I have gotten a number of emails this year where Inventors hear or read terms and don’t know what they mean, but most don’t want to ask for fear of being embarassed in front of their peers. So, I have put together a list you can add to that will help everyone be better informed and knowledgeable of what is being discussed around them.
Non-Disclosure (NDA)- A document that both parties signs agreeing to keep any information discussed or shown confidential. Each party must get a signed original for their records of the document.
Minimum royalty payment- The lowest amount per your contract you will receive quarterly in royalties no matter how many units of the product are sold.
Upfront payment or “advance on royalties”- payment made prior to the product going to market to the Inventor. Once the product is on the market the Inventor does not receive any royalties until the advance is equaled in royalties paying the company back for the advance.
Exclusivity- An agreement between the Inventor and the company stating that the company will be the only party entitled to manufacture and sell your product. It is normally written for one market or all markets for the life of the contract.
Non-exclusive- An agreement that the company has the right to manufacture and sell your product, but the Inventor is still able to make the same agreement with other companies.
Patent search- A search done by a patent lawyer or patenting firm to see if any other patent has been issued on the same or similar concept you have in mind. Any claims similar to yours will have to be addressed and rebuttal as to why yours is unique from the patent issued.
Letter of intent or MOU (memorandum of Understanding) Either document is used to state each parties intent and course of action to meet a common goal. These documents are normally followed by a formal contract between the two parties once everyone is in agreement.
Licensing agreement- Document stating the terms of payment both parties agree to for licensing the product. These include, minimums, advances, royalties, payment schedule, length of contract and assigned rights.
Sell sheet- A one or two page document with drawings, and benefit explanations specific to the product. This allows the reader to get a full overview of the product and its marketability.
Prototype- functional model that can demonstrate your products features. It can be crude to manufacture ready in quality.
Licensing agent or Broker- A Person that represents you and your product to possible investors, manufacturers, and licensing companies. They get a percentage of the royalties of any licensing deal accepted as part of their services.
Patent attorney-Writes patent claims, researches the patent , and works to help the client obtain a patent on their idea/product.
Patent agent-works with the product developer/Inventor to negotiate patent agreements. Does similar work as the Patent attorney, but is normally not a lawyer.
Proof of Concept- The ability to demonstrate via a prototype, engineering model, 3-D animation, etc that your product actually will work as claimed.
Investor/Angel Investor- Person(s) or group that invests money for the development and production of your idea/product. This investment is for a portion/ownership of the company/product.
3-D printer- Utilizing CAD drawing input the printer makes a 3-D solid model of the design.
Wholesale price- The price the manufacturer charges distributers, vendors and stores for the product. This price is what is used to base the inventors’ royalty percentage payment.
Retail Price- Price stores charge the consumer for the product.
Product launch- date the company plans to have the product on store shelves available to consumers.
Retainer or hold fee- monetary payment made to inventor to allow company to keep your product/idea longer for further evaluation or development without the Inventor sending it to another company.
Branding- Method used to promote the product to the consumer. A proper branding campaign can be more effective than patenting to protect your protect from knockoffs.
Copycats/knockoffs- product that is built similar to the original and is in direct competition with the original product. It may also be in violation of the original products patent. The term for this violation is called infringement.
Cold calling- contacting a company for the first time to pitch your idea/product and not knowing anyone within the company.
Minimums- Clause in the contract that states whether your product sells X-amount units or not, you still get paid X-amount per year.
Kill fee- amount you are paid for services rendered if the deal/contract is cancelled.
Wish list- some companies will send out a list specifying the areas they want to see new ideas .
ROI- Return on investment- This is what investors look at before putting in any money. What will the return in profits to them be versus how much they have to put in? This is where they decide what the risk factor is.
Work For Hire- Normally a fee paid for services rendered where the person providing the service has no legal ownership of the finished product. Example- you have a prototype made by a company. They performed the work but you own the finished product. If you sell a million of them they do not get any further compensation than the fee you paid for the original service of having the prototype made.