PRACTICAL POINTERS for PATENTEES
CONTAINING VALUABLE INFORMATION AND ADVICE ON THE SALE OF PATENTS
AN ELUCIDATION OF THE BEST METHODS EMPLOYED BY THE MOST SUCCESSFUL INVENTORS IN HANDLING THEIR INVENTIONS
By F. A. CRESEE, M.E.
Revised and Corrected, with New Forms and Tables of Population of the United States in Accordance with the 1910 Census
MUNN & CO., INC. SCIENTIFIC AMERICAN OFFICE 361 Broadway NEW YORK 1912
Copyright, 1901, by the POTOMAC PUBLISHING COMPANY
Copyright, 1902, by MUNN & COMPANY
Copyright, 1906, by MUNN & COMPANY
Copyright, 1912, by MUNN & CO., Inc.
New York MACGOWAN & SLIPPER 30 Beekman Street
The original conception and working out of an invention is usually a labor of love on the part of the inventor: having perfected his invention in every detail, he finds able and skilled counsel waiting to prepare and prosecute his application for patent before the Patent Office Examiner. When the patent is allowed or issued, the patentee's real work begins—that of turning the patent into money. This is the business end of the inventor's work, which is generally to his interest financially to undertake himself, or to have under his immediate supervision.
The object of this little work, based upon the experience and observation of the author and other successful inventors, is to give the patentee such information and advice as will enable him to proceed more intelligently, on the most successful and economical basis, to realize from his invention.
The American Government issues annually over thirty-five thousand patents, a large number of which are offered for sale by their respective patentees, who in many cases have no definite lines to pursue in negotiating their patents; many realizing little or nothing from their inventions through careless or bad management, while others, through incompetency, drift into the hands of unscrupulous patent-selling agents only to be swindled.
The numerous inquiries from patentees seeking practical, reliable, and up-to-date information as to the best and most successful methods of realizing from the product of their ingenuity, has led the author, after due deliberation, to prepare and present this work to the American inventor, with a view of supplying a long-felt want, with the hope that it will save them many expensive experiments in handling their patents, and advance them on the road to success.
It has been the endeavor of the writer to cover briefly every subject that is usually encountered by patentees in disposing of their patents, not only in the matter of selling, but also in the equally important and perplexing questions of arriving at the value of patents, legal forms, statistics, etc., etc.
Realizing that the work may be deficient in many respects, the hope that it will prove instructive, and the belief that it contains many practical pointers for patentees is still entertained by
DEMAND FOR INVENTIONS OF MERIT. PAGE Monopoly in Patents—Industrial Progress Based upon the Patent System 9-12
INCOME FROM INVENTIONS.
Independence through Successful Invention—Unprofitable Patents—Money in Patents—Business Capacity of the Inventor—Inventions as a Poor Man's Opportunity to Advance 13-19
Danger in an Undivided Interest—A Better Plan—Form of Agreement—Perfecting Inventions—Exhibit of Inventions—To Avoid Being "Squeezed"—Value of Record of Invention—Newspaper Notoriety 20-29
HOW TO ARRIVE AT THE VALUE OF A PATENT.
Pecuniary Value—Commercial Value—Basis for Estimation—General Rules for Valuation—How Rating for Royalty Is Figured—Stock in Stock Companies—Prices for Territorial Rights—Valuation Tables 30-40
HOW TO CONDUCT THE SALE OF PATENTS.
Patent-selling Agencies—The Best Selling Agent—In Case the Patentee Cannot Undertake the Selling—Methods of Selling Patents—About Advertising—How to Write an Advertisement—Correspondence as a Means of Bringing Patents before Interested Parties—How to Correspond with Manufacturers—Circulars—Illustrations—About Getting up Circulars—Copies of Patents, How to Secure—Uses of Printed Copies—First Impressions All—important—Value of Models—Working Drawings 41-54
HOW TO CONDUCT THE SALE OF PATENTS.—Continued.
Value of Personal Influence—Personal Solicitation Advisable—Selling Outright—Assigning an Undivided Interest—Dividing a Patent into Different Classes of Rights—Granting Licenses—Placing upon Royalty—Manufacturing and Forming Companies—To Organize Stock Companies—Trading as a Last Resort 55-72
About Canadian Patents—Selling Canadian Patents— Population of Canadian Cities 73-78
DECISIONS AND NOTES.
Assignments—Territorial Grants—Licenses—Patent Title—Rules of Practice—Assignments—Assignees— Grantees—Mortgages—Licensees—Must be Recorded— Conditional Assignments—State Laws on Selling Patents 79-91
THE TRANSFER OF PATENT RIGHTS.
Assignee, Grantee, and Licensee Defined—The Language of Law—Assignment of Entire Interest in Letters Patent—Assignment of an Undivided Interest—Grant of a Territorial Interest—License; Shop Right—License; Non-exclusive, with Royalty—License; Exclusive, with Royalty 92-105
TABLES AND STATISTICS.
Map of the United States—Official Census of the United States by Counties for 1910—Population of Cities of the United States—Number, Acreage and Value of Farms, by States—Table of Occupations 106-141
PRACTICAL POINTERS for PATENTEES
DEMAND FOR INVENTIONS OF MERIT
That there is a demand for inventions of merit which can be readily disposed of at a reasonable profit to the inventor, there can be no doubt. There perhaps never was a time in the history of our country when the demand for meritorious inventions was so great as the present. The conveniences of mankind, in all his varied vocations and callings, require continual changes and improvements in the apparatuses and implements used in order to save time, labor, and expense, and to keep pace with the never-ceasing progress of civilization.
At no time in the past has there been so deep an interest manifested by the public generally in the inventions of our bright-minded men and women, and at no time has capital been more readily interested and ready to invest in any practical improvement which can offer a fair chance of monopoly under the patent laws.
Business men, capitalists, and manufacturers are ever on the alert for new and desirable inventions, which will supersede in utility those which are already on the market. By purchasing such inventions, they secure novelties which will not only enable them to avoid the keen competition and to a great extent monopolize the trade in their own respective lines of business, but also to make sales more easily, and thus make their business more profitable.
[Sidenote: Monopoly in Patents.]
Every well-informed person knows that a monopoly is the desideratum of business men. The monopoly or protection of an industry afforded by the patent laws is, perhaps, the one monopoly that directly benefits the world. Were it not for the protection and monopoly offered inventors by governments, for a certain number of years, to disclose their inventions, inventors would simply keep them secret, or if used at all, would do so only in such a manner as would prevent the world at large from learning of or utilizing them, thus debarring the public as a whole from their benefits. This monopoly in patents has had much to do with the material progress of the world during the century just ended.
Anyone having a monopoly of a good trade article is assured of a fortune. If capitalists and manufacturers can secure the control of any new invention of merit for their sole use and purposes, which can be manufactured and sold more cheaply than those now on the market, and which will perform its work in a quicker and better manner than the devices now in use, they will be only too willing to pay patentees handsomely for patents covering such inventions.
There are numerous staple articles of commerce whose manufacture is open to all, and which every mercantile house in the country is handling at a profit, notwithstanding the great number engaged in their manufacture and sale in every section of the country. Now, if there can be supplied some better or cheaper article in any line of industry, the firm or person who secures the monopoly of its manufacture and sale, simply controls the market, and human endurance and energy are the only limits to the degree of profits such a firm or person can secure from the manufacture and sale of such an article, if adequately protected by a valid patent.
[Sidenote: Industrial Progress Based on the Patent System.]
In an official report the Commissioner of Patents clearly sets forth that from six to seven eighths of the entire manufacturing capital of the United States is either directly or indirectly based upon patents. This vast amount of money, upward of six thousand millions of dollars, continually employing great armies of people, in industries based upon patents of every class, supplies the country with improved articles of every description. It has been well said that, "Patents and trade go hand in hand."
The largest and most opulent manufacturers in the country will be found to be the heaviest owners of patents, developers of inventions, and patrons of the Patent Office. While all inventions are not telegraphs, telephones, sewing-machines, or electric lights; nor can all business houses be Westinghouses, Hoes, McCormicks, Bells, or Edisons, yet all over this country, and others as well, there are springing up a great number of moderately large growing firms who, ever on the alert for success, devise or secure control of some valuable patent, by which they can successfully invade and control to a certain extent particular lines of industry.
Nearly every leading factory in the world owes its commencement and success to the prestige and protection afforded by the possession of a good and valid patent.
INCOME FROM INVENTIONS
It has been aptly said that the products of all the gold, silver, and diamond mines in the world would not equal in value the annual income of American inventors. It has been carefully estimated that there are at least fifty patents in the United States which yield over $1,000,000 annually, some 300 that yield over one-half million, from 500 to 800 which bring from $250,000 to $500,000, and between 15,000 and 20,000 that bring over $100,000 annuities. Besides these, there are thousands upon thousands of patents which yield yearly more profit to their fortunate possessors than could be accumulated in a lifetime by a wage-earner.
[Sidenote: Independence through Successful Invention.]
There are thousands of patents sold outright every year by the patentees of the United States for thousands of dollars; and, to the already long list of successful inventors, each year adds many more, who have become independent through the proper handling of the product of their ingenuity. Indeed there can hardly be conceived a quicker way for the average person to attain independence and wealth than by inventing something of real worth and merit that can be quickly turned into money. The inventive field is large, and each invention opens up a new field for improvements, and it is the "improver," without question, that reaps the greatest benefit from any invention. Owing to the ever forward progress of civilization, there is no limit to the possible improvements in the sciences, arts, and manufactures.
[Sidenote: Unprofitable Patents.]
It must, however, be borne in mind that all patents are not remunerative, neither are all gold mines productive of fortunes, and one may lose money in patents as well as in any other business. There are thousands of patents, many having merit no doubt, which have never been sufficiently brought before the public to test their merits, effect their sale, or manufacture; this in many instances is owing to incompetency, or bad management on the part of the patentee or his agents. There are thousands of other patents that do not prove remunerative because they do not supply a real want, while still others are such slight improvements upon existing inventions that they necessitate such narrow claims, which render the patent of little or no value. One has only to look over the weekly issue of patents to see many of the last class.
As before stated, while there are many thousands of patents that do not pay—and many no doubt cause their owners disaster, as is the case in any other business or investment; on the other hand, the far greater proportion of patents granted are productive of handsome profits, if properly managed.
[Sidenote: Money in Patents.]
That the majority of patents taken out prove lucrative is evident from the fact that upward of seventy thousand applications for patents and designs are filed each year in the United States Patent Office, and approximately eight hundred are granted and issued each week. Probably about one-fifth of these patentees obtain their patents with a definite view of manufacturing their inventions, and the remainder obtain theirs with a view of realizing from the sale of the rights to manufacture.
It may be said, as a general thing, there is more money in small inventions than in larger ones, from the fact that they can be easily manufactured anywhere with but little outlay of capital; they usually fill a general need, and the profit derived from their manufacture is large, besides the patent is more readily disposed of; while with larger inventions it requires more money and ability in handling the patent, and the invention must be unusually promising to justify the erection of a plant costing thousands of dollars for its manufacture. However, when large and complicated inventions do pay, they usually pay well.
[Sidenote: Business Capacity of the Inventor.]
It must be remembered that the actual cash value of a patent is not in the patent itself, but in the sale or use of the monopoly it affords, and the amount realized from any invention frequently depends upon the business capacity of the inventor or his agents. Owing to his business ability, one person may make a fortune out of an unpromising improvement, while another, through bad or careless management, will realize little or nothing from a brilliant invention.
Speaking along this line in an official report the chief examiner of the Patent Office says: "A patent, if it is worth anything, when properly managed, is worth and can easily be sold for from $1,000 to $50,000. These remarks only apply to patents of ordinary or minor value. They do not include such as the telegraph, the planing machine, and the rubber patents, which are worth millions each. A few cases of the first kind will better illustrate my meaning:
"A man obtained a patent for a slight improvement in straw cutters, took a model of his invention through the Western States, and after a tour of eight months returned with $40,000 in cash or its equivalent.
"Another inventor in about fifteen months made sales that brought him $60,000, his invention being a machine to thrash and clean grain. A third obtained a patent for a printing ink, and refused $50,000, and finally sold it for about $60,000.
"These are ordinary cases of minor inventions embracing no very considerable inventive powers and of which hundreds go out from the Patent Office every year. Experience shows that the most profitable patents are those which contain very little real invention, and are to a superficial observer of little value."
Under the writer's personal observation has come many instances where inventors have secured patents on improvements which to a casual observer would appear insignificant, yet through shrewd management they have been made to yield princely incomes. Among these one case worthy of note is that of a young man in Pennsylvania who secured a patent on a toy game which any person could have thought of, but few would have considered worth protecting by letters patent. He was offered $1,000 for the patent by one manufacturer at the outset which he refused, and afterward he placed it on royalty with quite a number of large manufacturers throughout the country. He receives but one cent on each one manufactured, yet his income averages over $12,000 a year. Another borrowed part of the money with which to obtain a patent on a railway tie plate, which was bought by a corporation for $25,000, after having manufactured it for two years on royalty. And many others, who have realized from one to five thousand dollars on such slight improvements on which few would have thought worth applying for a patent.
Patentees who would realize any considerable amount from their patents must not sit down and expect the other fellow to make money out of their inventions for them.
[Sidenote: Inventions as a Poor Man's Opportunity to Advance.]
Invention is sometimes called the "genius of the poor," and it is a singular fact that there are a greater number of inventions made by men and women of limited means than by those whose wealth, education, and other advantages would seem to have especially fitted them for success in a field dominated so completely by "brains." This may be explained in a measure by the fact that people of moderate means are brought into closer contact with the arts and manufactures, and are thus the first to discover and improve their defects.
A self-made millionaire, recently speaking to the writer about patents, said: "I know of no business or vocation requiring so small amount of capital, and yielding such immense profits as that of invention. Certainly no person of inventive genius can employ his time and ingenuity to better or more profitable advantage than to invent something that is really needed. Many poor men, through the art of invention, have risen from poverty to reputation, fame, and honor, and taken high places among noted men of all times.
Our moneyed kings may have enriched themselves by stock jobbing, but this precarious procedure requires large capital, and the few enormous fortunes accumulated are merely the monuments marking the graves of thousands of foolhardy unfortunates caught in the vortex of speculation."
It is a curious but well demonstrated fact that people who have inventive genius often lack the means to carry out their ideas. An inventor who has ample means can secure his patent and proceed to turn it into money without the necessity of being compelled to solicit financial aid from anyone. This, unfortunately, is not generally the case with inventors; indeed, many are often barely able to stand the expense incident to taking out the patent. Patentees laboring under this disadvantage are frequently tempted to part with a small interest in their patents for the sake of securing sufficient funds to carry on the promotion of their inventions and sale of the patent; and in doing this the inexperienced patentee is apt to make the fatal mistake of assigning to another an undivided interest in his invention.
[Sidenote: Danger in an Undivided Interest.]
Such an assignment may appear well enough on the face of it, and many patentees have been misled, supposing that under the assignment the proceeds from the patent should be divided pro rata, according to the several interests. This, however, is not the case in such assignments, and joint-ownership of a patent, or interest therein, does not of itself, without an express agreement to that effect, make the parties partners. They are merely tenants in common, each having the right to separately make, use, or sell the invention so assigned without liability to account to their co-owners for any part of the profits derived from the invention through their own efforts.
In an assignment of an undivided interest, the assignee is afforded an opportunity of manufacturing, using, and selling to others to be used the article covered by the patent; also, to grant territorial grants, such rights being unlimited by the terms of the assignment, and it is actually of little consequence how small an interest is thus conveyed, the assignee can proceed with the patent in much the same way as if he were the sole owner; therefore, whenever it is intended that the relation of co-partnership shall exist between the patentee and the assignee of an undivided interest, and that the profits arising from the invention shall be equitable, for their joint benefit, there must be an express agreement between them to that effect, otherwise the assignee will have a decided advantage over the inventor, if he is inclined to be dishonorable, and there are numerous cases on record where patentees have virtually lost their patents by such assignments. Patentees should especially guard against strangers who offer to purchase an undivided interest in their patents.
[Sidenote: A Better Plan.]
A better procedure to secure means necessary for the development, introduction, and sale of an invention is to borrow the money from a friend contingent on the sale of the patent, sell a State or county right, or enter into a contract with a party willing to furnish the means for a certain proportion of the proceeds derived from the invention. Generally speaking, it will not be hard to find a party willing to advance sufficient means to promote an invention which is protected by a patent for a certain percentage of the net receipts arising from its manufacture, sale, or territorial grants, and the patentee will probably find a person among his own acquaintances who will not only be glad to furnish the means necessary, but also be of value to the patentee in realizing from his invention. In any case, whatever is agreed upon should be put in the form of a contract, or an agreement, couched in such terms as will leave no doubt as to the understanding between the parties. The following form secures both parties, and will be suggestive of others:
[Sidenote: Form of Agreement.]
Whereas I, Richard Doe, of Philadelphia, County of Philadelphia, and State of Pennsylvania, have invented certain new and useful improvements in Telegraph Keys, for which I have obtained Letters Patent of the United States, bearing date January 1, 1901, and number 000,000, and whereas John Roe, of Camden, County of Camden, and State of New Jersey, is desirous of obtaining an interest in the net profits arising from the sale or working of the said invention covered by the said Letters Patent.
Now, therefore, this indenture witnesseth, that for and in consideration of one dollar by each of the parties hereto paid to the other, the receipt of which is hereby acknowledged, it is stipulated and agreed as follows:
First, That the said John Roe shall pay all moneys necessary to the construction of a suitable model to represent the said invention; that he shall pay all necessary expense in advertising and bringing said invention before interested parties (and such other clauses as may be deemed necessary and agreed upon, such as the expense of constructing a working model, or carrying out a process, etc.); that he shall make diligent effort to promote the said invention, its manufacture, and sale.
Second, That the said Richard Doe, sole owner of said invention and Letters Patent, in consideration of the payment of the moneys above mentioned, agrees to pay the said John Roe twenty-five per cent. (or other amount agreed upon) of all the net receipts in any manner arising from the sale or working of the said Letters Patent, during the term for which said patent is granted.
Witness our hands and seals this tenth day of January, A.D. 1901.
RICHARD DOE, JOHN ROE.
In the presence of: JOHN SMITH, THOS. JONES.
[Sidenote: Perfecting Inventions.]
Should an inventor defer the filing of his application until his invention is fully developed as regards the detail construction and arrangement of the parts? The best opinion seems to be in favor of the prompt filing of the application. The final form of the details can best be determined by the manufacturer and expert machinists and designers, who appreciate the matter of economical manufacture, which is quite as essential as the efficiency of the device or machine. Clearly, therefore, the inventor cannot decide as to all the details; why then should he delay his application?
The safest course for an inventor is to file his application for a patent as soon as his invention is complete in its principal features, so as to conform to the requirement of the Patent Law that an invention be sufficiently complete to be theoretically operative. The mechanical details are rarely of great importance as far as the patentable features of the invention are concerned. Still, it is well to give the attorney full particulars of whatever details the inventor has in mind.
[Sidenote: Exhibit of the Invention.]
Under the security thus afforded for the main features involved in his idea, the inventor can proceed more deliberately in perfecting and improving his invention, and can then file an additional application if necessary, to secure special protection on particular improvements or the improved invention as a whole. The early filing of an application may turn out to be important in securing to the inventor his right of priority. When the inventor comes to exhibit his invention, with the idea of bringing it to the attention of the public in general, there is no question that he should then have his invention in the best form he can, and in as attractive shape as possible.
[Sidenote: To Avoid being "Squeezed."]
The patentee who proposes to realize from his invention should never let it be known that he is in want; of course, in some cases he cannot help himself, but he should endeavor to obtain the necessary assistance from his acquaintances, and under no circumstances let those with whom he is trying to deal get an insight into his financial condition, as capitalists and others will very often take the advantage of an inventor when known to be in straitened circumstances, and the patentee probably would not realize as much from his patent as he otherwise could. Therefore, it is advisable in all cases for the patentee to manifest no impatience, remain silent as to his financial condition, and strive to impress those with whom he is dealing that he is in no condition to be "squeezed."
[Sidenote: Value of Record of Invention.]
Inventors, while working on a complicated machine, should not overlook the value and importance of keeping a record of the progress of the development, illustrating it with sketches, signing and dating them with each new addition, and, when practical, having it witnessed by one or more persons. This plan is preferred by many inventors to filing a caveat. Such a record will be found very valuable in case of an infringement, as it enables the inventor to ascertain the various steps of his invention, and is a sort of evidence that cannot be impeached. Such a record of a complicated invention, when the inventor has put much time and study upon the subject in perfecting it, will also be found valuable in effecting sales, and in fixing the price of the patent.
[Sidenote: Prejudice against Patents.]
It cannot be denied that at the present time there seems to be in many sections of the country a strong prejudice against patents, which sometimes makes it difficult to get people sufficiently interested to take hold of any patent; especially is this true when the patentee endeavors to sell his patent piecemeal; that is, by county, township, shop, or farm rights. No matter how important or valuable the invention may be, there seems to be a disposition on the part of the public to look upon such rights as a fraud, and to be very cautious how they invest in them.
The public is not wholly to blame for this, as in recent years there has been a class of men who have canvassed the country with patent rights, not caring what representations they made so long as they were able to effect a sale; consequently, many people have been lured into purchasing patent rights for a small territory which in many instances were worthless or not as represented, causing them to be more or less skeptical of all patents, as well as to bring this manner of selling patents generally into ill repute. With manufacturers and capitalists, this prejudice does not exist to any great extent, as with them the patent rests solely upon its own merits.
[Sidenote: Newspaper Notoriety.]
Many inventors overlook the importance of interesting newspaper men in their inventions. This is a matter of great consequence to the inventor in exploiting his invention, and should be given some attention. Newspapers desire items of interest of every description, and readers are usually interested in brief accounts of any new invention possessing novelty or merit; so that when the inventor once gets his invention into the newspapers it is generally copied by other papers, with the result that the invention gets a large amount of free advertising and publicity. These items frequently attract the attention of capitalists, manufacturers, and others, and at once put the invention in a favorable position before the public as could be done possibly in no other way—certainly in no cheaper way.
Many of the trade journals and other periodicals are also open to receive technical descriptions of inventions of merit concerning industrial improvements. Such articles should be written in good form, containing not over five hundred or a thousand words, and if admitted to this class of publications will be of the utmost value and importance in creating favorable public opinion, and in advancing the inventor's interests.
With hardly an exception, if an invention strikes editors favorably and is adjudged to be of sufficient interest to form an article of news in newspapers, or of sufficient merit to warrant a description in the trade papers, it is pretty certain to prove a success and bring the inventor large returns.
If the invention is of such a character as to strike newspaper men unfavorably, the inventor can resort to the advertisement columns; using the large daily papers, or such publications which in some way relate to the industry to which the patent appertains, and such as have the largest circulation among the class of people it is desired to reach. See about advertising on page 46.
HOW TO ARRIVE AT THE VALUE OF A PATENT
Most inventors are not concerned so much about the fame or honor their inventions will bring them, or how much their inventions will advance civilization, or build up a nation, or administer to the conveniences and pleasures of mankind generally, as they are about how much it will net them in dollars and cents; but the patentee should not lose sight of the fact that the profits are in the exact proportion to the actual usefulness of the invention, and its general adaptability. It is immaterial whether the inventor himself intends to deal with the public, or to deal with a man or set of men who are afterward to deal with the public, the conditions are the same, and the profits must ultimately come from the sale of the manufactured article.
[Sidenote: Pecuniary Value.]
It may seem superfluous to say that mere Letters Patent aside from an invention is of no value, though many inventors are under the erroneous impression that if an invention possesses patentability, it must also necessarily have pecuniary value. To be of any pecuniary value whatever, the invention must cover something for which there is a demand, or for which there can be a demand created, for it cannot be disputed, that if an invention will not bring in money by manufacturing it, it is, in a financial sense, worthless; and the patent thereon is therefore worth some seventy or eighty dollars less than nothing.
[Sidenote: Commercial Value.]
An invention, to have commercial value, as previously stated, must cover something for which there is a demand, or for which there can be a demand created. It may be an entirely new device, or it may be an improvement upon an existing invention, but in any event it must contain a certain degree of utility. In rare cases inventors are able to hit upon an invention in an entirely new field; for these a demand has to be created. For improvements, however, as a general thing, the demand already exists; then the important question arises in determining the commercial value of the patent. "Does the invention in question possess sufficient merit to successfully compete with existing devices of the same class?" In order to do this, it must be of a simpler or cheaper construction, so that it can be manufactured and put on the market at a lower figure; or, it must yield better results, work quicker and at less expense, or economize power, labor, or time. A patented improvement upon an article that can be sold more cheaply, or one which will yield better results than those now selling well on the market, has a decided commercial value and can easily be disposed of at a good price. If the inventor be fortunate enough to combine both of these features in his invention, the value is doubled and success certain.
[Sidenote: Basis for Estimation.]
Perhaps one of the hardest questions that confronts the patentee is how to arrive at a just valuation of his patent, and to know just exactly what he should receive for it. This is a very important question, and one which should be looked into before undertaking negotiations. Patentees should not, of course, undervalue their patents, or accept the first small offer made for fear of not receiving another; at the same time, they should not fall into the common error of asking a price that cannot be obtained, which too frequently precludes all chances of a sale. Many business men would rather lose the patent than waste their time constantly dickering about an unreasonable price.
Inventors should be reasonable in their demands, and consider that the purchaser must have a fair share of the profits. He cannot expect to realize all there is in the patent himself. Indeed, patentees usually find that men willing to establish a business on the basis of their untried patents will require the greater bulk of the profits to be derived from it.
[Sidenote: General Rules for Valuation.]
It is evident that only the most general rules for valuation can be given, as each invention must be studied and valued strictly upon its own merits. Undoubtedly, the best and most practical method of ascertaining the value of any invention which is susceptible of being manufactured on a small scale is to have a limited quantity of the articles manufactured—say five hundred or a thousand—and try the experiment of introducing them in a small territory; that is, in a certain county, city, or town, taking great precaution in selecting a person who is capable of carrying forward the business in a business-like manner. This method demonstrates conclusively whether or not the invention will meet with success, and with these figures at hand the patentee will be prepared to prove, to the satisfaction of interested parties, just what the patent is really worth.
This method of procedure not only enables the patentee to get a just valuation of his patent, but also puts it in a more favorable position to be sold; since the commercial value is known and established, it no longer remains an experiment. Interested parties can take their calculations from these figures, and the patentee can exact a price in proportion to the success of the trial experiment.
In order to thus demonstrate the value of a patent, the patentee must possess and advance the necessary means to carry it forward, though, if the experiment prove at all successful, the profits derived from the articles sold will in nearly all cases more than offset the expense incurred. This is a very popular course with inventors, especially in handling small inventions, known as novelty or specialty patents.
If the patentee have not the means to successfully demonstrate the value of his patent by actual trial, as above outlined, then the next best course would be to inquire among reliable manufacturers and ascertain the lowest price for which the invention can be manufactured in large quantities, and the highest price at which it will retail; and then, by carefully studying the market, the patentee should be able to estimate the amount of competition, cost of selling, probable number of sales, interest on the investment, etc., and on these figures base the price he should receive for the patent, being careful to allow the purchaser a liberally fair profit.
While there are at present about ninety-five million inhabitants in the United States, it is scarcely probable that any invention has yet or ever will be made that will reach half this number of people. With an article of the most general adaptability, including both sexes, the inventor can hardly hope to reach more than a fourth of the entire population, though, of course, the invention may be subject to regular consumption, so that the people reached would naturally purchase the article again a number of times during the course of a year.
The statistics in the last chapter are given with the view of assisting patentees in determining what proportion of the population will likely want their inventions, and to enable them to estimate prices. In estimating the price to ask for a patent, patentees should not conceive and hang their hopes upon fabulous prices and immediate wealth, which too often dooms ambitious inventors to bitter disappointment; they should rather endeavor to look at their inventions from the purchaser's stand-point, and try to see it in the light in which others view it. It may be well to remember that the million mark of patents issued in the United States, including re-issues and designs, was passed in 1911, and it is quite probable that any one inventor may not have the only good thing in the line of patents.
[Sidenote: How Rating for Royalty Is Figured.]
Many patents are more profitable by being placed upon royalty than by any other means, and quite often the patent can be placed this way when it is not possible to sell outright at a satisfactory price. In determining what royalty the patentee should receive, he should carefully estimate, in connection with the probable number of sales, what profit the manufacturer can probably make on each, or a number of the articles containing the patented improvements, and should require about twenty-five per cent. of the profits as royalty. Another method used by some inventors is to ascertain the price at which the article can be retailed, and figure the royalty at between one-twentieth and one-tenth of the retail price. Either of the above should give the approximate figure to ask for exclusive royalty contracts. For non-exclusive rights the patentee should ask about one-half of that for exclusive rights.
[Sidenote: Stock in Stock Companies.]
There is another class of patents that can be best realized from by organizing the proper kind of joint stock companies, and manufacturing the invention, the inventor taking a certain amount of the stock and assigning the patent to the company. The patentee should receive between one-fourth and one-half of the capital stock in consideration of his assigning his patent and rights to the company.
The inventor should see that a good portion of the stock is subscribed for and the amount actually paid into the treasury of the company before making the assignment. As a rule, inventors' stock is full paid and non-assessable.
[Sidenote: Prices for Territorial Rights.]
In calculating the prices for territorial rights, the application of the invention to that section must be taken into consideration, as well as the advancement in manufacturing, etc. If the invention belongs to that class of inventions which may be generally adapted in all States alike, such as domestic articles and articles of wearing apparel, then the population will form a very satisfactory basis for valuation.
There are other inventions, however, that apply almost wholly to a certain section of the country, while still others apply more to one section than to another; thus, for instance, mechanical contrivances of the higher order, such as writing machines, mathematical instruments, etc., the North and East are the most valuable; for mining and agricultural implements, etc., the West; while such as the cotton-gin, seeders, and presses apply almost wholly to the South. States and counties having large cities and large towns are also usually more valuable than other States and counties of same population.
[Sidenote: Valuation Tables.]
The following tables are given as a general estimate of the relative value of the different States and divisions in the majority of cases; however, these tables are only arbitrary at best, and cannot be applied to all classes of inventions satisfactorily, though they may serve to materially aid the patentee in determining what price to put upon each State in his own case. Having determined the value of the patent as a whole, the aggregate of the State prices should be about two-thirds more, as there are always some States that cannot be sold separately, while others may have to be sold at a discount.
TABLES FOR ESTIMATING PRICES OF STATE RIGHTS
- STATES AND PRICE AS A WHOLE. TERRITORIES. - - $1,000 $5,000 $10,000 $15,000 $20,000 - - - Maine 35 175 350 500 700 New Hampshire 30 150 300 450 600 Vermont 30 150 300 450 600 Massachusetts 50 225 500 750 1,000 Rhode Island 20 100 200 300 400 Connecticut 35 175 350 500 700 New York 65 300 650 950 1,200 Pennsylvania 65 300 650 950 1,200 New Jersey 40 200 400 600 800 - - N. ATLANTIC $370 $1,775 $3,700 $5,450 $7,200 DIVISION - - -
TABLES FOR ESTIMATING PRICES OF STATE RIGHTS—Continued
-+ STATES AND PRICE AS A WHOLE. TERRITORIES. -+ -+ + + $1,000 $5,000 $10,000 $15,000 $20,000 -+ -+ -+ + + Delaware 20 100 200 300 400 Maryland 40 200 400 600 800 District of 15 75 150 200 300 Columbia Virginia 35 200 400 600 800 West Virginia 35 175 300 500 700 North Carolina 35 150 300 450 600 South Carolina 35 150 350 500 700 Georgia 40 200 400 600 800 Florida 15 75 150 200 300 + -+ -+ + + S. ATLANTIC $270 $1,325 $2,700 $3,950 $5,400 DIVISION Ohio 60 300 600 900 1,100 Indiana 55 275 550 800 1,000 Illinois 65 300 650 950 1,200 Michigan 45 200 350 600 800 Wisconsin 40 150 275 400 500 Minnesota 45 200 350 600 800 Iowa 40 175 350 500 700 Missouri 45 225 450 650 900 North Dakota 25 75 150 200 300 South Dakota 30 100 200 300 400 Nebraska 30 150 300 450 600 Kansas 40 175 300 500 700 + -+ -+ + + N. CENTRAL $485 $2,325 $4,525 $6,850 $9,000 DIVISION -+ -+ -+ + +
TABLES FOR ESTIMATING PRICES OF STATE RIGHTS—Continued
- STATES AND PRICE AS A WHOLE. TERRITORIES. - - $1,000 $5,000 $10,000 $15,000 $20,000 - - - Kentucky 40 200 375 600 700 Tennessee 30 175 350 500 700 Alabama 30 150 300 450 600 Mississippi 30 150 300 450 600 Louisiana 35 175 300 500 700 Texas 35 175 300 500 700 Oklahoma 20 100 200 300 400 Arkansas 20 75 150 200 300 - - + S. CENTRAL $230 $1,200 $2,275 $3,500 $4,700 DIVISION Montana 15 100 175 250 300 Colorado 40 175 350 350 700 New Mexico 15 50 100 150 200 Arizona 15 50 100 150 200 Utah 15 50 100 150 200 Idaho 10 50 75 100 200 Washington 15 50 100 150 200 Oregon 20 75 125 200 300 California 50 250 450 700 900 + - - WESTERN DIVISION $235 $975 $1,800 $2,750 $3,700 ======================================== GRAND TOTAL $1,600 $7,600 $15,000 $22,500 $30,000 - - -
HOW TO CONDUCT THE SALE OF PATENTS
While the inventor may put much hard study upon his invention and make many costly experiments, this part of his work is usually a pleasure; and in securing the patent he invariably has able counsel in his attorney with no anxiety on his part; but with the commercial proceeding of selling his patent, which involves the greatest prudence and care in managing, it is different, and here is where the inventor's real work begins if he expects to reap the benefit of his invention.
[Sidenote: Patent-selling Agencies.]
For the benefit of unexperienced patentees it is deemed expedient to give a word of warning here regarding the host of so-called patent-selling agencies, which under various imposing titles, coupled with an apparently honest and straightforward method of business, tempt each patentee, upon the issue of his patent, to place the same in their hands and authorize them to negotiate the sale thereof. Their propositions are very attractive and temptingly prepared; their offers appear to be "gilt edge"; their circulars are high-sounding and rose-colored; their contracts are formal looking, and drawn up in an impressive way, highly advantageous to the patentee; but it will be noted in all cases that they will require the patentee to pay down a certain sum under some pretence,—such as to cover the cost of advertising the patent, to have circulars printed, to secure copies of the patent for distribution, to have a cut made illustrating the invention, or for membership fee, and so on, it matters not what, so long as it is an advance fee. Many will also agree to sell both the United States and Canadian patents, if the patentee will file the Canadian application through them; it is evident, however, that this is only a scheme to get the patentee to take out the Canadian patent through them—they having no facilities for disposing of either of the patents.
The writer is not prepared to say that there are no honestly conducted patent-selling agencies, but from long experience and observation, has never known where a patentee was ever materially benefited by placing his interests in the hands of these concerns, and has yet to learn of them ever making a sale solely through their own efforts. Very few of these concerns have any facilities whatever for selling patents; all of their time being taken up in mailing their weekly circulars to inventors immediately upon the publication of the Official Gazette, and working inventors up to the remitting point which usually ends the matter so far as they are concerned, unless they believe they can get another fee out of the patentee.
There may be exceptions, but patentees should fully satisfy themselves as to the integrity of these firms before placing business in their hands, as the Assistant Commissioner of Patents in his report in the Webberburn case, 81 O. G., 191 K, clearly pointed out that the methods of these concerns were such as to sell the patentees rather than their patents.
[Sidenote: The Patentee the Best Selling Agent.]
That the patentee himself is the best selling agent there can be no doubt, for he is familiar with the construction and operation of his invention in every detail, and knows its merits and superior points far better than anyone else, besides manufacturers and others wishing to purchase patents invariably desire to deal with the patentee himself. Business men, it may be said as a rule, do not think very much of an invention which the inventor has abandoned to others to negotiate, moreover the personal push of the inventor is, in nearly all cases, essential to the successful termination of a sale.
Subtract the personal energy and presence of the inventor from the successful inventions of the past and of to-day, and the chances are that they would not have succeeded as they did. It is not only a question of material interest, but also of enthusiasm and confidence, and each patentee, having but one patent or a set of patents to push, can lend thereto that individual attention which insures good work and success.
[Sidenote: In Case the Patentee Cannot Undertake the Selling.]
However, if from any reason the patentee is unable to handle his own invention and must engage the services of an agent or salesman, he should select one from among his own acquaintances, in whom he has confidence. He should if possible get a person who has had experience in the line of the invention, as such a person would likely understand it and the trade better than others. It is not really necessary that he should have had experience in selling patents; if he is a good talker, knows how to approach business men, and thoroughly understands the invention, he will probably make money for the inventor and himself. The patentee should have him submit all offers of value for his consideration, and should not give the agent power to sign or collect. The patentee should name a reasonable price for the patent, allowing the agent a liberal commission upon the price, and encouraging the agent by allowing him a certain percentage of all he may be able to get over and above the price named. This will encourage the agent to work for the highest price obtainable. The inventor should make every effort to be able to personally attend to the details of selling, and keep the business under his personal supervision.
[Sidenote: Methods of Selling Patents.]
There are a number of plausible methods to which the patentee may resort in disposing of his patent without the aid of questionable selling agents, and it is the purpose of the following pages and succeeding chapter to set forth such methods as have in the past proved beneficial to patentees; those along which success have been achieved, and such as are employed by the most successful inventors of the present time in handling their patents.
It is true that no definite method or system can be given that will apply to all patents alike, as the method in each case will depend more or less upon the character of the invention, and to the particular art to which it belongs; however, from the following pages the patentee should be able to judge what particular methods will best apply to his individual case, and proceed along these lines.
There are many patents issued which the patentees thereof can as successfully dispose of from the smallest hamlet in the United States as from New York, Chicago, or any of our larger cities, while, of course, there are others which only those directly connected with the largest and wealthiest corporations can hope to dispose of successfully. The main thing is not to become discouraged or give up until one succeeds in making a sale.
[Sidenote: About Advertising.]
To make the merits and importance of an invention publicly known is, in many cases, one of the best ways of bringing about the introduction and sale of a patent. If the inventor has a patent on an invention that manufacturers or others want, and can make its merits and superior qualities known to them, negotiations will soon follow. There is no way for patentees to place themselves in communication with prospective investors quite equal to an advertisement in the proper medium. Here it may be well to state that patentees who decide to advertise their patents for sale or otherwise should place their advertisements in publications of known standing, such as the leading daily newspapers. A brief, well-worded advertisement in the "Business Opportunities" column of these papers bring quick and good results, though, perhaps a better class of inquiries may be obtained by advertising in the trade journals of the class to which the invention relates, and while the trade journals may not bring about as many inquiries as the dailies, those that answer will be more apt to be interested and talk business. Either of the above are good mediums, but in advertising patents for sale patentees should carefully avoid those publications that are published at uncertain intervals, and usually for the express purpose of circulating among inventors for various purposes. They do not reach the class of people that invest in patents. Inventors should know the class of people that would be likely to become interested in their inventions, and advertise in such mediums as have the largest circulation among that class.
[Sidenote: How to Write an Advertisement.]
In the construction of an advertisement there is often too much waste by using too much verbiage, too many unnecessary words or sentences, sometimes too much display. Prudence in the arrangement, and care in editing an advertisement, will save much expense. The size of an advertisement of this class has really little to do with its pulling qualities.
The statements should be assuming, and at the same time truthful, as any deception in an advertisement is sure to work an injury. There should not be more claimed in the advertisement than sounds reasonable, even though it be stating facts; if an advertisement sounds unreasonable it will not have the desired result. Inventors sometimes become so enthusiastic over their inventions that they exaggerate unintentionally. A good rule is for the inventor to read over the advertisement, and ask himself, "If this statement was read by me, would I believe it; would it convince me?" etc.
Putting one's self in the purchaser's place is always one of the best factors in writing good advertisements. The inventor should put himself in the place of the purchaser of the patent, and reason what would induce him to investigate its merits; what would likely cause him to take it up, and so on; he should think and write fully along these general lines, incorporate these reasons into an advertisement; then boil it down by cutting out the unnecessary words and sentences; prune, remodel, and rewrite until he has a brief advertisement, clear, concise, and to the point.
[Sidenote: Correspondence as a Means of Bringing Patents before Interested Parties.]
While to advertise, as suggested in the foregoing pages, would require a very moderate outlay, and be, perhaps, the better course to pursue: however, in connection with it, or if the patentee does not feel that he can afford the expense of advertising, a very good plan is for him to secure copies of a number of the trade journals of the class to which his invention relates, and carefully look over the advertisements therein, and select a list of such manufacturers as would seem likely to be induced to purchase the patent in question, or manufacture the article on royalty. In this manner the patentee will probably get the best up-to-date list obtainable, and it may be set down as a fact, with very few exceptions, that if manufacturers and dealers who make and handle just such articles as the patent calls for cannot be interested, it is very hard to interest others not engaged in such line, except when the invention is large, and requires a great deal of capital to work the same.
[Sidenote: How to Correspond with Manufacturers.]
To each of the parties of the list thus selected, or to a number of them, the inventor should write a well-composed and convincing letter setting forth the invention in its best light, and stating just why it would be to the interest of the parties solicited to investigate the same. Some time should be spent on this letter before attempting to write it, and the writer should weigh well in his own mind what would be best to say, and the proper way of expressing it. He should be as brief as possible, consistent with legibility. The statements should be assuming, yet in every respect true. He should state in brief terms just what the invention is, what it will do, the points and advantages it has, and at the same time endeavoring to get the parties interested so that they will inquire into the invention, rather than attempt to come to terms in the first letter.
The letter should be brief and pointed, and plainly written upon business-size paper; and if the inventor has a typewriter, or access to one, he should use it. If he has printed circulars he should send one with his first letter, which will enable him to make the letter briefer and more business-like.
In correspondence it is well not to name a price until the parties are interested, and first endeavor to get them to make an offer. The patentee should be patient and should not expect to jump right into a bargain at once. If the invention is a meritorious one there will be more than one of the manufacturers to whom the patentee may write, who will become interested, and when such a state exists, the patentee can begin to be more exacting as to his demands since competition has been created between the manufacturers.
A few dollars invested in circulars will frequently be found of great value to the patentee if he intends to negotiate the sale of his patent mainly by advertising and correspondence, as they will save a great deal of writing and explaining as well as appear more business-like and attractive, and may be the means of more readily effecting a sale.
If the patentee can afford the additional expense of an illustration, it will greatly increase the appearance of the circular, and make it more readily understood and interesting. The cut should be neat and set forth the invention in its best light. It would be better to entrust the procuring of the cut to the printer, for he will know just what is wanted and can secure the same at a better price. A sufficient number of well printed circulars, with illustration, can be obtained of any printer for a few dollars.
[Sidenote: About Getting up Circulars.]
The circulars should be attractive, convincing, and logical; nicely arranged, and neatly printed upon good paper. A mistake is often made in sending out trashy-looking circulars, poorly printed upon cheap paper; they repel rather than attract, and do not have the desired effect.
The circular should have good head-lines so as to attract the attention of its recipient at a glance, and his interest should be held by having the uses and advantages of the invention well written.
Many of the pointers suggested in advertising and letter-writing will equally apply to the writing and getting up of the circulars, and need not be treated further here, except that the patentee should dwell especially upon the merits of the invention, its uses, and advantages over like articles. This should be done in the most interesting manner possible, describing it so that its value will be fully understood.
[Sidenote: Uses of Printed Copies.]
It will be well for the patentee to order some printed copies of his patent, as manufacturers and others usually ask for them if interested, in order that they may examine the patent, or have an expert to examine it, to ascertain its validity, novelty, and what protection is really afforded by the patent. It cannot be denied that in either case the invention will suffer a cold-blooded rigid examination, and must stand or fall solely upon its merits. If, however, the invention is adjudged to have real merit and properly protected by the Letters Patent, business negotiations will likely begin, and the patentee will perhaps speedily make a satisfactory deal.
[Sidenote: First Impressions All-Important.]
Some inventors use printed copies of their patents instead of circulars, but, while they fully set forth the invention in a technical way, it cannot be said that in all cases it is advisable to send copies of the patent until called for. Many parties who become interested in patents are not familiar with mechanical drawings and technical specifications, and very often do not get a very favorable impression from a copy of the patent; and it is very important that the first impressions should be favorably created, for upon this much will depend. If parties become sufficiently interested to fully investigate an invention, they are very apt to form a favorable opinion of it.
[Sidenote: Value of Models.]
There is no way of so easily creating a favorable impression and gaining the interest in an invention as by a neat and perfect working model of the invention. Man never loses the child-love for toys, and a perfect miniature machine of any description will attract more attention than one of full size. With a model the inventor has the full and immediate attention of his prospective purchasers at once. If the patentee, or his agent, intends visiting manufacturers, or to sell the patent by territorial rights, he will find a model of his invention almost indispensable.
Inventors should be very careful about sending models to unknown parties, and should mark the number of the patent and their name and address upon the model. It should invariably be understood in advance who is to pay the transportation charges, before sending a model with any charges to collect.
While models are very helpful in setting forth an invention and making sales, high prices exclude many inventors from their use. Model-makers usually charge fifty cents per hour for each man working upon the model, and market price for the material used; from these figures the inventor may make a rough estimate of what a model of his invention will cost.
[Sidenote: Working Drawings.]
Working drawings are different from those forming a part of the patent in that they are more detailed, giving the size of each piece and the material of which it is constructed. While working drawings are not quite as expensive as models, they do not show the invention to the advantage that models do, and are of little value to those who do not understand them. On the other hand, working drawings have the advantage of being easily sent through the mails, and can be duplicated at small cost. Manufacturers prefer working drawings to models in quoting prices on manufacturing the invention in quantities.
HOW TO CONDUCT THE SALE OF PATENTS—Continued
In conducting the sale of patents, the greatest difficulty is most frequently experienced in getting manufacturers or others sufficiently interested to look into the merits and possibilities of the invention. If the inventor can get the parties to actually consent in their own minds to the proposition of taking up the invention, the question of terms and conditions can soon be arranged. Until the parties solicited can see beyond a doubt that there is large profits in it for them, the price of the patent is out of the question; therefore, the first step is to demonstrate its merits and commercial value, and get the parties thoroughly interested.
Patentees should not labor under the impression that because a patent is offered at a very low price that it will be quickly snapped up as a bargain; as before stated, if a patent will not bring in money by manufacturing and selling the article, it is worthless; and its real value is in exact proportion to the amount of profits that can be made from its manufacture.
Should the patentee find that his patent has no commercial value, it is almost useless to spend more time and money in trying to realize anything from it; he had better start again, and endeavor to invent something that has value and can be sold.
[Sidenote: Value of Personal Influence.]
Inventors should use the full extent of their personal influence to spread particulars of their inventions as far as possible, for this indirect work is often a leading factor in creating a favorable impression that frequently results in the adaption of an invention.
However unacquainted he may be in a business way, every patentee can, more or less, in his immediate neighborhood, consult with merchants, friends, and others in the line of his invention, who can post him upon the right parties to submit the patent to, and the best way to see them about it, and perhaps go with him to visit such as might be interested in the invention.
[Sidenote: Personal Solicitation Advisable.]
In nearly every case it is more satisfactory for the patentee to call on the manufacturers or interested parties personally whenever it is possible for him to do so. This brings about a more satisfactory understanding between them. Many inventors, however, prefer opening up communication by correspondence, and after the parties manifest a willingness or desire to look into the invention more closely, then arrange to visit them personally.
Having determined upon a visit, the patentee should endeavor to get a friend known by the parties to go with him to make their acquaintance. If the friend cannot go with the patentee, he will probably give him a note of introduction. It may happen that his friend does not know the parties whom the patentee wishes to see, in that event he may know of someone who does, to whom he can introduce the patentee and who in turn may either go with him or arrange to make him known to the parties solicited. An introduction, of course, is not absolutely necessary, but it invariably has a good effect and is generally worth the effort.
The patentee should be prepared to make a straightforward, business-like presentation of his invention by means of a suitable model or drawings; carefully explaining its merits and advantages, showing as clearly as possible just what the value of the invention is and what can be made out of it, and giving tangible reasons why it would be to the interest of the parties solicited to invest in the patent. If the patentee is dealing with a manufacturer it is well to point out not only the possible advantage he may have by securing the control of the patent, but also the possible loss that his business may suffer by allowing one of his competitors to obtain its control. Many businesses have been hopelessly crippled by an enterprising firm securing control of a good patent and introducing a like article that can be sold cheaper, or one that will do its work in a better and more satisfactory manner.
[Sidenote: Selling Outright.]
Many inventors prefer to sell their patents outright; that is, in consideration of a specified sum of money the patentee assigns his entire interest in the patent, in the same manner that a person would sell a piece of real estate. This is a very good method and one of the quickest ways for the patentee to turn his invention into money, though it must be remembered that to sell a patent outright is usually for a very much smaller sum than could be realized if handled by other methods.
The day for obtaining enormous sums or fortunes from the sale of a patent outright is past; at present to realize any considerable amount, the patentee generally has to share in the risks as well as the profits, unless the invention is very highly developed, and even then he cannot expect to get as much out of an outright assignment as he could by sharing in the success of the invention commercially. If, however, the patentee is content to take the utmost cash his patent will bring him outright, he is assured of a principal or lump sum, free from any chances of the article not selling well when placed upon the market.
Before signing and delivering the assignment, the patentee will, of course, see that he has the consideration, or its equivalent, for which the assignment is made. If the transaction is made through correspondence he should send the assignment duly executed to the purchaser through the bank or express C. O. D. for the amount.
[Sidenote: Assigning an Undivided Interest.]
In a preceding chapter, the dangers and disadvantages of an undivided interest are set forth, and it cannot be considered a wise course under any consideration to part with any undivided interest in the proprietorship of the patent, unless unusually well paid, or there exists an agreement of copartnership between the patentee and the assignee. By such an assignment, no matter how small, the patentee loses control of his patent.
[Sidenote: Dividing a Patent into Different Classes of Rights.]
Many patents, from the nature of the invention, can be subdivided into different classes of rights, and each class sold or granted separately as the patentee may choose. Thus, the patentee of a tire, or other appliances for a bicycle, could license one party to make the same for bicycles and another for automobiles. In like manner a car-coupler could be divided between those who build railway equipments and those who build street-cars, and so on.
Goodyear, the inventor of the process of vulcanizing rubber, divided his patent up into many different rights, licensing one company for manufacturing rubber combs, licensing another for hose pipes, another for shoes, another for clothing, and a number of other different rights, for which each company or partner paid a tariff. Lyall, inventor of the continuous loom, also divided his patent into many different rights; one company weaving carpets, another corsets, another bags, another sheeting, etc.
In every case where the invention covers articles not in the same line of manufacture, the patentee should not fail to divide the rights into different classes, granting each party only such rights as they may be interested in. In this way the patentee can quite often double or treble the receipts from his invention.
The patentee may, if he desires, have his machines built and require the purchasers to pay him a regular annual rental on each machine, or a tariff upon the goods produced, in addition to the price of the machine. Companies are sometimes organized to manufacture an invention, and employ travelling men to place the article on annual rental instead of selling.
[Sidenote: Selling by Territorial Rights.]
Another method is to sell State and county rights. This consists of a license whereby the patentee, in consideration of a certain sum of money paid him, grants unto another person or persons the exclusive right to make and sell the invention, and to authorize others to make and sell the same, within a specified territory, during the life of the patent. This plan of disposing of a patent has often been highly profitable, but it must be said that these territorial sales have been conducted in such a manner in the past, as to bring the whole system of selling patent rights into disrepute, and in recent years patentees have found some difficulty in making sales in this way, unless the device is of unusual great novelty and attraction to householders or the general public.
Occasionally, however, there are patents issued for meritorious inventions that are susceptible of this mode of procedure, and which can be disposed of to the greatest advantage by territorial grants. Such inventions as household novelties possessing great merit and utility have been most successfully placed upon this plan, but it must be remembered that the value of the system rests upon its capabilities of effecting sales of the manufactured article to a vast proportion of the people.
In selling territorial rights it is a mistake to begin with the small places with the idea of working the business up and effecting larger sales on the basis of the smaller ones; it is better to shove the sales, as much as possible in the start, and after the more valuable portion of the territory is disposed of, proceed with the balance until it ceases to be profitable.
Experience teaches that it is usually advisable to accept any reasonable offer made for a small right, even if it does not come up to the patentee's estimate of its value, as he has plenty of other territory left, and may lose much time and money in finding another in the same territory willing to pay more; besides, the purchaser of such a right may, by his energy and good judgment, advertise the invention in such a way as to greatly benefit the patentee in making further sales.
Some patentees employ good and reliable special agents to travel and dispose of the patent rights; others advertise for and appoint State agents to sell their respective county rights. In either case these agents expect to make money by the operation, and require a liberal proportion of the proceeds for their remuneration; generally speaking, they will require about one-third the selling price, unless the patentee can show that the rights will sell readily, in which case the rating can be made lower.
[Sidenote: Granting Licenses.]
The patentee may also sell licenses under his patent; that is, in consideration of a certain sum, the patentee licenses a manufacturer to make the invention at his own place of business; it being a personal privilege and is not transferable unless its terms so state.
Unless there are a great many manufacturers in the line of industry to which the patent relates, and unless the invention has real merit so that it will be readily adapted by the manufacturers, the patentee cannot hope to realize any considerable amount from selling shop-rights alone. As a general thing, patents for mechanical inventions can be disposed of to better advantage by other means, or by selling shop-rights in connection with other methods; for example, if the patentee was selling his patent by territorial grants, he might grant shop-rights in such territory as he has not sold; or if he is placing the patent upon non-exclusive royalty contracts, he could grant shop-rights in such portions of the territory as he does not contemplate using otherwise.
Some inventions, such as methods or processes, as a general rule, have to ultimately be sold by licenses. Such patents can be employed most profitably by selling licenses, county and State rights; thus, in the case of a method of constructing fences, the patentee could sell State and county rights to parties, who in turn could grant farm rights, etc.
[Sidenote: Placing upon Royalty.]
The license and royalty plan is perhaps the best and most popular method with inventors for realizing from their inventions. This, in effect, involves a contract between the patentee and the manufacturer, by which the latter in consideration of a license to manufacture the article covered by the patent, agrees to pay the patentee a certain specified sum as royalty for each article manufactured or sold bearing the patented improvement.
Placing a patent on royalty is ordinarily taking chances, but if the patentee has full confidence in his article selling well, he should by all means take royalty in preference to selling the patent in its entirety. Many valuable patents are sold by their owners for from $1,000 to $10,000, which yield the purchasers, when the article is on the market and selling well, as much as $25,000 annually in profits. This calls to the author's mind a patent for which at the outset was doubtfully offered $3,000, but before the negotiations terminated, the patentee succeeded in placing it upon an exclusive royalty basis. The royalties paid to the patentee during the first four years amounted to over $50,000, and the manufacturers subsequently made an offer of $100,000, for the patent.
In making royalty contracts with parties, the patentee should investigate the standing, rating, and capabilities of the manufacturer, and, above all, should be certain that the parties have the right motive in view, and that the contract is so drawn that it will fully protect his own interests. Many patentees have been caught by manufacturers offering large royalties for the sole purpose of gaining possession of the patent, that they might pigeon-hole it, in order to keep the article out of the market, so that the sale of some similar article in which they are interested would not be interfered with by the introduction of a similar or better article, such as the patent anticipates.
There are others who propose and make royalty contracts with patentees with no other object than that of making the special tools, patterns, dies, etc., for which they charge the patentee an extortionate price.
The best and safest way for the patentee to guard against having his patent tied up is to bind the parties to do certain things in the way of pushing the sales, making the necessary tools at their own expense, and commencing its manufacture within a reasonable time, paying an advance royalty, or annexing some such condition to the agreement by which they will be the loser should they fail to push the inventor's interests.
Unless it cannot be otherwise arranged, the patentee should not transfer his rights merely in consideration of receiving a certain sum on each article sold, as however sterling the character of the manufacturer, there would be no certainty of the sales being pushed. The patentee should endeavor to get the manufacturer to guarantee that the royalties shall amount to at least a certain pre-stipulated sum each year, or within a period of time, and that such sum shall absolutely be paid to him by the manufacturer, irrespective of sales. This insures that the manufacturer will be obliged to push the sales of the article, and do it justice, since if he neglects his duty purposely, or from lack of energy, he is out of pocket, and the patentee is sure of a certain income, with the addition of a possible fortune that unprecedented sales may yield him. However, manufacturers are not always willing to agree to this condition, unless the guaranteed amount is exceedingly reasonable; they will usually simply agree to do their best, and if the sales do not reach a certain figure each year, the patentee shall have the option of cancelling the agreement, and receiving back the patent free and clear.
Royalty licenses can either be exclusive or non-exclusive; that is, with an exclusive contract the manufacturer has the exclusive right to manufacture the article, excluding all others; non-exclusive is simply a shop-right, in consideration of which the manufacturer agrees to pay the patentee or owner of the patent a stipulated price or percentage upon each article made or sold. The license can also be exclusive in a certain section, county, State, or a number of States, as may be agreed upon.
Any number of conditions that may be agreed upon may be annexed to and form a part of the contract, and such an agreement should be drawn up in compliance with the terms and conditions agreed upon by a competent attorney, or one skilled in matters of this kind.
[Sidenote: Manufacturing and Forming Companies.]
If the patentee has a really good invention, often he cannot do better than to retain the patent and work it himself, in case he has the ability to do so. If he cannot conduct the manufacturing alone, he may be able to secure a partner with just sufficient funds, and equal common sense and business acumen, to add the necessary elements to the firm to achieve success.
In some cases, if the patentee does not wish to retain the whole patent for his own use, an excellent plan is to commence the manufacture of the invention in a suitable locality, and after the business is so far under way as to show progress and profit, then sell out the business with license under the patent. To illustrate: a gentleman in Illinois, having obtained a patent on a farming implement, succeeded in interesting a party in his own neighborhood to join with him in its manufacture, which soon proved successful and remunerative, and in a short time he was able to sell out his interest in the business to his partner, with license under the patent, after which the patentee started its manufacture in a number of places elsewhere, and, at the same time, granting licenses and selling territory in still other sections, where he was unable to work the invention. In this way he made a fair fortune from his invention, realizing about as much from each business established as he could have probably obtained for the entire patent if sold outright at first.
In this manner the patentee, with a valuable patent on an article of general usefulness, could go on and establish its manufacture in any number of places, and sell out with license under the patent. If the first experiment is successful, it is an easy matter to carry the method out in other places, and the business can be readily disposed of anywhere, if it can be shown to be on a paying basis.
[Sidenote: To Organize Stock Companies]
In recent years many inventors have been quite successful in organizing stock companies on the basis of their patents. This is considered one of the best ways for handling patents for large and promising inventions, and it is a method that any patentee, with ordinary business ability, should be able to carry out successfully, providing his invention is of sufficient merit and importance to form a suitable basis for a successful stock company.
Many stock companies are incorporated under the laws of New Jersey, but it is believed the State of West Virginia is also very favorable to corporations. The entire expense for incorporating a company under the laws of the latter State should not exceed $150. The company can be incorporated for any amount; large or small, one hundred dollars or five millions, cost and fees being the same. The incorporators need not be residents of the State. No annual statements required. The meetings of the directors can be held at any place, and need not be held in the State where the charter is granted.
Before applying for a charter for a corporation or stock company, the patentee should mention his plan to some of his friends and get five persons who will promise to subscribe for one or more shares of the stock and act as incorporators of the company.
Next he should secure the services of a reliable attorney, familiar with corporation laws, to prepare the necessary articles of incorporation and legal papers. The attorney will advise the patentee how to proceed properly in organizing his company, and as to the securing of the stock certificates, subscription blanks, seal, etc. These, including the attorney's fee, should not cost the patentee more than $50.
It is well to have some stationery printed with the proposed name of the company and business displayed thereon; and also a prospectus published, setting forth the invention and the plans of the company for introducing it, etc.
Quite often the patentee can find enough idle capital in his immediate neighborhood to float a good portion of the stock. Capital is more easily secured by the formation of a stock company than by any other means, as people can subscribe for small or large amounts, and they often prove good investments.
In soliciting subscriptions for stock, it is desirable to get as many prominent and influential men to buy one or more shares at first to head the list—their names will be a great aid in making further sales. Ordinarily the promoter only collects ten per cent, of the amount subscribed, the balance being subject to the call of the board of directors.
After it is ascertained that the shares or stock are being rapidly subscribed for and selling fully up to expectation, the patentee can have the incorporators sign the charter application and have the attorney file it with the proper State authorities. This will cost the patentee about $100 more, for State tax, attorney fees, etc.
When sufficient stock has been subscribed for, a meeting of the stockholders should be called to elect directors, and to transact such other business as may be deemed necessary in regard to locating and building the plant and getting the company in shape.
The patentee should receive about one-half the capital stock in consideration of his transferring his rights and franchises to the corporation, the remainder of the stock is sold for the benefit of the company to create a working capital. The patentee may sell a portion of his stock, if he desires, but should also retain a good portion of it to show his own confidence in the business.
After the meeting of the stockholders, the direction of the business will probably be taken out of the hands of the inventor, and the control will lie in the board of directors of the company. As a rule it is better that the inventor does not take an active part in the management of the company's affairs, unless he is specially fitted for the position.
If the company is provided with ample capital, and if the business manager is a competent man, there is little chance of failure if the invention has real merit.
[Sidenote: Trading as a Last Resort.]
Patentees are sometimes offered securities or other property in trade for a patent. It is not deemed a wise course by most inventors to consider any proposition for a trade, especially in the early life of a patent. Only as a last resort, after failing to realize from a patent by any other means, is it advisable to trade a patent; and, before finally agreeing upon a trade, the patentee should have a reputable attorney to look fully into the value and title of the property offered. He should also insist upon receiving an abstract of title, or a title guarantee from a reliable title insurance company.
Unless known to himself, the patentee should never engage the services of an attorney or broker recommended by the parties offering the trade to look into the value and title of the property. Inventors should be on the lookout for a set of sharpers who make a business of offering worthless securities and property in exchange for patents.
ABOUT CANADIAN PATENTS
The geographical nearness of Canada to the United States, and the intimate commercial relations existing between the two countries, render Canada, in one sense, a part of the industrial market of America; and owing to its liberal patent laws, which are based closely upon our own, inventors generally find it advantageous to protect their interests in this country, which can be done from time to time by a very small outlay, and thus giving the inventor the advantage of disposing of his patent or dropping it if not found remunerative, before expending the total cost of the patent.
The commercial and manufacturing interests of Canada are extensive, increasing yearly, and are closely knit with our own. If the invention is not protected in Canada, it is sometimes manufactured there and sent here without paying royalty to the inventor.
Copies of the "Rules and Forms of the Canadian Patent Office" and "The Patent Act" can be obtained upon application to the Hon. Commissioner of Patents, Ottawa, Canada. Section 8 of the Patent Act, revised May, 1898, provides:
"Any inventor who elects to obtain a patent for his invention in a foreign country before obtaining a patent for the same invention in Canada, may obtain a patent in Canada, if the same be applied for within one year from the date of the issue of the first foreign patent for such invention; and,
"If within three months after the date of the issue of a foreign patent, the inventor give notice to the Commissioner of his intention to apply for a patent in Canada for such invention, then no other person having commenced to manufacture the same device in Canada during such period of one year, shall be entitled to continue the manufacture of the same after the inventor has obtained a patent therefor in Canada, without the consent or allowance of the inventor."
The Patent Act as amended does not now require a Canadian patent to expire at the earliest date at which a foreign patent for the same invention expires.
Under the section just cited the patentee has three months, after the issue of his patent, within which to protect his interests in Canada. If within these three months he has not sufficiently demonstrated the commercial value of his home patent, and the advisability of taking out a Canadian patent, he is advised to give notice to the Commissioner of Patents, Ottawa, of his intention of doing so, which will fully protect his interests for one year, as under the above provision; and if the patentee fail to give this formal notice, he cannot obtain redress from any person who has commenced to manufacture his invention in Canada during the year.
There is also an advantage sometimes in giving this formal notice within three months and delaying the grant of the patent for one year, as the patentee is allowed to import the patented article into Canada during one year only, after the grant of the Canadian patent.
The construction or manufacturing of the invention in Canada must be commenced within two years from the date of the patent, and continuously carried on from that time, though the extension of this time may be secured upon timely application to the Commissioner, giving any good and proper reason. The time for importation is also sometimes extended upon proper application.
Canadian patents are granted originally for a term of eighteen years, the Government fee being $60 for the eighteen years, but at the election of the patentee this fee may be divided into three payments of $20 each, as follows: $20 at the time of the grant, $20 at the expiration of the sixth year, if the owner desires to keep the patent alive, if not he can allow the patent to become forfeited; and at the end of the twelfth year, if it is still desired to maintain the patent, the remaining fee of $20 may be paid. If the patentee in the meantime assigns his patent, the assignee will pay the required government fees at the end of the sixth and twelfth years, if it is desired to maintain its validity.
The Canadian patent covers and affords full protection in the following provinces:
+ + - PROVINCES. Area Population Sq. Miles. 1911 + + - Alberta 253,000 372,919 British Columbia 390,000 362,768 Manitoba 72,870 454,691 New Brunswick 28,000 351,815 Nova Scotia 20,600 461,847 Ontario 222,000 2,519,902 Prince Edward Island 2,000 93,722 Quebec 347,000 2,000,697 Saskatchewan 250,000 453,508 Northwest Territories 1,922,750 10,000 Yukon 200,000 + TOTAL 3,708,220 7,081,869 + +
[Sidenote: Selling Canadian Patents.]
In selling Canadian patents, the patentee will proceed in much the same way as in the United States, though he cannot expect, nor should he ask, more than about one-third as much for the Canadian patent as he receives, or expects, from the United States patent. Patents are not as readily sold in Canada as here, but if the inventor has a useful invention of merit, which is being manufactured profitably in the United States, he will have no trouble in disposing of his Canadian patent at a satisfactory price.
It is in nearly all cases advisable for the inventor to first put his invention upon the market in the United States before trying to realize from his Canadian interests, as it will be found difficult to interest Canadian capital in a patent that has not been first put into practice here; and if the patentee be able to dispose of his Canadian patent at all, it is usually for a very insignificant sum; whereas, on the other hand, if the patentee fully protects his interests there, and proceeds to put the invention upon the home market, he will not only be able to present his Canadian patent in a more favorable and forcible way by proving its commercial value, but he will undoubtedly get better offers, and realize full value for his Canadian interests, in exact proportion to the success of his invention in the United States.
POPULATION OF CANADIAN CITIES
(Compiled from the Census of 1911)
Montreal 406,197 New Westminster 13,394 Toronto 376,240 Stratford 12,929 Winnipeg 135,440 Owen Sound 12,555 Vancouver 100,333 St. Catharines 12,460 Ottawa 86,340 Saskatoon 12,002 Hamilton 81,897 Verdun 11,622 Quebec 78,067 Moncton 11,319 London 46,177 Port Arthur 11,216 Halifax 46,081 Lachine 10,778 Calgary 43,736 Chatham 10,760 St. John 42,363 Galt 10,299 Victoria 31,620 Sault Ste. Marie 10,179 Regina 30,210 Sarnia 9,936 Edmonton 24,882 Belleville 9,850 Brantford 23,046 St. Hyacinthe 9,797 Kingston 18,815 Valleyfield 9,447 Maissonneuve 18,674 Brockville 9,372 Peterboro 18,312 Woodstock 9,321 Windsor 17,819 Niagara Falls 9,245 Sydney Town 17,617 Sorel 8,419 Hull 17,585 Nanaimo 8,305 Glace Bay 16,561 Lethbridge 8,048 Fort William 16,498 Vancouver, North 7,781 Sherbrooke 16,495 North Bay 7,718 Vancouver, South 16,021 St. Boniface 7,717 Berlin 15,192 Sydney Mines 7,464 Guelph 15,148 Levis 7,448 St. Thomas 14,050 Oshawa 7,433 Brandon 13,837 Collingwood 7,077 Moose Jaw 13,824 Fredericton 7,028