A Guide for Designers and Inventors
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Learn about patents and royalty agreements
Avoid being 'ripped off'
Make money from your design, instead of a loss!
All you need to know about patents
There is one man who made a fortune from a patent. You may not know his name but you've heard of him: he designed the Black & Decker Workmate . There is another man who made his money this way: he invented the "Cat's Eye". Wouldn't you like to do the same? Well, the odds are very heavily stacked against you. In roughly 99.9% of all cases, a patent will prove to be an enormous waste of time and money.
This is not necessarily true for the big company with million pound annual turnover but, for the little guy like you and me, it is almost always so.
That is all you need to know about patents.
However, you don't believe me so I will explain further.
What does a patent do?
A patent gives you the right to take somebody to court and sue them if they copy your design for profit. Do you know how much it would cost you to do this?
Do you know how easy it is to prove that their design is sufficiently different from yours for your patent to be inapplicable? Do you realise that they will almost always prove "prior art"? (in other words, somebody else actually designed one before you did so, again, your patent doesn't count). Of course your lawyer can fight all this you can afford a lawyer, can't you? Finally, if the other person is copying your design only for his or her personal use tough luck!
The other thing a patent does is to make your idea available to anyone in the world!
You may look upon this as free advertising and, in some respects, it is. There are big companies scanning the lists of new patents for any idea that they can exploit. Some of these companies will negotiate a handsome royalty agreement with you. (Some will even honour it like Black & Decker did). But some will just copy your design with a tiny modification so that, should you ever scrape together enough cash to take them to court, their big company lawyers will wipe the floor with you.
How do I get a patent?
OK. So you want to be stubborn about this!
Your first stop has to be the Patent Office. Write to:
The Patent Office
Cardiff Road
Newport
Gwent. NP9 1RH
Tel: 0633 814000
Ask for their full information pack.
If you live or work in London you can also call in and get this information pack from
25 Southampton Buildings,
London. WC2A 1AY
One of the booklets you will receive is entitled "How to Prepare a UK Patent Application". This booklet is an excellent guide for anybody who wants to avoid the expense of employing the services of a registered patent agent. If you can write concise, grammatically correct English, this is the route to go. Do read other patents to get a feel of how the things are written. Please note the warning of the following paragraph which appears in the booklet:
"By using this guide it is possible, without professional assistance, to prepare and file a patent application and to follow it through to grant of a patent. However, obtaining a commercially useful patent requires a high level of expertise and anyone who is not thoroughly experienced in patent matters is advised to employ a professional adviser such as a patent agent".
(You can purchase a list of registered patent agents from the Patent Office).
In my experience there are some so-called patent agents out there who are not terribly good at writing patent applications. Especially in fields such as electronics, they tend to write the claims in such a way that anybody could change the number of a transistor then claim the invention as their own. It is extremely important to write the patent in as broad terms as possible. In the case of an electronic circuit it is best to show it as a block diagram with a particular novel function, rather than to show the value of every little component used. You can make "dependent claims" which contain more details but the main claim should not be restrictive.
My best advice would be to avoid employing a patent agent if at all possible.
If you do employ one, beware! A patent agent is to be treated like a solicitor. In the first instance, contact him by letter, stating that you will not pay him any monies without first agreeing (in writing) an estimate of the costs involved. The problem is that solicitors might forget to mention that they will charge for any letter which they send to you and for any task which they perform in relation to your patent application. (I have to choose my wording, here, because I don't want to be sued).
Get an estimate for the total work involved before you commit yourself and be sure to get an estimate from him for every stage of the process. Do not make any statement in writing which might imply that you will pursue the application to completion. Do not ask any questions without first getting a price for the answer. Solicitors with whom I have dealt seem to take great delight in writing a three page essay in reply to your every question and then in billing you, apparently on a per-word basis!
In brief, be very guarded in what you write and insist on estimates in writing before proceeding with each stage in the application process. Be sure to ask for a statement of incidental expenses such as "search fees" etc. Make it absolutely clear that you will not pay any bill for work unless you had an estimate in advance and agreed to it.
If I have frightened you good! My dealings with these "professionals" have not left very pleasant memories. Of course there are good ones and bad ones, as in any industry. If you find a good one, please let me know.
Now I shall frighten you a little more. A patent agent is likely to charge you in excess of 1000 for the work involved in completing the application. This is not a patent simply a registration of your desire to obtain one. After 12 months you can file your final abstract. At this point the Patent Office will charge you for carrying out a search to see if anyone else has already applied for a patent on the same or similar inven-tion. If someone has, then you will either have to drop the application or rewrite it.
Once the rewrite is accepted it is published but only after a full examination to ensure that it meets legal requirements. Again, you may be asked to amend or rewrite the patent application. You have to pay for all this work done by the Patent Office and also for any work done by your patent agent! Reckon on paying 2000 just to get the patent granted. After the end of the fourth year from filing, you must pay an annual fee to keep it in force for up to a maximum of 20 years from the date of original filing of the application. All this just to get the right to take someone in the UK to court for copying your invention. If you want "protection" extended to other countries there are more problems and bigger fees to pay!
You did say that you were going to be able to make a big profit on your invention, didn't you? I hope so!
The Quick Killing
So what is the alternative to patent protection?
The most favoured method is the "quick killing" approach. You have designed something that everybody wants, yes? So, if it's so good, everybody who wants one will have bought one in the first year, yes? So who needs legal protection? There's no point. You will simply spend money for nothing. Far better to spend that money in getting the thing into production!
The biggest profit is to be made during the first year or less. After that the "me toos" will jump on the band wagon whether you've got patent protection or not. (OK so maybe a patent will deter some of the little guys but there will be plenty who will take a calculated risk especially if they know you can't afford to pursue them through the courts).
Getting Into Production
You have a number of options, dependent upon your circumstances and how much profit you want to make.
1. Royalties
You select a company which has a range of goods into which your design might fit.
You write to them explaining that you have a new product which might be of interest.
You ask if they are interested in having it manufactured and paying you a royalty.
You do not give them any details of the product at this stage. Wait for the reply.
If they fail to reply within a fortnight or say they are not interested, try a different company and keep on trying. Don't give up.
If they ask for details, send them a form to sign, stating that, if you disclose details, they will not copy or use your design or a similar product based on your design without paying you a reasonable sum. This is pretty airy-fairy and will not give you much legal protection but it is cheaper than a patent and almost as effective!
Do not send a prototype. Arrange to demonstrate it in person. (You do have a prototype, don't you? You might manage with drawings alone but this is less likely).
In any case, dress neatly and visit in person. Inventors are expected to be eccentric but don't overdo it! Arriving in a Doctor Who cape on a bicycle named "Tardis" will not necessarily inspire confidence in your potential business partners.
If this company agrees to accept your invention for production and marketing then you need to draw up a contract. If you employ a solicitor it is going to cost you in excess of 500, in my experience, and you know my feelings about solicitors. If you can persuade them to get their company lawyers to draw it up it will cost you nothing! Do, however, proof-read it very carefully and don't be afraid to insist on alterations if you are unhappy about any of the clauses. (One company inserted a clause which stated that I would continue to give them technical assistance for this and any future related product, in perpetuity! Wow! this was long term employment for zero wages! I had that clause deleted). Do not accept any clause which commits you to any further action unless you are sure that you will be able to undertake the work as stated (think of possible ill-health) and that you will be paid for it.
If you are offered a lump sum, take it and run! It may not seem like a lot of money but it is a profit. It could just as easily have been a 2000 loss in patent agent's fees for nothing. If the company want to patent your invention, having paid you, let them! But have nothing more to do with it or that profit will quickly turn into a loss.
You could make more money with a royalty agreement (but you could also make a lot less if the company decides not to manufacture it or the product simply does not sell some manufacturers are hopelessly inadequate when it comes to marketing).
Royalties usually pay around 2% to 5% of the retail price. If you can get more, great!
In the appendix is an example of a royalty agreement which you may use.
2 Own Manufacture
I don't mean that you should set up in your garden shed and start churning out widgets from dawn till dusk (although some people have made fortunes by doing just that). Rather, you should find a friendly (preferably local) company which can manufacture your product to sell back to you at wholesale prices. Again, this company must sign an agreement not to manufacture any product based on your design for sale to anyone other than you. Not brilliant protection in law but makes them think twice.
Try to get thirty days' credit if you can. Up-front costs are a killer!
Do get an accurate written quotation for all work required. Bear in mind that mould-tool and metal-press work tool costs can run into tens of thousands of pounds. Try to fabricate the product by hand until you are sure of your market. Committing yourself to expensive tooling is a good way to lose your house!
Your problem, here, is that you are now your own marketing company! You have to find buyers for your product.
The simplest way (and the way to make least profit) is to sell direct to one or more wholesalers and let them find customers. The drawback is that your profit margin may be as little as 10%, although you could make a lot more than that if you are lucky. To a large extent, the price will depend on the retail price of similar products.
Packaging can make a big difference (not for mail order) and, if the manufacturing company can provide decent packaging, let them do it and pay them the extra.
You will make more profit by selling direct to the end user so you effectively become the retailer. If you set up a little shop in town to do this, your market will be so limited that you will never make a fortune. Also, a shop with just one product in the window tends not to attract many customers!
The best vehicle for selling direct to the public is Mail Order. There are many very good publications which deal with this subject adequately, so I will not say much about it, here. If the invention is large you will need storage space and postage costs could be high. If the product will fit into a small "Jiffy Bag " then life will be much simpler.
You should aim to make a profit of at least three times and preferably five times your total costs including manufacture, advertising, postage and packing.
If you can't achieve that, then I think you just designed the wrong product!
3 Inventors We Want To Hear From You!
You will see this sort of advertisement in all the magazines. I have replied to a few, myself. I would say that, without exception, they all want your money up-front.
They will promise to find a manufacturer usually in the United States (out of reach if things go wrong) who will manufacture your product and pay a royalty (usually 1% of an undefined trade selling price). In fact I got that wrong. What they actually say they will do is "market" your idea. They will produce a nice glossy brochure which outlines the main features of your design and pass it around manufacturers to try to evoke interest: no guarantees. You pay up a few hundred pounds then sit back and wait for the royalties to come rolling in.
Does it work? Is it a rip-off?
I can't tell you. I don't enjoy gambling so I didn't pay any money.
Let me know, if you find out!
What to Invent?
You probably wouldn't have sent for this booklet if you didn't have something already on the drawing board but let me make a few observations.
I've been an inventor since age ten (and I'm now 42). Gradually, as the years pass, I'm getting worse at coming up with "good" ideas but better at making money.
"How can that be" you ask.
It's all too easy to think of a new idea "a better mouse trap", for instance and to pursue that idea blindly without realising that mice no longer get into modern houses.
(When did you last see a mouse?) So, your super invention has no customers.
We all fall into this trap while intoxicated by the heady euphoria of invention.
Inventors and scientists are renowned for it. But it doesn't have to be so.
Think, instead, of your end goal which is (I assume) to make money. What can you design which people want? You've probably seen the standard list of the most important things in a person's life, including Security, Sex, Good health, A feeling of Importance etc. etc. So, what can you design which will fulfil one of those needs?
Unless you can design something which is either completely novel, a tenth of the cost of all rival products or ten times better/faster than rival products, forget it.
And if it is cheaper, are you going to make a worthwhile profit?
If you design for the mass market the product needs to be low-cost and you rely on high volume sales to get your income. If you design a specialised product for a very limited market, the price has to be high -- maybe too high to sell?
Think about it!
APPENDIX
The following Agreement cost me 700 in solicitor's bills, plus other incidental fees amounting to about 1000 in total. At the end of the day, the company (which I shall name "Cut and Run Limited") went bust. The royalties I received just before this event were almost sufficient to pay the solicitor and "Cut and Run" passed the marketing of my product to another company which refused to honour the agreement. I had no money. I could do nothing about it. The patent agent who wrote the patent application hounded me for money for months.
Lest you get the impression that "Cut and Run Limited" was a really nasty company, let me put the record straight. C & R was a typical small company owned by a nice man and his wife. They had plenty of money and good backing. A number of very unfortunate events led to the demise of the company. Firstly, the wife contracted an incurable illness and died quite suddenly, leaving the Director of the company in a state of nervous exhaustion.
Secondly, a large customer of the company refused to pay his 60,000 bill and left the country so he could not be pursued without considerable expense and difficulty.
Thirdly, two other companies began to make copies of C & R's main product (which was patented). C & R did not use its right to take these other companies to court because, by the time the case was resolved, the market would have been flooded anyway; because C & R could not afford to go to court and because the Director was in no fit state to go out of the house by now. So much for "Patent Protection"!
I mention this true case history so that you can see how things can go horribly and unexpectedly wrong. Had C & R survived the loss of 60,000 and the Director's wife not died and the competitors not have taken the risk they did, I might have been some 70,000 richer by now!
However, the Agreement itself is quite well written. The solicitor I used was not really a rip-off merchant he was just an ordinary solicitor making a healthy profit like most other solicitors. So I hope my 1000 Agreement will be of use to you.
Have a chuckle when you read it but remember that you can remove the jokes and insert your own words to make a pretty good legal document.
You have my permission to use it and re-write it as you wish. Just don't mention my name!
MANUFACTURING AGREEMENT
DATE:
BETWEEN
(1) FRED FLINTSTONE of 12 Canyon Road, Bedrock. BE7 6AU ("Mr. Flintstone")
(2) CUT AND RUN LIMITED whose registered office is Floggit House, Dupe Street, Cambridgeshire. CM7 8YH ("Cut and Run")
BACKGROUND :
(1) Mr. Flintstone after considerable research and development has invented in his own time and at his home premises a better mouse trap ("the mouser") which will automatically catch a mouse and eject it from the premises without waking the occupier.
(2) Cut and Run has expertise in the manufacture of equipment related to animal slaughter.
(3) Mr. Flintstone is willing to appoint Cut and Run as exclusive manufacturer of the mouser and a non-exclusive distributor of the mouser.
(4) Cut and Run is willing to pay to Mr. Flintstone royalties as consideration for the rights to manufacture the mouser.
OPERATIVE PROVISIONS :
1. Definitions
1.1 The parties agree that the following words or phrases shall have the following meanings :--
"Technical Information" all know-how and technical information relating to the use and application of the mouser in the possession of Mr. Flintstone whether in written form or otherwise including specifications, designs and calculations, diagrams, parts lists and layouts.
"The Territory" all the Countries in the World.
"The Term" 3 years from the date of this agreement with the option to renew.
2. Grant of right for manufacture
2.1 Mr. Flintstone grants to Cut and Run the exclusive right to manufacture at Cut and Run's own expense the mouser in the Territory (including all improvements to and the development of the mouser which Cut and Run shall make invent or acquire) subject to clause 5.3.
2.2 Any developments or improvements made to the mouser by Cut and Run shall be and remain the property of Mr. Flintstone.
3. Subcontracting
- Cut and Run may sub-contract the manufacture of the mouser if the sub-contractor undertakes in writing to Mr. Flintstone and to Cut and Run to keep confidential all confidential information relating to the mouser and the Technical Information.
4. Drawings and Technical Information
4.1 Mr. Flintstone shall describe all Technical Information to Cut and Run and supply copies of all drawings, specifications, diagrams and parts lists.
4.2 The Technical Information and all intellectual property in it shall remain the property of Mr. Flintstone.
4.3 Cut and Run agrees not to disclose such of the Technical Information as is confidential to any third party, unless authorised to do so by Mr. Flintstone in writing.
5. Distribution and Royalties
5.1 Cut and Run shall only distribute the mouser as part of the "UX-105" product which they have developed.
5.2 Cut and Run agrees to appoint Nixus Distribution as sole distributors for the mouser as a single product in the territory.
5.3 Mr. Flintstone may appoint an alternative manufacturer after giving one month's written notice to Cut and Run if Cut and Run:-
- 3.1 Fails to supply to third parties at least 10,000 mousers in the first 12 months of the Term; or
- 3.2 defaults in royalty payments as set out in
clause 5.4 for more than 2 months in
succession.
- 3.3 goes into liquidation or receivership or has
an administrator appointed or ceases to
trade.
5.4 Cut and Run agrees to pay to Mr. Flintstone the following royalties :--
Mousers supplied by Cut and Run Royalty
to third parties
1 - 5000 0.50 each
5001 to 100,000 0.35 each
100,001 plus without limit 0.15 each
5.5 Within 7 days of the end of each month Cut and Run will give Mr. Flintstone the number of mousers supplied to third parties during that month and will pay the appropriate royalty. If payment is late interest will also be paid at 1% per month.
5.6 Mr. Flintstone may check Cut and Run's records to confirm the figures supplied to him and the calculation of the royalty.
5.7 Cut and Run agrees to use its best endeavours to adhere to the implementation plan as set out in the attached schedule.
6. Assignment
Cut and Run will not assign its rights or obligations under this agreement without the written consent of Mr. Flintstone.
7. Ancillary Provisions
7.1 Mr. Flintstone will not incur any liability under the terms of this agreement on behalf of Cut and Run
7.2 Cut and Run will not incur any liability on behalf of Mr. Flintstone except as mentioned in this agreement.
7.3 This agreement shall not be construed so as to establish a partnership or joint venture.
SCHEDULE
12 months sales forecast based on minimum expectations are as follows :
1st 3 months 5000 units sold
month 4 4000
month 5 6000
month 6 8000
month 7 11000
month 8 14000
month 9 18000
month 10 24000
month 11 30000
month 12 37000
Total 157000
(Full forecast 400000)
Signed by )
for and on behalf of ) Z M Beezlebrock
Cut and Run Limited )
SIGNED by FRED FLINTSTONE ) F Flintstone
Browsing through your Inventors' pages, confirmed most of my own views/methods. In 23 years at this game it's been ups-and-downs but, generally, I'm not disenchanted with the system. Best advice to give any budding inventor, in these days of the Net, is to tell 'em to do their own search of US patents at :
www.ibm.com/advquery Have a look at my existing one, US.pat 4,603,318
Robert Philp.
