There will probably come a point in your life as inventor when your idea or patent gets picked up by a major retailer or industry player and they offer you a tantalizing choice: a small royalty on sales in perpetuity or a single, one time “complete buyout” payment to take complete ownership of your idea.
Which would you choose?
It of course depends on financial projections for both paths, but as history shows us this information is often not immediately available to the inventor, often forcing premature (and incorrect) choices.
To dissect this dilemma let’s examine a real-life example that shows the amazing potential to earn profit from your invention but at the same time reveals how the wrong decision could mean the difference between earning LOTS versus MILLIONS of dollars.
Several decades ago, Stan Weston came up with an intriguing concept: a movable military action figure that he pitched to the second largest toymaker in the U.S., Hasbro. He spent roughly $52 at an Army Store (and a United Nations souvenir shop) and pitched his idea to the product development team explaining that his hodge podge of military figures and their vehicles should consist of movable parts.
Impressed, they asked for the idea to be written up and formally sent to them as a proposal. Along the way somebody involved in the process came up with the name G.I JOE, An American Hero. However, at this point Weston was still negotiating the financial terms of his idea with Hasbro.
Then, just before the 1964 Toy Fair, Merrill Hassenfeld, the president of Hasbro called Weston into his office and famously stated: “Weston, half of the people say boys won’t play with dolls, and half think it is the greatest idea since white bread. We’ll guarantee you $75,000 win, lose or draw for the idea, or $50,000 upfront, with a 1 percent royalty once sales pass $7 million”
Weston thought it through for a few minutes and said “Make it $100,000, and let me think about it; I would also like to see what you develop from my idea.”
Hassenfeld said the prototype would be available at the upcoming fair that week. After some deliberation he called Hassenfeld back and took the deal. The rest, as they say, is history with Hasbro unveiling the “World of G.I. Joe, a full line of action figures and their appendages” at the toy fair which sparked annual sales that year of $7 million. The next year it was $28 million.
It’s estimated that Weston ultimately lost $20 million in royalties over the next 30 years. It’s these outcomes an inventor CAN avoid if he takes the early step of working with a board certified patent attorney who, in addition to help securing your idea with a patent, can help establish if licensing fees can cover costs and how you could potentially extract additional value from “Monopoly Rights”.
While Weston lost out financially, Hasbro did admit that except for Stan and his concept, they never would have come up with “Joe.”