Inventor Agreements with Helpers
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Getting a new product on the market requires many skills and inventors often benefit from teaming up with someone with complementary skills to launch their invention. I personally feel inventors are better off with one or two members on their team providing support, assistance and most of all a variety of input in the decision making process. Many partnerships start out high on enthusiasm but then bog down as the team’s expectations of their partners are not fulfilled. Then the inventor is worse off than they were without a team.
But this letdown can be avoided if you outline your expectations in an agreement, even if it is a checklist, that you share with prospective members of your team. These are the items that I recommend you discuss and document:
- Responsibilities: Explain clearly what each party is responsible for doing and what each party’s financial responsibilities are.
- Decision making: You should state that the final decision is yours, but that you will discuss each major decision with the parties and take into account their input. If you don’t maintain 50% ownership in the idea, you will want each team member’s vote to reflect their percentage of ownership.
- Ownership of the idea, or partnership arrangement: It may be too early to form a company, but you should state how much of the idea is owned by each member of the team. Include a statement here that each party’s ownership may change if additional members are added onto the team.
- Patent ownership: The simplest way of doing this is starting a company or LLC and then assigning the patent to the company with each team member owning the percentage discussed in number three. All members of the team should agree to assign the patent to the company.
- Profit / revenue sharing: This should be along the line of percentage of ownership. But you should also discuss taking money out. You may need to take money out of the company, while your partners might want to completely reinvest any profits. You might want to indicate that up to 25% of the profits will be distributed in any year if you feel you will need to take money out.
- Adjustment procedures: You should state that the percentage of ownership can change if a team member’s participation changes from the original agreement.
- Commitment levels: Be clear in what commitment level, in time and money, each member can expect from the other members.
- Product Review: I feel that the team should meet every quarter to review the project status and discuss how they will move forward in the next three months. This keeps the pressure on to keep the project advancing.
- Expected business model after product is launched: In many cases you might just license the idea in which case the ownership percentage will stay the same. Other times you might expect to go into business. Many of your partners may have other commitments and may be helping you only five to ten hours per week. When you launch, you may go full-time and they won’t. It is good to outline what you expect to happen when the product is ready, and how the percentage of ownership might change. This section will be somewhat vague, but you should state at least that team members working full time or part-time will be entitled to a salary, and if they don’t get a salary, their percentage of ownership will change to reflect the income they are forgoing.
- Derivative products: You should state that the team is for just the one product, and its product improvements, and that any derivative products that might come out of the project belong to you. Or derivative products could belong to the team. A derivative product helps the new product work better. For example if you have a new knife, a derivative product might be a new style cutting board.
- Dispute resolution: You might want a clause that any disputes will be settled with arbitration. Most areas will have services that offer low cost arbitration or dispute resolution. You might want to check out some sources prior to starting.
I realize these seem like a lot of items to discuss before starting on a team partnership. But my experience is that airing out the possibilities prior to starting keeps everyone’s expectations in line and helps focus the members on their responsibilities and commitments and the team’s eventual success. If you need a team, I highly recommend that you go through a checklist like this, and possibly put together an agreement with all team members, even if they are family members or close friends.