Moving from making one-of a kind pieces to mass market licensing can result in high end pieces to seeing units sold in the tens of thousands. The path to licensing design is not one that many people are familiar with. The end goal can be major financial reward. However, it is also a minefield littered with designers who have lost time, money, as well as their creative creations.
I can tell you my story from the standpoint of an engineer/artist who has licensed 11 designs and has seen major rewards and big disappointments. My story is different from one told perhaps by an intellectual property attorney, a product development firm, or heaven help us, an inventor representation firm.
My experience was forged on a fairly lucky trial and error path. It started with an art piece I had developed which I named, Luminglas(US Pat 5,383,295). It’s a flat glass lighted device that produces a field of kinetic, colored lightning. You may have already seen Luminglas, which was used extensively in the movie Star Trek: First Contact and Star Trek:Next Generation TV show.
I developed, and subsequently patented, this device. Intially, sales efforts were informal and clumsy. The biggest step toward commercialization was to sell it to one of the many high tech design catalogs that were prevalent about twenty years ago.
The sales of my esoteric art piece were averaging about 2 pieces per month, and I had to do everything in the process of making and shipping each one. I barely covered my costs, but the visibility lead to my first license and a change in my life.
Through my “agent”, a manufacturer contacted me and a meeting in New York was arranged. The manufacturer wanted to license the product and my patent, and they would manufacture it in China with worldwide distribution, for which I would receive a royalty for each piece.
They told me that there were already efforts going in the Far East to “knock it off”, and since unscrupulous manufacturers were going to take it anyway, I could license it to try to stop infringers to my patent. I like to say my decision took microseconds to make.
I signed an agreement, accompanied by a modest signing bonus, and helped them set up a factory in China. I transferred most of the technology via a video from my studio showing how it was made. I also traveled to China to help set up a “factory”. This was an empty building, brought to life in a couple weeks to a full manufacturing facility. Honestly, the speed of setup was impressive, and a story unto itself.
They asked me to list my cost for material, and drew a price comparison between my cost to make a unit, and their cost per manufactured unit. They said they would initially introduce their piece at 1/3rd this price. In the second round of manufacturing, this would drop to 1/3rd that. Thus, 1/9th my material cost for the final product.
During the first several years my license worked very well, and I live in a nice Boston condo, largely due to the royalties generated. The relationship I developed allowed me to further license numerous other designs, though at progressively lower returns per piece.
There is more to the story, but let me highlight what I learned.
Success at a venture like this should be viewed as a length of chain (which is an important metaphor). It’s as strong as the weakest link. The links include:
The attractiveness of your product to the market (not to you or your friends and relatives but to experienced retailers)
The ability to get it made at a cost that can allow it to be sold at retail at an attractive price. I observed many good products die due to very small differences in cost versus sales price or inventors thinking their product was worth more than the retailers could sell it for.
Your intellectual property protection and more importantly your ability to defend it. This requires patience, and potentially lots of money. Remember, a patent is only a license to sue someone for infringement. A rule of thumb is unless you can be fairly sure of $50,000 or more in return don’t patent it unless you realize this is a vanity move. Patents are expensive and time consuming to get.
Technical support for, the product especially for a technical product, is important and don’t be surprised if you get phone calls for years about fixing products you licensed but never made.
Technical approvals for the product may be needed (UL, CSA, etc.) In many markets. Products cannot be sold without these hedges against lawsuits.
Actually getting paid your license fee.
Finding a licensee that has all the properties of an honest and capable maker of your design.
I learned that there are alternatives to patents for protection. If you are a good source of new ideas, you can leverage that to protect your current royalty stream. In my own case, when my string of related ideas started to die out, so did my ability to collect royalties.
You feel, and excuse the term, like an “Art Whore”, selling your design to retail.
The retail world is coalescing around a shrinking number but far larger, more sophisticated and ruthless players. Getting a contract selling to one of these can make or thoroughly break you. If, for example, you make a technical or manufacturing mistake the retailer may junk your entire order with no recompense.
The average patent lawsuit (at least 12 years ago) took 3 years and approximately $300,000. I’m sure this cost has risen.
During a patent lawsuit the infringer can continue to sell your item.
The average lifespan of a retail product is often the same length of an average lawsuit.
I don’t have personal experience in this but if your infringer is offshore, think about having a judgement in hand and trying to collect on it. The process can be difficult. Companies overseas often can be very nebulous entities and there’s little to sue or to collect from and there may be more than one. They also may shut down if pushed and reopen under another name. Our laws are far different from other countries as well as the enforcement of those.
With a patent you can, at least in theory, keep infringers product out of the US at the border.
US patents don’t cover the rest of the world. Consider this when going after a patent. Foreign patents can also be expensive to get and defend.
One positive note to end on, and maybe some consolation. This process is difficult and can be just as difficult for potential competitors.
This list sounds negative and perhaps off-putting but there is almost an insatiable need for new product ideas in the marketplace. There are now avenues for new products at product showplaces.
Fortunes have been made for very simple ideas that have gone viral in the retail world. There are inventors groups like one held locally at MIT that can be of great service helping people licensing their designs.