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Memorandums of Understanding (MOU) can be a useful tool for inventors to move conversations along towards an agreement with a manufacturer, marketer or distributor. When a potential partner expresses interest in moving ahead with an agreement, the inventor is typically anxious to move ahead, while the potential partner is sometimes cautiously moving forward. A tactic the inventor can use to build momentum in these cases is to offer an MOU to the potential partner. An MOU just states that the two parties are interested in striking an agreement and the two together will be working towards resolving issue s that either party might have. The key for the inventor is they get the partner to sign a document, even though it is not binding towards an agreement. Once one document is signed, then it is often easier to sign a second agreement.
The key components of a MOU are straight forward and they help frame the ongoing conversation. An MOU doesn’t need to be a long document, I find that short agreements are much better than long ones.
Background
1. Who are the parties? One party might be a marketer to auto parts stores. The second party could be you, an inventor of a new auto part product.
2. Purpose of the MOU. This should state what will occur during the MOU period, for example to allow the marketer to evaluate the market and competition and to review product testing data.
Understanding and Agreements
1. Overview. This should state what final agreement the parties are hoping to sign, in our auto parts case it could be to offer the marketer an exclusive sales agreement in return for a committed level of sales per year.
2. Responsibilities. This would include what each party will do, that both parties will negotiate in good faith, and that the intent is that an agreement can be finalized in six months.
3. Exclusivity. Typically the two parties will agree (on the inventor’s side) not to either present the idea to a third party, or (on the marketer’s side) enter into an agreement with a company with a competing product.
4. Confidentiality. Typically attached to MOUs are a Statement of Mutual Confidentiality. While companies resist signing confidential agreements prior to seeing a product, they will often agree to a Confidential Agreement as part of an MOU.
5. Term. These agreements typically run from three to six months.
6. Termination. Either party should be able to terminate the agreement if they feel the other side is not living up to its responsibilities with a written notice to the defaulting party.
7. Letters of Concern. These may be allowed and what they do is they state that one party or the other is not living up to their responsibilities. Normally a conversation with the other party is advisable, but you may also send a letter of concern if you feel the other party is not being proactive enough.
8. Governing law. If possible you want the governing law of your state.
MOU‘s are most useful when you have a strong supporter who is a mid-level executive. They often have trouble catching attention of higher management with their proposals. But higher management pays attention to legal documents and might ask for a presentation or documentation as to why an MOU is a good idea. You need to be prepared for this response and provide your contact with data that he or she can use in a management presentation.
Your contact might worry that he is being presumptuous in considering an MOU, but the MOU is not a binding agreement, and it is just a step forward on one. You must be the one to push an MOU though, so your contact can say that a party with an interesting product that could benefit his or her company wants to sign an MOU. Your contact will be in a favorable position if he or she can just ask higher management if signing an MOU would be a good idea.