Negotiating a mutually beneficial licensing deal requires knowledge, practice, patience, and time. Based on my experience coaching inventors, most of us don’t enjoy it. Which is unfortunate, because negotiating is both an art and a skill — and can actually be quite pleasurable. That said, negotiating any contract is difficult at best. Even for the most seasoned professionals, negotiating a licensing agreement isn’t easy.
After negotiating about 30 of my own licensing agreements, and helping hundreds of others do the same in my role as cofounder of the inventRight program, I like to think I’ve learned a thing or two. But, still, I was taken aback and delighted by the tips and strategies I recently learned from Benjamin Kwitek, inventor and Director of Innovation at the University of Colorado, Colorado Springs.
He has signed more than 20 licensing agreements covering about 250 patents, including his inventions as well as portfolios he manages for other inventors and ventures.
At the University, he works with students to help them commercialize their ideas. He travels around the world advocating for innovation, entrepreneurship, and the democratizing power of intellectual property.
I was especially interested in discovering how Kwitek had managed to license the same product — a soft, ergonomic pen grip — to many competitors, amassing over 100 million units sold.
Among his other licensed inventions on the market? A method for manufacturing a portable cinnamon roll sold in Taco Bell and many other places.
A major takeaway from our conversation is that every potential licensee has specific needs, and the best way to negotiate is to find out what those needs are. We focus on how to negotiate non-exclusive licensing agreements in particular.
Regardless of the specific type of contract or agreement you are negotiating, I believe you will find great value in his perspective and advice.
Stephen Key: “Ben, it looks like you were able to license the same invention to multiple companies. Is that true? I’m really curious how you did that.
Benjamin Kwitek: Yes, it is. Almost exclusively, my licensing contracts have been non-exclusive.
Steve: How did you do that? Because that’s not easy.
Ben: No, it’s not easy to do. A couple initial deals flowed from some patent litigation. The deal with that was, ‘You get a non-exclusive, but that’s all you’re getting. I’ll fight longer and harder if I need to, so take the deal.’
Then, you use that [first deal] as leverage or as momentum when you approach the next company. There’s a lot of copycat behavior in the market. So, if it’s good enough for Apple, it’s probably good enough for Samsung or Microsoft. Once you can get one company in your corner, then you can play them off each other in a modified parent trap and get more to sign up for the license.
With regard to the pen grip product, the first licensing deal actually came out of the litigation. I tried to license to them unsuccessfully for a long time and they ultimately told me that they weren’t interested. When they came out with a product that utilized my technology, I approached them again. They just ignored me this time, not surprisingly.
Then I found a law firm in Texas that had been one of the big five tobacco law firms. They had a lot of resources, they were a bit crazy, and they were from Texas. Don’t mess with Texas as they say. They liked me enough to take the case on contingency and put quality resources behind me.
I remember we flew to a hearing in Beaumont, Texas, and instead of flying into Houston and then driving over, we took one of their private jets. I remember my council giving the council from New York a really hard time, saying, “Did you fly commercial? We just took the corporate jet here.”
These New York lawyers making a $1,000 an hour must have been thinking, “How is it that this insignificant inventor from Colorado is flying here on a corporate jet?”
Ben: Over time, I’ve become more sophisticated at developing working relationships with the companies I do licenses with. For example, right now, I’m very friendly with my licensees. I could call them and go to lunch with them. Whereas, when I started, I had to be a little bit more adversarial. What I learned along the way has helped me to create more win-win agreements.
Steve: How do you set the right tone?
Ben: Ideally, you get a warm intro from someone, so they trust you more to begin with because they know that you know someone in common, basically. This helps shape their perception of you as an innovator who has done deals – someone who gets it.
Then, I think you immediately set an empathetic tone by saying, “Hey, listen, I understand where you’re coming from. Here’s where I’m coming from. If we do this properly, let’s find a win.”
Steve: What is the most important part of a licensing agreement for you?
Ben: There are three things that are critically important in my mind. One, the financial aspects. So, making sure that I’ve created the best deal possible to maximize revenue coming back to me. Two is ideally non-exclusivity, so that I’ve got the ability to go to others with the same invention. That way, I get another bite at the apple. Even if I leave money on the table with company A, I know I’ve got company B in the wings.
Three, I try to have the right to disclose them to other potential licensees – often under an NDA. If I can call ACME Tech Company and say in that first call, “I’ve licensed this portfolio to Google,” they look at me completely differently than if I say, “I’ve got these ideas and I think they’re going to be huge.”
Steve: You want to be able to leverage the relationship before the product launches.
Ben: Yes, before it launches. As soon as the agreement is signed, I can then talk to someone else about the technology.
Steve: But not the juicy details.
Ben: Correct. And in some ways, that works to my advantage, because if you tell someone that Google licensed your patent, they may assume it’s for way more money than it actually was, because it’s Google and it’s easy to search how much profit they make.
Steve: What do you do to get the highest value for the product you’re pitching?
Ben: It’s different in every situation, and it often depends on what rings the bell of the company that’s going to license it. If they’re a very competitive company, one of the drivers I use is showing them what their product or offering looks like compared to their competitors. So, you pitch it almost like an ad agency at that point.
For others it’s, what’s more important to you, time, or money? I find an equilibrium that they can live with, but that also secures what I want. And again, that’s not always easy because you’re trying to get in their heads to find out what it is that’s motivating them.
Steve: That’s really interesting. I want to get back to non-exclusivity for a moment. Will you explain how you negotiate non-exclusive licenses? After all, that first licensee is investing their time, money, and energy on your product. And you’re going to go to their competitors after they develop a market for it? You’re crazy!
Ben: You’ve got to be in the relationship and try to have a rationale as to why that’s important. You can give them a better deal because you’re going to amortize the cost with some other companies, but they get it first.
I think there are two levers there: How much you’re paying and how much of a lead you have. And if you can play up the lead and reduce the money, that makes it more appealing.
Steve: Okay. But let’s say now I’m that competitor. You gave it to the other guy first, and he’s got a lead on me. He’s branded. Everyone knows that brand. How do you overcome that argument?
Ben: With the second player, you say, “Your competitor has demonstrated there’s a market for this, but you can do it better. You don’t have to be the first mover; you can be the first winner with a more advanced product.”
Steve: Well, Ben you are really a clever guy.”
Many people do not want to be the first. There is a great deal of power in being able to tell a potential licensee that another company has enough confidence in you and your invention to move forward. Including the right to tell others in your licensing agreement is a brilliant tip, because now you can leverage your first contract to obtain your second.
Additional techniques to help you license the same invention multiple times
— Seek out different categories for licensing consideration.
Does your invention have different applications? Probably. This is an opportunity for you to dream and imagine. I licensed the same basic idea — that of a rotating label — across many different categories, including back-to-school, housewares, and promotional products, by using my creativity and focusing on the innovation.
This way, your licensees don’t directly compete.
— License your invention to a manufacturer that supplies multiple industries.
Licensing my packaging technology to CCL Label, a label converter, was the gift that kept on giving, because they forged deals to have my invention appear on a wide variety of products. That’s how my Spinformation rotating label ended up on vitamins, nutraceuticals, liquor, water, tea, and more.
Most of the seasoned professional inventors I interview negotiate their own licensing agreements, which makes a lot of sense, because negotiations are a key step in building a relationship. It’s soft skills that ultimately get these deals done, because you’re dealing with people.
If you’ve never negotiated a licensing agreement before, please, do yourself a favor by working with someone who has a lot of experience. They will help you avoid leaving money on the table.
To learn more about how to negotiate a licensing agreement from a business perspective, read “What You Need To Negotiate With The Largest Companies On Earth.”