Inventing A to Z
Learn how to invest your IRA or 401k into a franchise penalty-free. ($50k min)
You've got the perfect idea. From here, you can make one of two major mistakes: 1) think it's way too hard to become a "real" inventor and just shelve your fabulous doohickey in a dusty corner of your brain, or 2) think it's way too easy and waste money and time without doing the proper preparation and end up with hundreds of unsold fabulous doohickeys in a dusty corner of your garage.
There is a middle ground, and its name is research. Inventing is, like most things in this world, something that can be learned if you put enough effort into it. We're not suggesting that anyone can necessarily teach you how to have that brain flash, that Eureka!--but you can be taught how to handle that Eureka.
"Inventors don't realize it's systematized," says Jack Lander , an inventing coach and consultant. "You can gain systematic knowledge and go out there like anything else in this world. If you just start out half-cocked and don't pay attention to [learning the system], you're likely to end up spending a lot of money and getting nowhere."
That said, we're going to take you through an A to Z of things you should know about inventing--yes, from attorneys to zipped lips. This is only an introduction to some of the things you need to know, so once you're done, check out the additional resources we've provided in this article and keep learning.
A - E
Like any businessperson, you'll need one of these folks. In your case, it'll be so you can build a strong patent. For this purpose, you can also hire a patent agent. "A patent agent has to pass the same section of the [bar exam] as the patent attorney in order to get licensed by the USPTO," says Lander. "But that's all that patent agent passes, and he or she is not permitted to litigate." Patent agents are usually engineers who become enamoured of the patenting process, and they tend to charge less than their legal brethren.
But James White suggests you don't base your decision entirely on this. "I strongly advise inventors to choose their patent practitioner based on two criteria: 1) Is the practitioner knowledgeable in the field of their invention? and 2) Does the inventor feel comfortable with the practitioner?" says White, inventor, marketing consultant and author of Will It Sell?
One more caveat: Patent attorneys and agents have a vested interest in encouraging you to patent--they won't make money if they tell you otherwise and you drop the search. So be aware of this self-interest, and make an extra effort to find an ethical attorney. Ask a lot of questions, get references and be cautious when selecting a patent attorney or agent.
B: Business Plan
Why do you need a business plan? You're just going to patent the invention, sell licenses and then reap the rewards, right? Even if that is your planned course of action (rather than becoming a business owner and controlling product manufacturing and distribution yourself), creating a business plan will force you to know every nook and cranny of your target market--knowledge that can only help you.
"Once an inventor gets business plan software and they work through that--maybe they'll never be the entrepreneur, but they've done their homework," says Andy Gibbs, founder and CEO of PatentCafe.com, a network of intellectual property sites. "So when they talk to a licensee, they have a business plan instead of an idea. Now that carries some weight because [the licensee is] speaking with an intelligent inventor who's ready to support the business--not an idea, but a business.
"For you to have a viable product, you really have to make it viable from a commercial perspective. And to do that, you really need to do a business plan and learn your industry. You need to become an expert in your little niche."
It's near impossible to cover all the contracts you may encounter in your quest from idea to market in this short space--that's a task for your attorney and/or your continued research--so we'll just introduce one in particular you should know about. (See Z for information on confidentiality agreements.)
If you procure a drafting, design or engineering firm to help create your product, you can very well end up with a co-inventor. "If that engineer is required to do any real engineering and they come up with patentable matter, it must be included in the patent application," says Gibbs. "To prevent that person from owning the invention along with you, you simply need an invention assignment agreement in conjunction with the actual consulting contract." The agreement says that any patentable matter that comes out of this relationship will be assigned to you.
You still need to name the engineer or prototyper on your patent, but if you have the agreement completed before you file, then that person has no rights to your patent. Seems like a small formality, but if you neglect to do it, the engineer could have equal rights to your invention. (And don't think you can get by with not naming the person on your patent--that's fraud, and you can lose rights to your invention.)
Simply put, this is how your product ends up in a store--except it's not nearly so simple, as you'll find out when you start researching it. But understanding your product's distribution chain is absolutely vital, as it will have a direct effect on how much your product sells for. Every step in the chain takes a chunk of the cash, and if too many chunks are taken out, you may find that your hot new kitchen gadget needs a price tag of $200 to make a profit.
"Work backwards from the store shelf," says Gibbs. "How does that particular channel work? How much does the store get? The store gets 50 percent of the retail price. Who do they buy it from? What do they get?" The answers to these questions will, of course, depend on your product category.
Before you hire a patent attorney and shell out the cash for a prototype, shouldn't you get your product evaluated by someone a little more impartial than your mom? Jack Lander thinks so. "The first step I always recommend is to have it evaluated by an indifferent nonprofit organization," says Lander, former president of the United Inventor's Association (UIA). He specifically recommends the UIA's innovation assessment, which determines the commercial potential and risk of your invention. The service costs $275, which may seem expensive until you calculate how much you might spend trying to put out a product that might not make it.
F - J
F: Funding & Finances
Speaking of money, how much does it take to get a product on the market? The ballpark figure, says Lander, is at least $10,000, and most inventors tend to be self-funded at this stage. Here's a quick breakdown of that:
- $275 for a product evaluation
- $500 to $3,000 for a prototype
- $4,000 to $10,000 for the patent, depending on the complexity of your invention
G: Groups for Inventors
Inventors groups can be a crucial resource. You can find moral support, information and more. Find your local group (look in Inventor's Digest and on the UIA's Web site http://www.uiausa.com/) and join up. "Network with others who have gone before you. It won't keep you from making mistakes, but it will keep you away from scam marketing companies, and you'll learn from others who've gotten products on the market," says Joanne Hayes-Rines, publisher of Inventor's Digest.
H: Hot Markets
"The hot areas are whatever sells. Products for the elderly have expanded because there are (and will be) more of them, and they have more money than [they did] years ago," says Hayes-Rines. "The key to inventing is to find a real problem that affects a good percentage of people. Solve that problem elegantly (don't over-invent), be sure it's priced right and market it well."
I: Intellectual Property
There are three main types of intellectual property: patents, trademarks and copyrights.
- Patents, as you probably already know, protect inventions, and there are a few different types: Utility patents (new methods, new devices or new chemical compositions); design patents (for the shape or look of an object, like the outside of an iMac); and provisional patents (a patent that is never examined but gives you a year to apply for a regular utility patent). Patenting will suck up the majority of your funding and time, so you want to be as educated as possible on the subject. Scour the USPTO Web site, inquire at your inventor group meetings, read books like From Patent to Profit, and double- and triple-check everything with your attorney or patent agent.
- Trademarks exist to protect your brand image. Names, slogans, phrases and images can be trademarked. Use TM after your trademark and SM after a service mark (which is used for service features). After you register your trademark with the USPTO, use an �. You can do trademark searching at the USPTO site, but you should use a trademark search service once you get serious and want to begin building your brand.
- Copyrights protect writings and other visual work, such as catalogs, books, brochures and pamphlets. You can copyright by marking your work with "Copyright 2002 by Jane Doe Inc. All rights reserved." If you register it (which isn't required but does add extra protection and costs $30 per work), you can instead use "� Jane Doe Inc., 2002." Visit the U.S. Copyright Office for more information.
From the moment you think of your idea, you should keep an inventor's journal--a bound notebook with sequentially numbered pages so that you can't insert pages later. "It's like a diary," says Gibbs. "Even before you file a patent, keep your journal up-to-date: Every idea, note, drawing, everybody you talk to, all of your marketing ideas. Date everything, and every so often, have somebody sign and witness it. These [journals] stand the evidentiary requirements in court to determine the date of invention." The journal will also help your attorney or agent when it comes time to patent by providing them with a lot of information to develop a solid patent.
Another important (and easy and cheap) way to protect yourself during the inventing process is to file a disclosure document with the USPTO--a thorough description and appropriate drawings of the invention, along with a $10 fee. "This document doesn't 'protect' anything, but it does provide some relatively unimpeachable evidence of the approximate date of conception of your invention," says White. "It also puts the inventor under a two-year gun since the document will be destroyed if not referenced in a formal patent application within two years of filing."
K - O
So your product is a success. The next inevitable step in the process? Fighting knock-off artists. "If you have a money machine, someone's going to want to get in on it," says Gibbs. "And they'll get in on it even if they do it willfully and blatantly. To protect yourself, get intellectual property insurance, which costs about $1,200 to $1,500 per year and will provide about $250,000 in attorney's fees. "The minute there's an infringement, the insurance company attorney knocks on their door and says 'OK. We're ready to go to court.' And at that point, the infringer suddenly becomes a very willful licensee."
L: Licensing vs. Going Independent
There are two basic things you can do with your patented product: Create a business to manufacture and distribute it yourself, or license your product to other companies and let them handle the details. Since creating your own venture requires substantially more work and risk, the benefits are higher. "The venturer not only gets to keep the profits from their enterprise; they often have the opportunity to sell it for a substantial gain within a few years," says White. In contrast, the licensor-inventor gets a small royalty (often about 5 percent of the manufacturer's, not retail, sale price) for a few years until the licensee drops the product.
So why would you want to license your product? Simply put, you perhaps don't want the work and risk of putting the product out on your own. You just want to have some money coming in so you can continue to invent, and royalty fees from license agreements fit that bill.
When searching for licensees, Lander advises to go against your instincts: Don't approach a mousetrap maker with your better mousetrap. Your product competes with their current line. Instead, approach the rat poison company. "They have a marketing program in place to distribute rat poison, but they don't have a mousetrap in their line," says Lander. "So you don't always go to the guy who's in the business. Sometimes you go to a complementary company."
If you're licensing your invention, it's highly unlikely that you'll ever have to deal with this side of the business (though you'll still need to know how much your production costs will be; see X for more information.) "I would say that 95 percent of all licenses are to corporations that either have their own manufacturing facilities or prefer to do their own subcontracting in order to control the production quality," says Lander.
But if you distribute your product yourself, say hello to your newest partner: "In most cases, the venturer secures or provides the funding for a subcontract manufacturer to create manufacturing tooling and also pays for the manufacturer to produce production runs of the product, maybe including assembly and packaging," says White.
As for finding your manufacturer, Gibbs likens it to finding a needle in a haystack. Start searching the Thomas Register, ask people in similar fields (protoypers, CAD designers) for their recommendations, and search online (PatentCafe.com has a manufacturing center and directory).
"Networking is a key to success," says Hayes-Rines. "Start with inventors groups and industry groups. For example, if your product is toy-related, get connected with the toy industry. It's just like anything else you're trying to do well. If you love golf, you read golf magazines and you go to stores to learn what's new. Same with inventing--get connected with the community of independent inventors." This will be especially crucial when you begin to "assemble your team"--no inventor goes it alone, and referrals to attorneys, patent agents, prototypers, manufacturers, etc. will be a lifeline when you're in need.
Your first major step after you get that burst of lightening will be to determine if it really is an original idea. "First, understand what problem your idea solves. Then thoroughly search the marketplace for solutions to that problem," says White. "Do not just look for your invention; look for all competing solutions so you can compare the user benefits of your solution against them. Start with keyword searches on the big Internet search engines. Then visit appropriate stores and ask the clerks if they carry any solution to that problem. Search catalogs and ask experts in the field, too. It may be disheartening, but 90 percent of the time, a new inventor will often find their 'invention' or a better one is already on the market."
The next step is to start doing patent searches on the Internet using the USPTO site and its links to foreign patent search sites. "Searches take four to eight hours for simple things and [sometimes] considerably more. Manual searching at the nearest Patent Trademark Depository Library is also highly recommended," says White. "An inventor who spends 15 minutes to a half hour doing keyword searches is only fooling themselves--and that counts for nothing when the Patent Office does its prior-art search after patent drafting and filing costs have been paid."
P - T
After you've done your market research and determined the originality of your idea, you'll want to prototype it. The most obvious reason for creating a prototype is to have something to present and demonstrate to potential licensees and buyers. Gibbs notes these prototype purposes as well: 1) to prove the design or size of your invention; 2) idea "reduction to practice," which will complement your journal; and 3) to discover more patentable details of your invention before you file your application.
If you can get a prototype made in a way that creates a "looks-like-works-like" version of your product in a small quantity, that's even better. "There are two huge advantages to having multiple 'product quality' prototypes: You can have multiple people looking at them and not worry much if one gets broken or doesn't come back, and you can put some on the market for sale for real and see what actually happens when buyers have the opportunity to purchase," says White, adding that the provisional application for patent should be filed before this test marketing. "So what if selling prototypes loses money at retail prices? Actual proof that the product will sell before spending large amounts on production tooling substantially reduces the risks of such a costly decision."
When you're looking for a prototyper, you'll go about it in much the same way as looking for a manufacturer: lots of networking with similar professionals, looking on PatentCafe.com or in Inventor's Digest ads, or searching under headings like "designers, industrial" and "engineer, product development" in the Yellow Pages.
Before you contact them, you'll want to have a solid idea of what you need. "I prototyped for several years, and people would come to me with lunch-bag and napkin sketches or, even worse, just a verbal idea," says Lander. "Get a draftsperson to make drawings. They don't have to be real fancy, but they should have all the dimensions. It's a lot cheaper to erase a number on paper than it is to try to repair something that's already in metal or plastic."
Q: QVC & HSN
QVC and HSN are two coveted outlets for inventors. HSN alone featured 25,000 new products in 2001, and QVC hosts a National Product Search (the last one was held April 26-28 at the Mall of America). Visit their Web sites and search for vendor information for further details.
This is what you get--usually a percentage of their sales (not retail)--from your licensees. That's a simple definition for a very important figure that could make or break your invention. First, a piece of advice: Understand your industry norms for royalty fees, because if you blanche at the figure they offer you without understanding the reasoning behind it, you may appear not only greedy, but uninformed and unprofessional as well.
Second, figure the manufacturing costs before you ever start the patent process. (See X for more details.) If it's so much that neither you nor your manufacturer will turn a decent profit or so much that you'll be overpriced compared to your competition, you'll need to either reassess your manufacturing process to try to cut costs or just go back to the drawing board.
Once you know how much your product will cost to make, use this handy formula (courtesy of Gibbs) to figure prices: Multiply the production costs by 4.5 for products sold through retailers. For commercial products, multiply it by 3.5. If this price is competitive, start looking for licensees. The more profitable your invention, the more leverage you have in royalty negotiations. (For a more detailed explanation, read this article on PatentCafe.com.)
And finally, note this piece of advice: "An inventor must always be careful to get some kind of guarantee for a minimum [royalty] so the licensee can't simply tie up the invention and never do anything with it," says Lander. "There has to be an incentive for them to actually do something with it. Or if they want to leave it on the back burner, they at least have to pay the inventor a minimum annual figure."
S: Sales Outlets
You're a brand-new inventor and you want to become a Wal-Mart vendor? Good luck, because you've got a rough path ahead of you. Mass retailers are often loathe to add one-line companies to their vendor roster because it costs them more money to do business with you and you have yet to prove yourself a reliable supplier. It can happen, but you have a much better chance at building your brand by focusing on smaller, local retailers and catalogs. (Try Google's catalog search here.) http://catalogs.google.com/
A warning: "Catalogs usually have the advantage of not initially requiring retail-quality packaging, but there is often a substantial delay in getting into their publication cycle," says White. "Independent local stores will often be delighted to take on a local's product--on consignment, meaning they pay you only after the product sells. If the product starts getting repeat orders and other stores start asking for it, then it's almost certain that the big box stores will eventually come knocking."
T: Trade Shows
For new inventors, attending a trade show will be a lot more beneficial than trying to be a vendor at one. "Industry shows are essential," says Hayes-Rines. "As an attendee, you can pick up business cards of sales managers. As a vendor, it's tough. These shows are usually high-priced, and you must have product. Invention shows offer lots of opportunities--some market testing, learning from others [through networking], and learning how to present yourself at a trade show. It's not as easy as it looks."
U - Z
U: UPC Code
If you're selling your product retail, you'll need to talk to your retail contacts and get their approval of your packaging design before you set a launch date. Retailers usually won't buy a product that isn't packaged to meet their needs, which include graphics, size and how it is displayed. Another crucial part of your packaging is a UPC code. To obtain a UPC code for both your company and your product, visit the Uniform Code Council's Web site .
V: Virtual Prototype
Complicated inventions can be particularly expensive to prototype. Instead, check into virtual prototypes, i.e., demonstrating via computer. This option is also useful for inventors who may wish to present their invention to several companies at once but are unable to create several prototypes; sending DVDs or CDs out in the mail or e-mailing a URL is much easier. Click here for more information .
W: Web Sites
Think brochure, not e-commerce. It's unlikely that you can build a profitable e-commerce site for your one or two products, but building a professional calling card for your product is crucial. It will give you something to stick on that business card and everywhere else you can think of (a few ideas: look for free invention directory services, and always include your URL in message board posts and e-mails). Make it professional the first time by forgoing the free services so you can get your own URL and offer ad-free viewing for visitors. And keep it updated!
X: X Amount of Dollars for Manufacturing
A crucial figure in your road to success will be your production costs. No matter how amazing your invention is, if it costs too much to make and can't be sold at a competitive price, it's a no-go.
"The easiest way to start is to figure out approximately what it will take to make the invention--say three molded plastic parts and one little metal part," says White. "Go shopping for anything that is made similar to what the final product will be without regard to what the [products] found with the parts are--or even what field they're in. Find five to 10 [items] and then look at their prices. Ignore the ones with unusually low or high prices. The average price is typically what a consumer might expect to pay for the invented product based on their experience with the similar goods the inventor examined.
"Now, what will it cost the inventor to get it produced? The typical answer is, the direct costs of whomever subcontract-manufactures the product will be about 10 percent of the consumer price. However, the manufacturer needs to cover their own overhead costs and make a profit, so they'll charge the inventor typically about two to three times the direct cost. In other words, the production costs for the product will be about one-fifth or one-fourth of the eventual retail price."
Y: Your New Home Away From Home: The
USPTO Web Site
Yes, we've already mentioned the USPTO site several times, but we can't help but reiterate: Almost all research you do regarding your invention will lead back here. Trying to determine originality? Ready to do a thorough patent search? Looking for information on filing fees and applications? Need to register a trademark or just want to brush up on the rules? It's all here. Start with their FAQs and then let your finger do the clicking.
Z: Zip Your Lip
A standard non-disclosure agreement (NDA) can protect you from the greatest of all inventor fears: Someone ripping off your idea. "Whenever an inventor talks to someone about the invention, whether to get feedback or to get a prototype made or whatever, they should have the other party sign an [NDA]," says White. "It's a simple agreement that essentially says the party receiving the information agrees to keep it confidential." White suggests that you have an attorney in your state check your NDA to make sure it's legally sound.
Gibbs does say, however, that being paranoid about having a manufacturer rip off your idea is probably unfounded. "If you deal with reputable manufacturers, they have too much at stake to rip off your idea. If you sue them, they're in the wrong, and the courts are more and more favoring independent inventors. It's better business to just do the deal with you and get the product out in the marketplace."
For reprints and licensing questions, click here.