Practical Pointers for Patentees Part 2

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 d.i.c.kering 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 quant.i.ty 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 quant.i.ties, 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 compet.i.tion, 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 s.e.xes, 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 a.s.sisting 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 pa.s.sed 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 cla.s.s 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 a.s.signing the patent to the company. The patentee should receive between one-fourth and one-half of the capital stock in consideration of his a.s.signing 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 a.s.signment. As a rule, inventors' stock is full paid and non-a.s.sessable.

[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 cla.s.s 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 cla.s.ses 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 Hamps.h.i.+re | 30 | 150 | 300 | 450 | 600 Vermont | 30 | 150 | 300 | 450 | 600 Ma.s.sachusetts | 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 Was.h.i.+ngton | 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 -----------------+---------+---------+----------+----------+--------

CHAPTER V

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 t.i.tles, 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 ill.u.s.trating the invention, or for members.h.i.+p 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 a.s.sistant 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 wis.h.i.+ng 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 advertis.e.m.e.nt 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 advertis.e.m.e.nts in publications of known standing, such as the leading daily newspapers. A brief, well-worded advertis.e.m.e.nt in the "Business Opportunities" column of these papers bring quick and good results, though, perhaps a better cla.s.s of inquiries may be obtained by advertising in the trade journals of the cla.s.s 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 cla.s.s of people that invest in patents. Inventors should know the cla.s.s of people that would be likely to become interested in their inventions, and advertise in such mediums as have the largest circulation among that cla.s.s.

[Sidenote: How to Write an Advertis.e.m.e.nt.]