Frequently, those inventing and creating new and superior products do not have the background or skills necessary to arrange financing or the necessary marketing of their products. Therefore, it would be constructive to create a structure allowing those having disparate but complementary skill sets to collaborate for their mutual benefit
There is also a need for the product to be manufactured, as well as to be researched to ascertain the magnitude of demand from various channels of distribution. Of course, oftentimes the easiest solution for the inventor is to license to an entity already having the necessary areas of expertise to use or market the product or technology.
Indeed, the inventor will, in many cases, be better advised to license the product for a fee, possibly including a percentage of sales of the product, rather than entering into an affiliation with those creating an entity to create a business based on the product. The creation of businesses requires different skills and resources than does the invention of products, and seldom do single individuals have both resources.
So, assuming that those companies with the resources to manufacture or create services have the desire to commit these resources to building a business, what is a fair and reasonable deal to make with the inventor? Should the payment be a one-time purchase of the intellectual property or should the deal include both a payment, which can be an advance against agreed future payments based on revenues, or simply a royalty on future revenues?
There is also the possibility that both the inventor and the managers of the business will want the inventor to become a member of the management team. It is also possible the inventor will become, in some form, one of the owners of the company. The problem is frequently that the inventor will have different views regarding many of the aspects of building the business than the other management members. Different companies, in different industries, have different approaches to the continuing participative role of inventors.
The deal making between the inventor and those expecting to exploit the invention must reflect the agreed-upon continuing role of the inventor. There is no good or best arrangement of which I am aware. Each deal is different and the parties should understand how disagreements will be resolved.
My personal preference as both a champion of entrepreneurs building businesses and as an advisor to inventors is for there to be an initial payment of acquiring company stock and/or cash, plus an agreed share of the company’s post profitable revenues. If the company is successful, all involved should benefit. The benefit of the inventor should reflect that amount of money required in making the company successful.
If provided with hypotheticals I will be pleased to develop for both client companies and inventors what I believe to be fair and reasonable structures.
Arthur Lipper, Chairman
British Far East Holdings Ltd.
+1 858 793 7100
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