Development - Option - Licence Options

[Ice]

I am looking at the end goal of licensing an invention.

However any licensor would have to go through a few stages before deciding whether or not to finally take a licence. Namely a prototype would need developing fully and testing, market researching, mass production etc.

How do I tie a potential licensor in so that each stage is covered and subject to certain requirements on both sides the end goal is reached?

There appears to be something of a dilema in so far as any interested party would not pay to licence the technology until they can be sure a market exists and money can be made, but to obtain this status investment needs to be made in developing prototypes and testing which the potential licencee would not handle without knowing they will directly benefit from it via a licence at the end of the day.

I have some experience of option agreements but seek advice regarding this and maybe some form of development licence.

I need to be sure that any potential licensee firstly can be assured a licence is available to them and secondly that they will have to take it provided certain steps or markers are reach.

[Steve]

Ice,

you reverse the terms licensee and licensor in your message.

Licensor is the one that has the invention and is willing to give the rights (license) to one or more Licensees in exchange for upfront money or royalties or anything of value.

You can't license an idea, it has to be a patented or patent-pending invention.

What I understood is that you need money for the development of your invention (prototype) and for a test run and test marketing. Also you say that the investor will be worried about the size of the market and marketability of the product - you should be aware about it too from the start and not spend your money on patent protection or prototypes if the market is not big enough.

When you approach a potential investor (licensee) you should have a business plan that shows how much money is needed to take your invention from the concept stage to the store shelf and how many units can be sold the first year. The business plan will help you see the total costs necessary and how much you need from the investor.

[Ice]

Thanks for the correction Steve I just posted in a rush half asleep oops.

I agree with everything you say however the cost of product design or final prototyping and market analyisis can be considerable we are potentially looking at $300K.

Unfortunately you cannot determine that all is well and that the market is indeed what you have predicted without this expenditure and therefore an investor is required. Clearly though a risk is present in that the invention may not meet the expectations either in testing or in the market research and the investment would be lost.

In addition what can you offer the potential investor if not some form of license or perhaps sale of the patents for his investment (risk).

It appears to be something of a chicken and egg situation.