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 makes the world a better place, improve everyone’s way of life while 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 agree not to disclose your invention.  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 remains interested in your invention.  At the end of the meeting, it is clear the large company is interested in your invention.

The parties discuss an agreement involving payment of royalties in exchange for a license. The large company agrees to draft and send the license agreement for review.

What happens next?

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.

Goodyear Tire

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 risks that the agreement will be ignored and the invention will be made without payment of a royalty.

First to Invent

The United States is now a First-to-File country.  This means that a patent is granted to the first inventor who files a patent application on a new, useful & non-obvious invention.  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 to file can terminate patent rights.  Failure to file a patent within twelve months can also cause the invention to fall into the public domain.  If the invention is in the public domain, it is free for anyone to use, make and sell. Therefore, if you have an invention, you should file an application as soon as practical.

First to Invent

The United States used to grant the patent to the first inventor to invent.  This means, that the first inventor was the inventor who could demonstrate first inventorship.  However, that is no longer true. Under the first-to-file framework, the inventor has to find money to protect the invention.  The filing of patent costs money.  Money is made from sales of the invention.  The invention can’t be sold prior to getting a patent on file.  In short, the inventor must file an invention first to protect it but without sales from the invention, there is no money to file the patent.  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.  A confidential agreement is an agreement to keep the conversation confidential or secret.  As the Goodyear case demonstrates, some companies ignore agreements.  A non-disclosure agreement (NDA), also known as a confidentiality agreement (CA), confidential disclosure agreement (CDA), proprietary information agreement (PIA) or secrecy agreement (SA), can help.  These agreements are legal agreement between parties which outlines how to handle confidential information.  This includes confidential material, knowledge, or information that the parties consider to be confidential and protected from disclosure by the parties.

A confidentiality agreement defines what is considered confidential information.  The agreement should also indicate the permitted uses of the confidential information, if any.  There are some common things to address in a Non-Disclosure Agreement.

  1. The definition of confidential information should not be overly broad.
  2. Confidential Information should not be too narrow, so that it doesn’t cover confidential information.
  3. The scope of Confidential Information should cover all proprietary information (including information covered by a trade secret) exchanged by the parties, in any manner, including verbal.
  4. Confidential Information should not cover public information or information which is not otherwise proprietary.
  5. The agreement should address how the Confidential Information is to be maintained. Under what conditions it should be disclosed to others.  How it will be kept confidential if it is disclosed to others and how they will keep it confidential.
  6. The agreement should address what happens in the event of a dispute.  What happens if the agreement is violated.

Patent Attorney

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.