John, That is the best explanation I have seen anywhere on the net. You would not believe the Invention Submission companies and Invention Consultants that allow the Inventor to believe they will be getting their royalty based on the price they see the product for sale in the stores. That is what gives the Inventor the false impression that every idea is a million dollar bonanza. They do not understand that a product in the store for $25 was probably sold to that store for under $10 and their royalty is based on that under $10 price.
Great info. Keep up the fantastic job!

Yes, absolutely correct.

So in your example, with $1M in sales, that is the selling price of EE to the retailer, correct? So the retailer will add their markup to maybe $2M in sales?

No, net receipts is not wholesale profit. First let me clarify that when you say wholesale profit, I think you mean gross profit. Gross profit is net receipts less the cost of goods sold. Net receipts is bigger than gross profit. Net receipts equals monies received from sales less direct sales costs, but not less cost of goods sold. The agreement identifies direct sales costs as “any applicable discounts, allowances, returns, rebates, charge backs, commissions, freight, shipping, fulfillment charges (including picking and packing costs) and sale transaction fees (such as, for example, credit card processing fees)”.



So let’s say that EE selects and commercializes your patented invention (widget) and in year 1, they sell $1 million of the widget and it cost $500,000 to manufacture those widgets. Additionally, there were a total of $50,000 in returns and rebates and another $50,000 in shipping and fulfillment costs and $20,000 in commissions. Net receipts equals $880,000 and your annuity payment is $88,000 [($1M less $50K less $50K less $20K) times 10%]. FYI, gross profit for EE is $292,000 [$1M less $50K less $50K less $20K less $88K (your payment) less $500K (manufactured cost of product).

Thanks for the clarification, John! So is “net receipts” the the wholesale profit essentially?

If your invention is manufactured and distributed by Everyday Edisons, then you will receive either 5% or 10% of net receipts from sales. You receive 5% if there is no patent protection and 10% if there is patent protection. If Everyday Edisons licenses your product to another manufacturer, then you receive half of any licensing revenue that Everyday Edisons receives. Therefore, if EE licenses it to Company A for 8% of Company A’s net receipts, then you receive 4% of Company A’s net receipts.