Use This Simple Quality Control Clause to Protect Your Idea

Speed to market is more important than ever but even so, product development takes time. Typically, there are manufacturing obstacles to overcome. When you venture an idea on your own, the responsibility of resolving said issues falls squarely on your shoulders. Total control is one of the big benefits of starting your own company. That said I believe the licensing model is still preferable in almost every way. Licensing is really a form of outsourcing, a kind of partnership. The way I see it, both parties win by playing to their strengths. You — an independent product developer — get paid for your creativity in the form of passive income and enjoy the freedom to keep inventing. Your licensee taps into its existing resources to do the heavy lifting of bringing a product to market: Manufacturing, marketing, and retail.

But signing a licensing agreement is a far cry from reaping the fruits of your labor in the form of a six-figure royalty check. If you want your product to make it to market and succeed there, you need to stay close to its progress. The truth is, no one will ever care as much about your concept as you do. In an article I wrote last year, I outlined several ways of helping your product make it to market, like asking to see samples and cultivating and maintaining good relations with your licensee.

But you can and should go one-step further, licensing expert Keith Mullin recently pointed out to me. (Years ago, Mullin was my student.) He licensed his first invention shortly after graduating from college with a degree in environmental design. Remarkably, that product — whose patent drawings he did himself in his dorm room — is still on the market today. To date, he’s signed 12 licensing agreements resulting in nearly 40 SKUs. In addition to successfully venturing his award-winning snack product Zippy’s Veggie Bites, for which he is currently seeking investors, he hopes to close an additional two licensing agreements by the end of the year. Needless to say, he’s been incredibly successful bringing products to market.

Mullin told me he began asking for two specific sentences to be inserted into his licensing agreements after a particularly frustrating experience with one of his licensees.

“The performance of the product we were working on was key to its sales, and they were proposing to use a design that would compromise its performance,” Mullin said. And it dawned on him that he “had no tool, no leverage or vehicle, to get the licensee to make a viable product and thus keep customers happy and increase their company sales income.”

It didn’t make sense. What was the point of even bringing a product that didn’t function like it promised to market? But one of his previous licensees, though well intentioned, had done just that to hit the right date. “There are so many time constraints and retailer demands these days,” Mullin said. “Companies are working as fast as they can to keep up, but things fall through the cracks.” Crucially important things — like functionality.

“Obviously, when a product doesn’t function, it’s only going to be on the market for a limited amount of time. And Amazon reviews have only compounded that!” Mullin said. “Consumers review every product these days. Exactly what they think, it’s right there…. It’s just such a waste of everyone’s time when a product doesn’t work.”

At one point, he thought to himself: This can’t happen again. So he began “sprinkling” the following language into his contracts.

Prior to the first production run of any Licensed Articles or model revisions, Licensee shall submit two pre-production samples of the Licensed Articles to Licensor for approval, to assure that the product meets Licensor’s quality standards.

All Licensee submittals required in this Agreement requesting Licensor’s approval shall include the submittal cover sheet, Form A101, attached hereto. (See Form A101 here.)

This kind of submittal and approval process, Mullin said, was routine when he worked in real estate development, where architects and contractors are required to submit materials and products being proposed to go into a building. The cover sheet, Form A101, creates a paper trail documenting your product’s progress. It also gives you leverage in the event a final version goes to market without you having signed off on it.

“Really, it’s just a formal document that enables you to identify and talk about what you, as partners, should work on together for the betterment of the project.”

However, Mullin was quick to point out that when he does have an issue with a pre-production sample, he always seeks out an impartial party to corroborate it. “I get a testing lab to test it, or put the product in an operational situation, like by filming consumers use it,” Mullin explained. “That’s been very helpful, because then I can say, ‘This approval has been rejected pursuant to X, Y, and Z.’ You can’t just say, ‘This isn’t approved because I don’t think it should be.’ You definitely have to provide some type of third party proof to back up a submittal rejection. You want to deflect any potential negativity from being directed at you, so you can keep working together productively with your licensee.”

Put another way: You can’t hold your licensee hostage or be unreasonable. If you ask for too much, the partnership won’t work. There’s a big difference, Mullin pointed out, between functionality and minutiae like packaging or color. “Many times, what’s right or wrong is often really a matter of interpretation or perception. But if the product actually does not function, does not work? That’s a problem.”

Mullin, like I, cautions product developers from asking for too much. When inventors he’s partnered with have gotten “overly aggressive in getting a licensee to take action, it’s ended up being a handicap.” What’s reasonable? Everyone has a different definition. Ask industry experts what they think before you make any assumptions.

Getting this language inserted into his contracts hasn’t been a problem because it’s soft, bland, and neutral, Mullin said. It’s also not as if it’s coming from left field — having a written approval process in place is common among companies that do a lot of licensing agreements, like Disney. (I know: I was once a Disney licensee.) He does the negotiating until his signature is required, at which point he turns over the agreement to a licensing attorney for review. When he can, he likes to use his own template. Companies with their own robust legal departments like to supply theirs, which he’s fine with because it’s much faster.

Ultimately, Mullin gets it. As a professional, he knows not to let his emotions get the best of him. The fact of the matter is: He has the time and desire to look at his projects on a micro level, whereas the managers he works with may have anywhere from 200 to 500 SKUs under their control. He knows it’s not realistic to expect them to pay the same amount of attention. He’s the inventor, after all.

What measures do you put in place to help your licensed products succeed in the market?

Any thoughts? Let's be constructive!