Licensing your intellectual property is challenging especially if you’re unsure what to do or how to do it. And that can lead you into big licensing traps, some of which are very difficult to get out of.
What are these traps, and how do you avoid them? In this article, I’ll discuss six top ones and what you must do to stay clear of them.
The number one trap is failing to take action. That is why 95% of most IP owners never make money. The best thing you can do with your IP is to take action in the marketplace. That means getting out into the market – testing it, proving it, and promoting it to potential licensing partners. If you don’t do anything with it, nothing will happen.
And that’s one of the biggest traps that most IP owners fall into. It’s also one of the easiest traps to avoid. Taking action doesn’t mean that you have to jump into it without knowing what to do and how. It simply means you start the process of licensing, whether that’s researching potential partners, sending out introduction emails, or visiting a trade show. Any of these actions help you avoid the “failing to take action” trap.
The second trap is putting a “one price fits all” price tag on your IP. That assumes a certain royalty rate will work for everybody. But this approach can price you out of the market. If you wind up asking for a royalty rate that’s too high, it doesn’t leave enough room for profits. If your IP still has a lot of development risk, it needs a lower royalty rate to make it worthwhile for your partner to take the risk. On the other hand, if your royalty rate is too low, you wind up leaving money on the table. Once you sign the licensing agreement, it’s hard to go back and “renegotiate” for a higher royalty.
The best way to avoid this trap is to do a little research on similar types of IP. Find out what the going licensing royalty rate is for your industry. While this will give you a good idea of what to charge, always keep in mind, the royalty rate comes down to what is negotiated between you and your licensing partner.
The third trap many IP owners fall into is trying to negotiate the licensing agreement terms themselves. You are not the best person to negotiate your own licensing deal. Your IP is your baby, and you lack objectivity. It’s tough for you to stay objective in the midst of a negotiation, especially if there are criticisms about your IP or the discussions focus on what it’s lacking or what still needs development.
These are all negotiating “posturing” tactics designed to get the best deal for your licensing partner. You can avoid falling into this trap by retaining the services of a licensing agent or attorney to negotiate a deal for you. They’re objective and will focus on getting the best deal for your IP.
The fourth trap many IP owners fall into is failing to research a potential licensing partner. That is a big trap that can cost you a lot of time, money, and legal actions to get out of a deal with a bad partner. If you don’t research a partner before signing the licensing deal, you can wind up working with a company that lacks the resources or experience to get your IP into the market. Or worse, a dishonest company in the way they use your IP and fail to pay you.
A little homework on your partner before signing a licensing deal will go a long way toward avoiding this licensing trap.
The fifth licensing trap is unrealistic expectations. That happens when you go into a deal with a licensing partner without understanding exactly what you and your partner expect from each other. For example, your partner plans to market your IP one way, and you think it should be marketed another way. The problem is you didn’t discuss this before signing the deal. You never found out if your licensing partner’s vision is similar to yours about marketing and selling your IP.
Another variation is that your partner expects a lot of support, and you offer very little support. That’s something that often happens when you fail to check and find out exactly what your partner needs.
To avoid this trap, be sure that there’s a discussion with your partner about what each other expects from the partnership as part of your negotiations. That’s also the best way to ensure it’s a long-term profitable partnership for both of you.
The sixth and last trap is one of the hardest to get out of … the DIY licensing agreement. While there are many types of licensing agreements available online, they are often difficult to understand, especially regarding changing it for your particular IP and licensing deal. Get it wrong, and you wind up signing a deal that costs you more than just money. It could tie up your rights for years, or worse, and you lose control of your IP.
The best way to avoid this trap is to work with a qualified licensing attorney. It’s well worth the investment to pay for the services of a good IP attorney. They’ll prepare or review it and help you understand everything that’s in it. More importantly, they’ll make sure it’s fair and protects you and your intellectual property.
Remember licensing your IP is a process that requires doing things in a certain sequence. If not, you’ll wind up falling into licensing traps, some of which are very difficult to get out of. If you don’t know what to do or how to do it, then retaining a licensing agent (such as myself) or an IP licensing attorney is one of the best ways to ensure you don’t fall into any of these or other licensing traps.