Hello, my name is Christopher Hawker. I am a professional inventor, specializing in innovative consumer products. My company is called Trident Design, LLC. I have developed many products in numerous industries and have over 20 products on the market. My most famous invention is the PowerSquid, a cephalopod-inspired power strip with outlets situated at the end of short cords, thereby eliminating the problem of losing outlets to bulky transformer plugs. John Biggs, editor-in-chief of this blog, has asked me to write the story of the birth of the PowerSquid and its development and journey to market. This is the Song of the PowerSquid.
Part 3: The License Hunt
Armed with our handmade prototypes and fancy brochures, we set about searching for a partner. We felt it would be easy. We thought we would call up the companies, tell them about our revolutionary products, and they would line up to see them. Then they would immediately recognize the beauty of the products and fight over the right to be the exclusive distributor. As you might guess, we were wrong.
We identified our first targets: Black & Decker, GE, Belkin, Monster, Woods, APC, and Kensington. They were all high-profile companies with excellent brands and distribution. We researched the companies to find numbers to call. We began reaching out and left messages, but could not reach anyone. We submitted the inventions through the “front door” formal design submission processes at the bigger companies such as Black & Decker, but got no response. We tried to network our way into others with no success. Now desperate, we booked a trip to the Consumer Electronics Show (CES) in Las Vegas in January 2002 to see if we could attract interest.
The CES was an eye-opening experience. There were an overwhelming number of booths for the technology companies and the display of money and resources was audacious. One company, maybe Microsoft, had set up a fake ski hill in the parking lot, where professional skiers and snowboarders performed aerial tricks as techno music blared. We stepped into the show with our list of targets and went booth to booth to speak to those in charge of new product development. This worked much better than cold calling had. We discovered nearly every target had a high-level person on hand who was either the right person to talk to or knew that person. Furthermore, despite the struggles of trying to reach them by phone, there were all eager to talk in this venue.
Still, we were quickly dismissed by all but Monster and Belkin, both who expressed guarded interest. We kept getting the same response: “This will cost more to make than a normal power strip or outlet and no one is going to pay twice as much for this.” We repeatedly discovered the power delivery industry was very conservative, dominated by players who viewed it as a commodity business that had no room for innovation or good design. No one wanted to take chances and no one cared about fresh ideas.
Then, by chance, I was leafing through the show guide and came across a company I had never heard of that had a promising name: Power Sentry. We visited its booth and discovered the company was the number two player in the power strip industry, behind Belkin, by virtue of owning the category at Wal-Mart and Target. We were also told that their new president spoke often of innovation and that they were definitely interested.
So then began the process of negotiating with the potential licensees. I had licensed one other product in the meantime, a cooking gadget called the Chef Scoop, so I had some experience with the process and terms. The key terms to negotiate in a patent license are royalty rate (typically 2 to 6 percent of gross revenue for products), annual minimums (important in case the product doesn’t sell), upfront monies (which licensees hate), and length of deal (you want a chance to renegotiate after a few years if you get a homerun!). Of course, there are other points to be negotiated, and the language of each can be argued, too. The final document can be more than 20 pages, so there is plenty of opportunity to run up a large legal bill. But if you can agree on the first four points, you can agree on the rest.
The royalty rate and term discussions are relatively straightforward, but it is difficult to argue for upfront fees or annual minimums unless the product has an established history. Therefore, you really have to guess and see what the market bears. I learned quickly that it wouldn’t bear much, and my outsized expectations for the PowerSquid and Ejector Plug were not held by manufacturers. I was in disbelief in how pessimistic they were. Of course, I ended up being wrong, so far at least, about the Ejector Plug, so I have learned to be more cautious in my own expectations and more understanding of the manufacturers’ position. I had to quickly adjust my expectations in terms of upfront fees, and tried to use the lower-than-hoped for fees as a negotiating chip to get a higher royalty, a tactic which worked fairly well.
Monster dropped out of the race quickly, citing a perceived lack of potential. Belkin dropped next because it wanted to focus on a new product line. That left me with Power Sentry and a weak negotiating position. I played it well, though, and got a fair deal. My negotiating method with much larger companies is to insist on fairness. Most people don’t want to be seen as unfair, and it’s definitely to the smaller guy’s advantage to strike a fair deal. (I recommend reading Getting to Yes by William Ury and Robert Fisher. It’s a fabulous take on negotiation strategy.)
So now I finally had an agreement with Power Sentry based on the key terms. It then took another six (anxious) months of talks, mostly among lawyers, to seal the rest of the deal. All of the points are important with serious repercussions. Each deserves its proper attention. But, boy, it’s a tedious process, especially the first few times, when the language seems foreign. The process was also costly. I had a lot riding on both the PowerSquid and Ejector Plug.
Christopher Hawker, an inventor specializing in innovative consumer products, is founder of Trident Design, LLC in Columbus, Ohio. He is the author of “Inventor’s Mind: 10 Steps to Making Money From your Inventions”, a free e-book available at Invent-Shop.com. He will be hosting his first InventShop Inventor’s Workshop in October 2009 for serious inventors who want to learn his inventing system.
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