Greg, my interpretation of the agreement seems to align with your version.

Here’s a different interpretation of the contract:

Product is licensed…
1,000,0000 units sold at $20
is 1,000,000 units sold from manufacturer at $8
=8,000,000
EN gets 4% license revenue
=320,000
Inventor gets his 50%
=160,0000

Adjusted gross revenue path (EN as manufacturer):
1,000,000 units sold at $20
is 1,000,000 units sold by EN to distributor at $8
subtract $1.50 / unit for returns, bad debts, etc. =$6.50
=6,500,000 adjusted gross revenue
Inventor gets 7.5%
=487,500

Definition:
Adjusted Gross Revenue
Gross Revenues less the sum of all Selling and Fulfillment Costs, Fees and Commissions, and Returns and Bad Debts; any and all refunds, credits, credit card processing fees, chargebacks, and other allowances to customers arising from the return or rejection of goods or otherwise granted in the ordinary course of business, and less any attorney fees directly associated with a legal contract under which any Innovative Products or any of the Intellectual Property is commercialized.

Nothing in there implies to me production costs, advertising costs, etc.

Definition:
Licensing Revenues
Any monies received by Assignee that are received in connection with licensing of, or the grant of rights under, the Intellectual Property, as well as any monies received by Assignee in connection with the explicit grant of any covenant not to sue under the Intellectual Property. For purposes of clarification, Licensing Revenues shall not include any monies received by Assignee in connection with enforcement actions against alleged infringers of the Intellectual Property, and any monies reasonably determined by Assignor to be Licensing Revenues shall not be considered Gross Revenues, Assignment Revenues, or Brand Revenues.

item entry:
ii.50.0% of Licensing Revenues received by Assignee

and nothing in there that implies to me the licensing revenue would be subject to 7.5% rather than 50%

email me updates..click..

Adjusted Gross Revenue as I understand it is as follows (Example)

Company X picks a product from EN submissions

EN gives permission for Company X to produce this product at X% royalties (3-4% perhaps)

EN recieves money from the sales of your product

EN takes out money it spent to get your product to market

You recive a royalty check for 7.5% of the royalties Company X gave to EN

Is this the deal?

So for Emery Cat that had a 5 digit royalty check figure…. 2009-2010

1,000,000 Units Sold at $20 bucks each
$20,000,000 Gross Sales (not including the shipping/handling fees)
-4% Royalties
$800,000 recieved by EN
-7.5% to Inventor
=$60,000 to Emery Cat Inventor

OR

20,000,000 million in sales with Emery Cat
Tons of fees related to TV ads and EN’s fees for developing your idea
Inventor gets 7.5% of what’s left

What surprises me is how 20 million can turn into “Just” 5 figures. And I know that’s alot to most people but I’m comparing to the gross income for perspective.

There’s people out there that make more in a day than the emery cat inventor makes in a year!

PS: I’m not trying to sound like a greedy spoiled brat here, I’m just trying to make sense of it all!

Chris.. The question was originally from another member and just kind of raised an eyebrow. Thanks for the straight forward reply.

Alan -

I can’t comment on that for a few reasons. The biggest reason is that I don’t know the answer. I know very little about bankruptcy law. Even if I looked it up, the bankruptcy rules are fairly complicated and I wouldn’t feel very confident in my answer.

Even if I knew, however, it probably wouldn’t be wise (or perhaps even permissible) for me to advise you on what your rights would be in the scenario you describe. Your own bankruptcy or creditors rights attorney should be the person to offer guidance on your question.

Chris

racingaz… My questions is, if you get a licensing deal with EN and the annuity payments, how would your agreement with EN be treated in the remote case that EN files for bankruptcy? Are you a secured creditor if you’re promised the annuity payment?

Chris would you be able to comment on this question..

Chris:

Thanks for the response. There is no doubt that a formal audit is time consuming and expensive; also there is a fine line between due diligence and partner relationships.

John:

I’ll jump in and answer on Matt’s behalf about performing audits. We obviously require audit rights in all of our agreements with our licensees. To date I am not aware that we have ever officially invoked those rights. There are two reasons for that.

First, bear in mind that we have only been running searches on behalf of manufacturers and retailers for a few years, and often the negotiation and execution of a license can be a drawn out process, so even for our very earliest licenses we’re only about two years into the terms of those agreements. Given the newness of those deals, there has been no reason to call for an official audit with any of our licensees yet. Perhaps in most cases there never will be, but experience tells me that with as many deals as we do there will likely be an occasion to request an audit from one of our licensees someday.

Second, while we have not ever undertaken a formal audit, we have in many cases requested and received additional backup documentation to support the statements we receive from our licensees. Our relationships with our partners are such that we can usually pick up the phone and ask a few questions and get sufficient answers to resolve any questions we might have. As long as our licensees remain forthcoming with us, there is no need to take the additional step of a formal audit.

Hope that helps!

Matt:

Since we are on this subject of payouts, does EN on a periodic basis and on behalf of the Assignor, audit the company for :Adjusted Gross Revenues, Licensing Revenues, Assignment Revenues and Brand Revenues over the life time of the agreement? If so, how frequent are audits performed?

Thanks for your help, think I will give it a shot.

can’t say about the legaleze but I do know you are not required to assign your patent at the submission level.

Greg, thank you for your response… Does giving your patent rights to others pertain to all avenues of being “found or discovered”

Also, in order to submit a product or idea I am not required to assign at that point. Just trying to be a little cautious as you said there are other companies out there not so good.

I do appreciate your opinion.

Tim, if E.N. selects your project for developing then you will, at some point, be requested to “assign” your patent to them. It’s your choice. I have made that decision because they are so far above any other organization I’ve considered in terms of respecting the inventor and communicating with the inventor, and most importantly to me, they have the gravitas to actually make things happen as opposed to just talking about it.
You may find that once you make that decision all anxiety shifts to hoping they can make you a lot of money. I hope you get to that point. That’s a good thing. Just my opinion.

Hello everyone, I am new here and don’t mean to jump into the middle of someone elses thread. A question if I may?

I believe I read that if you already have a patent and get to a certain stage with EN the patent becomes theirs.

Can someone help me with this? Not sure if I am posting in the right place but sounded as though it is relative. Thanks!!!

Great thread and very informational. I actually read the agreement and I would say it is very one sided in EN’s favor but I understand that as EN would be fronting all the costs and taking all the risks so they want all the control in developing the idea. Also, EN’s terms are still way better than the industry standards, specifically the royalty payment. I’ve also looked at quirky and their terms are just outright ‘stealing’, in my opinion.

My questions is, if you get a licensing deal with EN and the annuity payments, how would your agreement with EN be treated in the remote case that EN files for bankruptcy? Are you a secured creditor if you’re promised the annuity payment?

I’m not saying that EN will go bankrupt but companies nowadays file for bankruptcies for 100’s of reasons.

Greg, Boy, that is certainly a freudian slip: you asked if it was the same ‘bile’…….. Let’s hope not because he sounds like a nice guy..
;-)

Tom, Isn’t anything you get from EN more than you would get after patenting, manufacturing, packaging, marketing, etc. the product by yourself?

Yep, that’s the one. I think that’s pretty cool that you’ve had a chance to meet Mr. Docie. I know I’ve caught some video of him. In addition to invention books, some product design books cover a full range of business and related concepts.

Here’s a link to the Inventor’s Bible:
http://www.amazon.com/Inventors-Bible-3rd-Licen...

Greg,
Is that the same Inventor’s Bile authored by Ron Docie? I had the privilege to meet him in his home town of Athens Ohio while I was home visiting in Chillicothe about eight years ago. He took the time to have lunch with me and it is a cherished memory. I like the book too. I think it was my first in a line of about ten on the subject of inventing in my repertoire.

Definitely illustrates that the long-range plan for an inventor should include getting some business basics. Even without going entrepreneur it can pay to understand. I’d suggest “The Inventor’s Bible” as a good foundation for many concepts related to licensing, royalties, etc. and so much more.

Some other concepts, figure double a price per layer from manufacture to distributor to retail. Barring a manufacturer selling online, don’t expect royalty’s revenue bit being the retail price. Figure at best 1/2 of retail; so if EN manufacturers & distributes then looking at 3.75% of retail (minus all those other factors mentioned in the agreement.)

Thanks so much for the clarification, Matt. I indeed was interpreting it wrongly, and I admit, I hate going through the legal agreements which just never end.
I also hate it when the attorneys convert my 4 page patent into a 60 page document and I have to review it carefully. Done it so many times, but I can still not write that legal language or even understand it completely.
Its really boring, but yes, I’ll try to go thru the agreement, in the hope of falling asleep :-).

Matt, thank you and EN for shielding us from the harshness of reality when it comes to inventing! I’m sure inventors who have been through the grind know and appreciate all you are doing for us.

Jim – thanks for sharing your real-world numbers as they apply to your product.

Back to the agreement… Anant, your take on Adjusted Gross Income is not correct – it has nothing to do with wholesale versus retail cost. Here’s the definition from the agreement (BTW, I keep referencing the agreement because that’s the horse’s mouth if you will — that’s what you agree to when you submit an idea):

Adjusted Gross Revenue
Gross Revenues less the sum of all Selling and Fulfillment Costs, Fees and Commissions, and Returns and Bad Debts; any and all refunds, credits, credit card processing fees, chargebacks, and other allowances to customers arising from the return or rejection of goods or otherwise granted in the ordinary course of business, and less any attorney fees directly associated with a legal contract under which any Innovative Products or any of the Intellectual Property is commercialized.

Some deals have a ridiculous definition of Adjusted Gross Revenue and they blow it out of proportion with all sorts of charges. Ours basically states that it’s the total sales of the product minus the commission of a sales organization (if we had to use one to get into a particular market), returns, bounced checks, etc… The attorney fees is in there because if it was not, it would reduce our incentive to go after infringers if we lost. This way, we all benefit if we win a case and we share in the downside if we don’t.

I hope that helps clear up the picture. I know that legal agreement is really long but it’s not very hard to follow if you take your time and go down line by line. There are even hyperlinks when a term is used to make it easier to get your definitions. I’d recommend reading it to everybody – if nothing else, it might help you fall asleep tonight :-)

Thanks, Matt! There is no doubt that EN is the best for inventors, and my sole reason for asking this was to just estimate how much one could earn with a great hit like eggies. Anyways looks like I’ll have to wait till I come up with something like eggies to get the exact answer.
And yes, 50/50 is surely very fair for a investment of 20-35$’s.

@Jim –
Thanks for sharing this, Jim.
Did you mean 6% of adjusted gross revenue? So 7.5% is not fixed. It could vary, and in your case, you got 6%.
Also, I thought EN pays for patent fees, does it not?
What I am curious to know if how adjusted gross revenue compares to retail price. If something costs $10, 6% of it would be 60 cents. Assuming adjusted gross revenue is half the total gross revenue, do you get around 30 cents i.e. 3% of the total gross retail value, or it is lesser than that?

I receive a 6% royalty payment for each box of my marketed product, Cover Fresh Food Covers, that’s sold (wholesale). I am very pleased because that percentage is much higher than the 3% to 5% normally offered to licensors. Believe me, for EN to give 7.5% is absolutely unheard of anywhere else, especially when they’re doing all the work and taking all the risks! BTW, I had to pay for patent filing fees too.

Anant,
There is no “typical” product from a cost or price perspective. Not to mention, the quantity differs between products, which completely changes the numbers, too. If you sell more product, you’re going to earn more (not trying to be patronizing there, just want to make sure I state it).

Here’s what you need to keep in mind: We only make money if you make money. Our goal is to maximize revenue for your product because we are maximizing revenue for our piece of the pie at the same time. We’ll cut out as many middle men as possible to get there, maximizing the return on investment for both of us.

It should also be noted that a generally agreed upon “good” royalty rate (of course, if differs by industry) is usually 2.5%-3.5%. We more than doubled that to 7.5% because we’re turning the tables on how it’s done. On the licensing side, you bring the idea to the table (whether it’s an idea or a final sample) and we do everything on the other side of the equation; including filing for, maintaining and protecting the appropriate patent portfolio; striking the licensing deal(s); and anything else that might come into play. For that, we believe a 50/50 split is very fair.

If you have a product that you feel you are too deep into in order to enter into such an agreement, don’t. Do it on your own. If you don’t succeed, we’ll still be here to help you out when the time comes. We’ve had more than a few members submit products to us that were filling up their garage at home because they had hit a brick wall in terms of actually creating a business around their product. We’ve also seen members who submitted a sketch on a napkin go from a napkin to millions of store shelves around the world in the blink of an eye.

I hope that helps!

Hi Matt,

Thanks and I really appreciate that you keep monitoring threads and respond when appropriate. I actually read this.
However, my confusion is, how much is this value. From a consumer perspective, all I know is the cost at which it is sold.
Lets say that is $10.
I have no idea what the range of Adjusted gross revenue’s could be for this.
Similarly no idea how much could licencing, assignment and brand revenues could be.
An example would really help. I can understand that, there could be a variance of even 50% or maybe even 100%, but that would be better that having no idea at all.

For eg: On an average after considering all the above four, for every item sold, does the inventor receive $0.1 per item of $10 sold, or it is more or less?
Of course understand that some of these don’t depend on the no of items sold, but just, some rough nos would help, if it is possible ot share this.

And yes, this really needs to be added to the FAQ, as this question can come in everyone’s mind.

And one more question

Lets say I have a prototype or even a manufactured product, and/or a patent. Does it make any difference in the royalty, if I have these or is the royalty the same for these cases and the case of an idea only (with some basic images)

Good News for ENers…A Heartfelt Thank You Matt and EN from those of us that have the opportunity to participate!

Here it is, straight from the Agreement. I think it’s straight-forward. I’ll look into putting it into the FAQ as well so it’s a little easier to find:

In exchange for the assignment of Intellectual Property set forth in Section 1, Assignee shall make annual payments to Assignor, subject to the terms and conditions provided in this Assignment, in an amount equal to:

- 7.5% of Adjusted Gross Revenues received by Assignee; plus
- 50.0% of Licensing Revenues received by Assignee; plus
- 40.0% of Assignment Revenues received by Assignee; plus
- 4.0% of Brand Revenues received by Assignee.

I tried to go through the terms and conditions to see %age of total sales one would get, but its fairly complicated to understand.
One thing I am not clear about is
Is there any difference between Innovation Fund, Normal searches and ASOTV when it comes to sharing royalty. I would assume Innovation funds would pay out more, as EN would do more at their end. Is that right?
How are innovation fund products manufactured and sold – any idea?

If I remember right, anywhere from 3-5% royalties are the norm in the product world. EN gives you a higher royalty rate than most. If you check around, you’ll find this to be true. For instance, alot of the Quirky products out there that are currently selling list the total units sold and the income brought in. You can look at the numbers and do the math, they show what the inventor is making.

Also 7.5% return on major manufacturing, marketing, IP and order fullfillment is not too shabby, considering many of the items that EN ultimately ends up pushing, had very little (if any) money put in by the submitter. I’ll take a nice steady royalty for 20 years (if possible) as opposed to a cut and run check for a brief flash in the pan from others.

its roughly 50%

the 7.5% rate is like a full royalty rate, you get all the royalties and they get all the manufacturing money. That’s the best deal in my opinion!

At the top of the site, you can click on ‘Contact Us’ and learn all sorts of things and this link is just one I found to help you: http://www.edisonnation.com/lps/faq

If signing a licensing deal…….they will split the royalties with you 50/50.

If they bring the product to market, I believe the inventor receives a 7.5% royalty rate.