One of the biggest mistakes in licensing is trying to negotiate yourself, especially if you’ve never negotiated a licensing deal. While there are many reasons why, here’s six of the top ones and why they put you at a disadvantage.
The number one reason it’s not a good idea to negotiate yourself is you can’t be objective about your IP. To be successful, you have to remain objective. But you can’t do that when it’s your IP. It’s your baby. You tend to get emotional when something is said about your IP that’s not positive. For example critical questions about the performance of your IP can trigger an emotional response as if they had insulted you.
The second reason it’s not a good idea is you can miss a lot of detail, especially as it relates to the parts of your IP that can bring value to your deal. For example, you have a new invention and created a manufacturing process to make it cost-effective to produce. During the negotiation, you get bogged down about what your IP costs to produce and whether or not the company can do it cost-effectively. You completely forget the value of your manufacturing know-how. The result is you wind up negotiating based on unknown manufacturing costs or timing, which lowers the perceived value the licensee has of your IP.
A third big issue when negotiating yourself is becoming over-anxious about wanting to get the deal closed. You start making concessions, only to realize later these concessions come back to bite you. For instance, you agree to including the international market rights to get the deal closed. Six months later you get approached by a company who operates in Europe. But now you’re locked into this agreement, so it’s too late to offer that deal to the European company. It would cost you too much time and money to try to get the rights back from the company you gave it to.
Reason number four is you can wind up getting strung along in the negotiations. Especially if it’s a big company that is dragging it out. They string you along, making all sorts of excuses. But you’ve invested so much time, and instead of walking away, you convince yourself the deal will happen. Sometimes negotiations show what a partner might be like. This is a warning sign, and you don’t want to get into a bad licensing deal with a partner you don’t get along with. That will wind up costing you a lot of time and money trying to get out of the deal.
The fifth reason you don’t want to negotiate for yourself is failing to make sure you’ve created a performance based agreement. That means making sure you agreed to specific dates for payments, product development and marketing. There’s nothing worse than completing negotiations, signing the agreement, and then nothing happens. Now you’re stuck trying to figure out what your licensing partner is doing.
And the last reason is not getting the best royalty rate for your licensing deal. I’ve met with many IP owners who, in their rush to get the deal done, agreed to a royalty rate only to discover later they could have got more. They were unfamiliar and didn’t research the industry, so they weren’t ready to negotiate the best possible royalty.
When it comes to negotiating, you don’t get the deal you deserve to get the deal you negotiate. Your first licensing deal is challenging, especially if you’ve never done it before. You can avoid all these issues by having an objective third-party, such as a licensing agent or attorney, negotiate on your behalf. They understand these issues, help lower this risk, and are one of the best ways to negotiate the right licensing deal for your IP.
Rand Brenner is an IP professional whose passion is helping inventors, startups, and businesses of all sizes use licensing to turn their IP into income-producing products, services, and technologies. His decades of experience run the gamut from medical devices to food technology to consumer products. He’s licensed some of the biggest Hollywood entertainment blockbusters including the Batman Movies (1 and 2), and the number one kid’s action TV show, the Mighty Morphin Power Rangers. Rand speaks about licensing and is a featured speaker at investment conferences, trade shows, colleges and startup events. He’s a published writer with articles appearing in several prestigious trade magazine including The Licensing Journal, Intellectual Property Magazine, and License India. Rand also mentors at the Cal State Fullerton School of Business and Economics and is a judge for their startup business plan competitions.