What Every Inventor Needs to Know About Exit Strategies

Congratulations! This is an exciting time for you and your business. So you’ve invented something new and are ready to take it to the marketplace. But before you sign on the dotted line of that licensing agreement, there’s one fundamental question you need to ask yourself: what is your exit strategy?

An exit strategy is simply a plan for getting out of the licensing agreement if things go sour. It’s essential to have one in place because, as we all know, things don’t always go according to plan. And if things go wrong, you want to be sure that you can extricate yourself from the situation without losing your shirt.

There are a few different exit strategies that you can consider, and which one is right for you will depend on your specific circumstances. Here are a few of the most common options:

Option 1: Redemption rights
One way to protect yourself is to negotiate redemption rights in your licensing agreement. This means that if the licensee violates specific terms of the agreement, you have the right to “redeem” the license—i.e., take back control of the licensed property. This option protects you against your invention’s misuse, but it can be costly to exercise (if, for example, you have to buy back the license from the licensee). It’s also worth noting that not all licensees will be willing to give up this kind of control.

Option 2: First-refusal rights
Another way to protect yourself is to negotiate for first-refusal rights in your licensing agreement. If you receive an offer from a third party to buy your invention, you must first offer it to your licensee. This gives them the right of first refusal, which means they can accept or reject the offer.  If they accept it, great! If not, then you have someone willing to pay for your invention and can make an informed decision about whether or not to continue working with the licensee.

Option 3: Termination clause
A third option is to include a termination clause in your licensing agreement. This gives you the right to terminate the agreement under certain conditions, such as if the licensee defaults on their payments or violates specific agreement terms. However, this option can be tricky because it can be challenging to prove that a violation has occurred. It’s also worth noting that many licensees are wary of a termination clause in an agreement because it can give (depending on how it’s written) the inventor too much power.

As an inventor, you must consider exit strategies before signing a licensing agreement. There are a few different options available to you, so take some time to consider which makes the most sense for your situation. And remember: it’s always better to be safe than sorry! Things don’t always go according to plan; if things go wrong, you want to ensure you have the best way out.

Rand Brenner Administrator
Rand Brenner is an IP professional whose passion is helping inventors, startups, and businesses of all sizes use licensing to turn their IP into income-producing products, services, and technologies. His decades of experience run the gamut from medical devices to food technology to consumer products. He’s licensed some of the biggest Hollywood entertainment blockbusters including the Batman Movies (1 and 2), and the number one kid\'s action TV show, the Mighty Morphin Power Rangers. Rand speaks about licensing and is a featured speaker at investment conferences, trade shows, colleges, and startup events. He’s a published writer with articles appearing in several prestigious trade magazines including The Licensing Journal, Intellectual Property Magazine, and License India.
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