From inventor to entrepreneur: safeguard your inventions and your profits

Black Enterprise, Feb, 1998 by Monique R. Brown

Voila! The technological innovation you've been harboring for years has finally been transformed into a working prototype. You feel confident that your innovation will catch the eye of a large multinational company. Should you now sit back and start counting your millions? Probably not. According to the American Bar Association, entrepreneurs generally receive little or no financial reward for their inventions because of inexperience and poor marketing. Don't despair! You can increase your chances of successfully commercializing your invention by arming yourself with knowledge and following these helpful procedures:

* Safeguard your invention from the start. Documentation is important. Under the U.S. "first to invent" law you can establish a claim for your invention even if someone has beaten you to the patent office--as long as you have documentation to prove that you invented the idea first, explains Rusty Ruscetta, chief operations officer of the Inventors Assistance League International Inc. (IAL).

Claude Hayes, who has developed technology for government agencies and private industry, suggests filing a preliminary patent for your invention with the U.S. Patent and Trademark Office. By following specific government guidelines, you can protect your idea for up to one year before you file an actual patent. This lets you avoid the initial cost of obtaining a patent, and allows time to further develop and improve your idea before it reaches the marketplace. The IAL offers a program that provides step-by-step instructions for users interested in pre-patent protection.

* Protect yourself with a nondisclosure agreement as well as a patent. A nondisclosure agreement is a contract of confidentiality between you and the person(s) with whom you've chosen to share your invention. In the case of a corporation, its agents agree to keep your technology confidential in exchange for the opportunity to evaluate the potential benefits of your invention.

Hayes believes that a business relationship between an inventor and any firm should begin with a nondisclosure agreement. Otherwise, you run the risk of giving your concept away without recourse. "Nondisclosure agreements separate the good companies from the bad ones," he emphasizes. "Any firm that does not want to sign a nondisclosure agreement should be avoided."

Hayes also advises that inventors include a good faith clause in the nondisclosure agreement. This clause holds the interested party responsible for any contract violations by the parent company or any of its subsidiaries. "The objective of a good faith agreement is to clarify the responsibilities of all parties to avoid litigation," says the inventor. If litigation is necessary, he believes it is cheaper to file a breach of contract suit rather than a patent infringement suit.

* Consider letting the company oversee the patent process. If you already have a company interested in your product, it may be in your best interest to let its attorneys handle patent issues. Since the law specifies that a patent must be issued in the inventor's name and not in the name of the patenting company, you can take advantage of the company's expertise without relinquishing any of your patent rights. According to IAL, a patent search, application filing, maintenance fees and attorney fees can easily amount to over $10,000. Ruscetta advises that you let the corporation pick up the tab. However, Hayes warns inventors to be sure that their interests are protected in such an arrangement.

* Consider licensing your invention rather than assigning (selling) it. Under an assignment agreement, you receive compensation for the sale of your invention and give up control of your product as well as patent rights. This places the fate of your invention in the hands of the contracting company, which may decide to simply sit on your technology or ditch it altogether. If the commercialization of your product is as important as the cash you receive, then an assignment agreement may not be a viable option.

Both Ruscetta and Hayes favor licensing agreements. Under these contracts, you grant someone (or a company) the legal right to manufacture your idea in return for cash payments and/or royalties on a regular basis. The process is fairly simple, and can be ideal for anyone who wants to profit from an invention without giving up total control or assuming the complications of running a full-time business.

Hayes advises inventors to take precautionary measures even under licensing agreements. "Before you enter a licensing agreement, research how much litigation the company is involved in and how it treats its employees," he says. Hayes also believes companies with employee or litigation problems should be evaluated more closely. In addition, companies that had questionable relationships with other inventors should be eliminated.

Licensing agreements that base the inventor's compensation on a percentage of the firm's profits should raise a red flag. In a large company, profits are often difficult (and expensive) to track. Instead, Hayes licenses his inventions, such as a temperature control mechanism used by Smith Industries to safeguard flight recorder boxes, for a flat annual fee of over $100,000. He receives a check each year for as long as the company uses his technology.