The Inventor's Mentor
June 2012
Profits, Pitfalls and Perils of Partnerships
Why form a partnership?
A
primary reason for forming a partnership is finding yourself in a situation
where you have a wonderful project and limited resources. No matter how good
your idea might be, if you don’t have the means to bring it to fruition, you
are likely to fail. In this situation, a reasonable option is to associate
yourself with a partner, someone different from yourself who can complement
your talents and capabilities. For example if you excel in science and
engineering, pick someone adept at hobnobbing with people, who can be pivotal
in bringing your idea to market. Your partner will also share the burden and
responsibility of your business and will provide you with a good sounding board
to test your ideas.
What are the steps involved?
Persons
planning to go into a partnership should be willing to sit down and plan this
arrangement carefully. One significant reason for caution is that, like
proprietorships, the law does not distinguish between a partnership business
and its owners. One may be placing personal assets at risk while taking
on the potential liability for the other partner’s actions. Therefore,
partners should have a legal agreement that sets forth how decisions will be
made, profits will be shared, disputes will be resolved, how future partners
will be admitted to the partnership, how partners can be bought out, and what
steps will be taken to dissolve the partnership when needed.
If your partner is not a co-inventor of your
invention, consider assigning some equity of your invention to him. Having ownership
in the invention may give him the incentive to contribute to the business to
the best of his abilities.
Filing an Invention Assignment with the USPTO
When an agreement is in place, describing how the
invention is to be divided, file it with the US Patent Office. This step will
formalize the assignment of the invention.
Other Options
Instead of a partnership consider forming a corporation
to which you would assign your invention. You and your associate would then
receive a certain number of shares and own the invention according to the allocated
shares. Forming the corporation and assigning the invention to it requires
the drafting of a business contract which should be performed by an attorney.
When to Set up Agreement?
It
is best to set up all business agreements at the onset of an ongoing
relationship. Too often co-inventors attempt unsuccessfully to draft an
agreement between themselves after most of the development and marketing work
has been completed. Egos and greed can get in the way of cooperation and the
result can be a feud with usually disastrous results.
What are the risks involved if there is
no agreement?
In
the absence of an agreement between the inventors, the US Patent Office and the
Courts consider each inventor to own 100% of the invention. In other words each
inventor has the full right to license or sell the invention.
If the inventors are feuding, then there is a significant
likelihood that they will attempt to undermine and compete with each other in
the marketing and selling of their license rights. The sad result: they both lose.
“Conflicts waste time and money, erode focus and strategic direction,
cause emotional and financial pain and destroy businesses and reputations”
writes George Gage the author of The Partnership Charter: How to Start Out
Right with Your New Business Partnership (or fix The One You’re In). The
best advice is to try to reach an agreement: a piece of something is better than 100% of nothing.
How to Select an Associate?
If you are contemplating forming a partnership or a
corporation, be careful with whom you associate. Gage lists seven
cautions that would-be and existing partners should consider:
1) If you think you are not “partner material,” don’t
take the partner path.
2) Use extreme caution when
selecting a partner.
3) If you don’t really need a
partner, don’t get one.
4) If it doesn’t feel good
before you start, follow your gut and don’t do it.
5) Don’t be fooled into
thinking that legal agreements and documents will keep you out of trouble with
one another.
6) If you currently have a
partner, and it does not feel like a positive working relationship, don’t just
ignore it. Try to fix things.
7) If there are unanswered
questions or vague boundaries and responsibilities with current partners,
address these issues while you are still getting along.
For archived
newsletters and a lot of information for the small inventor go to: www.patentsandventures.com.
If you have any question you can contact me at (858)259-2226
or email me at glevy@patentsandventures.com.
This newsletter
should not be construed as legal advice. ©2012
by George Levy