I am new at the invention process. A friend and me have been working on a product that we are currently also working on the patent for. We have a provisional filed since February of this year and I just started trying to get a license agreement in the field. I have been very fortunate in the responses I have been getting but I am hopeful about 1 in particular.
I am receiving a contract to look over wednesday morning (9/19/06) and I'm suppose to go to their facility to sign on Friday. We agreed to 5% of net sales but I was not able to get up front money since I don't have a patent issued because they said that was not a normal thing they would do since another company could come in with the same product if my patent doesn't issue.
They want the product featured in the January national hunting show and they want it on the shelves by the spring. It all seems very fast.
I'm not sure if this is very normal in this situation or not, but it's hard not to go forward. This is a hunting product that completely changes how a ladder stand is transported. Can anyone give me some insight into if it is normal not to get money up front without having a patent issued but is pending.

Overall, it sounds normal enough for me.

Terms of licensing agreements differ according to details of a situation. It would not be uncommon for a potential licensee to take you less seriously because you have a patent pending, and not a patent issued. It some situations it may help if you could provide evidence of patentability i.e. a good patent search. But in any event, the licensee does not know for sure the exact scope of patent protection available until after the patent has issued, and without an issued patent the door is opened for competition and there is grey area as to what may or may not be covered simply by an NDA - and some companies will not want to touch that. Additionally an issued patent, or to a lesser extent a filed non-provisional application, serves as further evidence that you take your invention seriously, as it shows you took it seriously enough to invest the money necessary to obtain the patent. The more seriously you take yourself, as far as others perceive, the more seriously others are likely to take you.

In this situation, you need to be concerned with protecting your own interests in writing. In a situation where a potential licensee is unwilling to pay an upfront fee - its not abnormal but it becomes especially important to protect yourself. This sort of licensing agreement may not mean that the licensee has decided that they want to take the invention to market, in fact its hypothetically possible they don't think that they want to take the invention to market. It could just be that they think there's a slight chance that they might like it, and they want to keep their options open. Ideally you don't want to grant an exclusive license without some sort of guarantee of action on the licensee's end. And if an exclusive agreement is formulated, you do need to make sure it contains guarantees that the licensee will take certain actions to further the marketing development of the invention, and if not you need a way out after a reasonably short period of time.

A few years back, I was in a situation where I had first hand knowledge of one inventor's ordeals as I witnessed them to some extent. The invention got good reviews from casual acquaintances and others who saw it, but no formal research was conducted (that i am aware of) to help "prove" viability. A provisional patent had been filed, but there was no non-provisional. An interested licensee came along, was very enthusiastic, and planned to show the product at a certain trade show, manufacture the product, and sell it. An exclusive licensing agreement was signed (spanning a minimum of one year) specifying a percentage of sales, and everyone involved seemed to be convinced that everything would go forward. During that year tweaks were made to the product design by the inventor. In any event, longer story short, nothing really happened, and after so long, almost a full year I believe, the licensee called. He had casually asked a few distributors if they thought the product would sell well - they were only lukewarm. As a result, the decision was made not to bring the product to market. Everyone involved was extremely diasappointed and surprised, but in my opinion, it shouldn't have come as a surprise had they not been so emotionally invested.

Just remember that talk is cheap, but contracts speak