Inventing New Products/Inventions/Royalties

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Question
Dear Penny,
  I  helped a friend develop an idea he had. He knew what the product needed to do. I designed it, dimensioned it, put in the necessary draft, then sent him an STL file so he could make a 3D model. We discussed the business and I agreed, since I am retired that I would receive a royalty for each product I develop for him depending upon my level of involvement. Those levels I break down as follows;
1.   Lowest level- he provides a drawing, dimensioned and toleranced- I provide model.
2.   Mid-level- he provides basic idea- I design and provide model and drawing.
3.   Highest level- I provide idea, design, model, and drawing- he provides approval only.

So my questions to you are;
1.   What income flow should the royalties be based upon? Gross sales, profit, ???
2.   What would be a fair breakdown of royalty percentages be for the three levels shown above.

Sincerely, Richard Schlueter

Answer
Thank You for your questions:
I  helped a friend develop an idea he had. He knew what the product needed to do. I designed it, dimensioned it, put in the necessary draft, then sent him an STL file so he could make a 3D model. We discussed the business and I agreed, since I am retired that I would receive a royalty for each product I develop for him depending upon my level of involvement. Those levels I break down as follows;
1. Lowest level- he provides a drawing, dimensioned and toleranced- I provide model.
2. Mid-level- he provides basic idea- I design and provide model and drawing.
3. Highest level- I provide idea, design, model, and drawing- he provides approval only.
So my questions to you are;
1. What income flow should the royalties be based upon? Gross sales, profit, ???
2. What would be a fair breakdown of royalty percentages be for the three levels shown above.
=====================================================

Well Richard you've asked the $64-mill dollar question as the variables could be endless. Any royalties would be based on any of these, PLUS!

I sincerely trust you memorialized a document (or you will and with legal input) concerning what reads to me as merely a verbal agreement. If your friend applied for a patent too, you definitely need something because from what I'm reading you should be listed as a co-inventor on any future patent too (it's the law based on what you've written was your input above); therefore, you would own 50% of any issued and for that matter any type of intellectual property rights. In other words, half of it is yours too, to sell or do with it what YOU want since you'd be a co-inventor/owner. You really should get something on paper and quick because if your input contributed to one or more legal "Claims" in the patent document - you HAVE TO be listed legally as a coowner - UNLESS - you sign away your legal rights and function only from a business (versus intellectual property) viewpoint.

Factors affecting payout are negotiated with a Licensee so what is expected or wanted may NOT be what the Licensee/whomever is willing to pay hence negoatiations come about. Depending on the industry the range could be between 1%-8%. Again, it depends on the market category (hot seller or not/how competitive the market is, etc) And, if a product has surmounted its sales curve, after which the retail price is usually lowered hence in any contract royalties drop too. Also, if your mate has applied for a patent (he's got a year to do that after he commercializes or makes it public) in the US he has a year from conception to do that. The US is now a F2F country (first to file) meaning you need to find out if he filed because an amendement would need to be made on the patent app unless you signed your legal rights over to him since, like I wrote, from what I read, you should and indeed MUST be named as a coinventor. Having a patent applied for better yet issued likely would change any royalty too.

Any way, there are so many variables to answer your question I would suggest visitng a lawyer for a free 15mins session with your mate.

Regards,
Penny Ballou  

Inventing New Products/Inventions

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Penny Ballou

Expertise

The Invention Process; Royalties; Licensing Inventions/Products; Pricing; Direct to Market; Marketing/Promotions; Patent Searching; DIY patent writing; Types of patents/costs/how to's; Funding (grants and Angel investors); Prototyping; Off-Shore sourcing.

Experience

I am founder of an inventors group; Advisory Board President of www.inventored.org; former Licensing Executive Society member; researcher for www.piausa.org and a consultant; plus moderate and contribute to several online inventor discussion groups.

Publications
Enter my email address into any search engine to find them.

Education/Credentials
Invention development: well-studied and applied in all aspects of the process and an inventor myself with one invention in patent pending and others ramping up. Lived and attended schools in Mainland China and the UK.

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