The Importance of Reading Your Contract Closely
I want to stress something very important. The process of developing a contract between a licensee and licensor can be lengthy. Term sheets are debated and compromises are agreed upon. The party that writes the contract has an advantage (because they’re familiar with the language used and exactly what that language implies). More often than not, this will be the company you’ve submitted your idea to (as contract writing is expensive). And in this event, it is imperative you read the entire contract – and read it again!
There are several reasons why this is necessary. Unless you’re very familiar with legal and licensing terms, there are going to be clauses you don’t understand and language that confuses you. You need to familiarize yourself with these terms and ask clarifying questions when something is unclear. It’s okay to have a lot of questions; in fact, it’s better. Take the time to understand the smallest details and especially, how they relate to you. Ask, “How will this impact me?” Predict what impacts may occur under a variety of circumstances and “what if?” scenarios.
Do not gloss over an area. I can recall too many instances in which I didn’t examine a clause closely enough and later wished I had read it a little closer… Obviously, you’re excited. But that excitement doesn’t mean you should skip right to the sections that discuss how you’re going to collect royalties!
And finally, have a licensing attorney look over the final contract. Make sure that whatever you’re signing, you fully understand and agree to. A contract is only as good as the two parties that sign it.
Stephen Key is a successful award-winning inventor who has licensed
over 20 products in the past 25 years. Along with business partner
Andrew Krauss, Stephen runs inventRight, a company dedicated to educating inventors about selling their ideas and the skills needed to succeed. You can ask questions and get advice on the inventRight forum, check out the resource center, and listen to the weekly radio show on inventing. Get In The News, list your invention to have media outlets find you for news stories.
