Dangers of Making Money From an Invention

So you have a great idea.

Making Money off an invention is more rare than having a great idea.

Having a great idea is the first step towards making money from an invention. The second stop is actually figuring out who is going to pay for it and getting them to pay. Without adequate protection, someone could steal your invention. Because few people make money off an invention, it is often the most difficult and most rewarding part of the patent process.

An idea which will change the world.  Your idea will make the world a better place, improve everyone’s way of life while still being profitable.  You create a prototype and prove it works.  The numbers show that your invention will make millions while costing very little.  A large company, one of the most recognized in the industry agrees to meet with you.  You schedule a meeting with them to discuss your idea.  Before your meeting, they sign an agreement where they will not disclose your information.  The meeting goes great.  The large company ask lots of questions about your invention and seems very interested.   A second meeting is scheduled and again information is exchanged.  The large company continues to be very interested in your invention.  At the end of the meeting, it is clear the invention would be beneficial to the large company.  The parties discuss a potential agreement where the inventor receives payment for sales of products including the invention. The large company agrees to send an agreement for review.

However, after the meeting no calls are made and no agreement is sent.  Weeks go by and nothing.  They are radio-silent.  All communications stops.  Calls aren’t returned and follow-up emails are ignored.  Months later, the inventor learns that the large company filed a patent on the invention and started commercial development of the invention without paying the inventor or making any effort to enter an agreement to license the invention.

On facts similar to these, a lawsuit was filed against Goodyear Tire and Rubber Company claiming Goodyear stole trade secrets and violated a non-disclosure agreement by filing a patent application on an invention invented by another which was disclosed to the Company confidentially.

Making Money from an Invention

When it comes to making money from an invention, coming up with a great invention is the first step.  The second step is figuring out how to make money from the invention.  Not many people come up with a great invention, even fewer make money off an invention. Making money from an invention often involves negotiating an agreement with a company to pay royalties based upon sales of products which are based on the invention.  As the Goodyear case illustrates, disclosing the invention to a company before filing a patent has risks.  One risk is that the company will use the information you provide and make the invention without payment.  One way to protect yourself is to have the company sign an agreement not to make the invention or file a patent application without permission.  However, there are still risks that the Company will ignore the agreement and go ahead and make the invention without paying a royalty.

Because the United States is now a First-to-Invent country, a patent is granted to the first inventor who files a patent application on a new, useful & non-obvious invention disclosed in a patent application.  The patent application must also properly disclose the invention.  Typically, proper disclosure is one which conveys to one with reasonable skill how to make, use and practice the invention.  The failure to be the first inventor can dramatically impact the ability to get a patent.  In addition, failure to file a patent within twelve months of public disclosure or from the first offer of sale, can cause the invention to fall into the public domain, that is, free for everyone to use, make and sell. Therefore, if you have an invention, you should file an application as soon as practical.

Prior to the recent changes, the United States used to grant the patent to the first inventor to invent, the one who could demonstrate prior inventorship and who timely filed a patent application.  However, that is no longer the case. Under the first-to-file framework, the inventor often finds himself in a bit of a Catch-22, he has to find money to protect the invention but he can’t make money until he protects the invention.  That is, he has to spend money to protect the invention, but he can’t make money without selling the invention.  In some cases, the cost to protect the invention is impossible, without making money from sales of the invention.

Non-Disclosure Agreements

Many inventors try to overcome the Catch-22 by having conversations with potential partners subject to an confidentiality agreement, an agreement to keep the conversation confidential or secret.  However, as the Goodyear case demonstrates, some companies ignore the agreement and go ahead and file a patent or make the product without permission from the inventor.  A non-disclosure agreement (NDA), also known as a confidentiality agreement (CA), confidential disclosure agreement (CDA), proprietary information agreement (PIA) or secrecy agreement (SA), is a legal agreement between at least two parties that outlines confidential material, knowledge, or information that the parties consider to be confidential and protected from disclosure by the parties.

A confidentiality agreement typically limits what the parties consider to be confidential and indicates the permitted uses, if any, of the shared information.  There are some common issues with Non-Disclosure Agreements.  First, the scope can be overly broad or in some cases, too narrow to cover what is considered to be confidential.  For example, you will want to make sure the scope covers all proprietary information (including information covered by a trade secret) exchanged by the parties, including orally.  However, you will want to make sure it doesn’t include public information or information which is not otherwise proprietary.  In addition, you will want to discuss how the confidential information is to be maintained or disclosed to others and if disclosed to others, how they will keep it confidential.  Finally, you will want to disclose what happens in the event of a dispute or if the agreement is violated.

Using a patent attorney to prepare a patent application, is not cheap.  However, filing a patent will help protect the inventor when a company violates a confidentiality agreement.  If a patent application is timely filed, not only will the inventor have the possibility of enforcing the agreement or collecting money from them for their violation, but they can also enforce their patent rights against the Company.  If you are interested in discussing your invention with a potential licensee, contact one of our patent attorneys to discuss how to protect you and your invention.