may be agreed upon may be annexed to and form a part of the contract, and such an agreement should be drawn up in compliance with the terms and conditions agreed upon by a competent attorney, or one skilled in matters of this kind.