© 2002, Gallagher & Dawsey Co., LPA
Many inventors believe that any licensing agreement is a good
licensing agreement. Actually, nothing could be further from the
truth. In fact, there are companies that prey on the naivety of novice
Optimistic inventors are often duped into signing one-sided licensing
agreements that do not guarantee the inventor anything. Frequently
inventors are so enamored that someone is interested in licensing
their invention that the inventor cannot see the fire behind the
smoke. This is why inventors should rarely do their own negotiating in
a potential licensing agreement.
The situation typically starts with a potential licensee that focuses
on a willingness to pay royalties. The optimistic inventor starts
seeing dollar signs float around the room because they are certain
that every household in America needs one of their devices. Then a
"standard" licensing agreement is signed, often giving the licensee an
exclusive right to make and sell the invention while not requiring the
licensee to actually sell a single unit. Inventors should always be
wary of a potential licensee that proposes a "standard" licensing
agreement because there is no such agreement.
Inventors need to closely understand the motivation of the licensee.
Often companies will license inventions without any intent to sell the
invention. A company may simply wish to keep a competitor from
licensing the invention. Similarly, the license agreement may serve as
an inexpensive insurance policy against damages for patent
infringement if the company later decides to design around the
inventor's patent. Either way, an inventor cannot collect royalties on
an invention that is not sold.
A few simple sentences in the licensing agreement can avoid such
unnecessary risks to the inventor. Typically, a clause known as a
"dead horse" clause sets forth requirements ensuring that the
inventor's expectations are met by the licensee. For example, the
clause may set forth a minimum number of units that must be sold.
Additionally, the clause may include a provision voiding the licensing
agreement if specific sales quantities are not met..
While such "dead horse" clauses may be remarkably simple and "common
sense," they are commonly overlooked, with devastating consequences,
once inventors start dreaming of the summer home they are going to
purchase with their soon to be had riches. Inventors should always
have their patent attorneys review licensing agreements before signing