Inventors Digest: Contingency Caution

Category: From the Crew, NEWS | on August 19th, 2010 by 2020 | Comments (8)

When a Deal Seems too Good to Be True, It is

by Kenny Durham

[September 2010 issue of Inventors Digest]

I’m unsure who first said, “If an invention marketing company really believes your product is a moneymaker, it should work on a contingency basis.”

My guess is that it was either a desperate inventor grasping at one of the few options left, or an opportunistic invention marketing representative preying on said inventor.

More than likely, it was a combination of the two.

Some invention marketing companies often promise they won’t make money unless you make money on a licensing deal. Don’t believe it. These companies will charge you fees to produce template-like marketing materials of dubious value. The up-selling of more materials of even more dubious value is sure to follow. Meanwhile, you’ll likely end up waiting in vain.

Companies that perform evaluations based on contingency typically position themselves as having expertise across multiple industries. This should be your first red flag. Few companies have the resources to be expert in a vast array of industries.

Inventors are vulnerable to the false promise of contingency deals because too often they’re seeking validation. They’re dying for a so-called expert to confirm they have a valuable idea and that they haven’t wasted time and money.

Yet the words “evaluation” and “contingency,” when used in the same paragraph, should send inventors running.

The truth is, if inventors followed common sense steps to commercialization, they already would have gained confidence and wouldn’t need reassurance from opportunists.

The U.S. Patent and Trademark Office reports between 1-3 percent of all patents issued will be commercially successful. The success rate of some invention marketing companies runs about .001 percent. Yep – about one in 1,000.

Inventors often think invention marketing companies function or ought to function like real estate agents, who agree to sell a home for a percentage of the selling price. The agent is an expert in the real estate industry and well-versed in the nuances of the local market. In real estate, everything has a value – 100 percent of real estate property will eventually sell, it’s just a matter of price.

And this is where a lot of inventors end up acting out of desperation. Unlike a real estate agent, who’s an expert in the housing market, invention marketing companies are likely not experts in your industry.

People spend lifetimes becoming experts in a particular subject area. And how can they know each particular industry well enough to judge whether a product or idea has potential?

When it comes to intellectual property, it’s difficult to determine value because much of the time none exists. This is intellectual property, after all, a novel idea, a potentially revolutionary product that right now has nothing but a patent to back up its promise.

American enterprise universally accepts the notion that marketing plays a pivotal role in the success of products and services.

More than $285 billion dollars are spent annually in the U.S. on advertising. McDonald’s alone spent $2 billion on advertising in 2008.

The fact is advertising works. Its success can be measured through return on investment, market share and various other marketing metrics. It’s understood and embraced by every successful business enterprise, whether a sole proprietor or multi-billion dollar corporation.

If McDonald’s operated within the basic marketing tenets of the intellectual property industry, the fast food giant would have ad agencies lined up around the block begging for its business on a contingency basis.

Imagine if McDonald’s marketing executives sent out a request for proposals, promising the selected marketing agency 10 percent of all McDonald’s revenue following a particular promotion or ad campaign, whether or not the sales were a direct result of the agency’s work.

There’s no way McDonald’s would entertain such an offer. It just doesn’t make sense.

What’s an inventor to do? Like the invention marketer who works on contingency, the lone inventor can’t be expected to be an expert in all phases of product development. It generally takes a team.

“Individual commitment to a group effort – that is what makes a team work, a company work, a society work, a civilization work,” said legendary football coach Vince Lombardi.

Focus on what you do best, and hire a creative marketing team to do for you what they do best.

I understand that sometimes inventors believe they have no choice. The patent process is exhausting and can take a heavy financial and emotional toll.

For these individuals, a contingency deal may be their last option. And so at the final crucial moment, they give away control of their product in exchange for magic beans.

Countless times I hear patent owners say something like, “I’m not greedy; I don’t mind sharing. If they get it done for me then I don’t mind giving them 10,000 times more money than they deserve.”

That’s the sound of the desperate. And every time I hear it, I’m thankful that Thomas Edison or Henry Ford didn’t think that way.

Want to commercialize your idea?

Five common-sense first steps

Step 1.  Start with a Big Idea

Innovation starts with a big idea of something you can do better, faster or cheaper than the way it has been done before. But it takes more than just a big idea. Here’s what Thomas Edison had to say on the subject:

“What’s The Value of An Idea? Zero. Ideas that are implemented and become new products and services are very valuable. The value of an idea lies in the using of it.”

Step 2. Do Your Homework

Do your own market research. Make sure someone else hasn’t already had your idea. If your idea is pioneering, try to be realistic about why no one has tried it before.

If it has been tried but is no longer on the market, find out why. Conduct a Web search and a patent search. Google Patents is a good place to start. Consider things like ease of manufacturing, production cost, distribution issues and financial commitment. But most important, think about how your invention will make life better for others.

Step 3. Build Your Plan

Construct a plan. Ask yourself if you possess the financing and skill to see your plan to fruition. If not, locate helpful resources. Inventors groups are a good place to start.

Step 4.  Own your Idea

File for a patent, copyright, trademark or whatever intellectual property protection is appropriate. At this stage, you likely will have to hire a patent attorney.

Step 5. Treat Your Idea as a Business

Do what successful businesspeople do – concentrate on the things you do well and build a team to fill in your gaps. Focus on the financial bottom line, keeping costs as low as possible.