Inventors warned of IP pitfalls

When Elizabeth Pierotti woke up with the idea of developing a retractable-coil cord for headphones, she had no idea the headache it would eventually cause her.
She decided to bring it to a small company – she’d rather not say which – to develop; in return, the company agreed to pay her 5 percent of all sales of items that used her invention.
For six years, everything went smoothly. Every month, she received a check that was enough to cover half her living expenses, Pierotti told an audience of fellow entrepreneurs at a forum on intellectual property and licensing hosted Jan. 18 by the Brown Forum for Enterprise.
In 2001, Pierotti said, she received a letter from the company saying it would no longer make the two products that used her invention. “It said, ‘We’ve had a good run, but we’re going to discontinue the product,’ ” she recalled.
Pierotti accepted the explanation and stopped expecting the checks.
But two years later, while preparing to speak about her product, she decided to see how the company was doing. She found that it was not only still selling the original two products she had invented, but it had actually expanded the line with three more items.
When she called to ask why she had been cut out of the deal, the company’s principal was dismissive.
“He said, ‘Oh Elizabeth, let it go,’ ” she recalled.
What followed was a drawn-out legal battle in which the company tried to keep from paying her, Pierotti said.
But she had a contract and had kept copies of all correspondence and financial documents that had passed between her and the company. As a result, the company eventually had to settle the case and paid her what she considered a reasonable amount.
Pierotti, an experienced inventor and product developer whose clients include several Fortune 500 companies, was one of two speakers at the forum who offered personal views of intellectual property licensing issues. The other was Ralph Beckman, founder and president of Design Lab, a Providence firm specializing in product invention and design.
A third speaker – Liza Vertinsky, an associate at the Boston law firm Wolf, Greenfield & Sacks, who specializes in licensing – offered a more general, expert view.
Vertinsky said inventors need to focus on six key elements when negotiating a licensing deal: clarify the objectives of the license; understand the license and its potential uses; select the right licensee; consider deal structures and license scope; determine how much and how you’ll be paid; and ensure that the deal allows you to address issues that may arise in the future.
In Pierotti’s case, Vertinsky said, if she had included a clause in the contract that gave her auditing rights, the company would have had a much harder time hiding her money from her.
“When you’re looking at what you have invented, you want to protect it,” Vertinsky said.
Beckman agreed, adding that is why it is so important to find the right partner. “Your success will depend on your partner,” he said.
“It becomes a weakest-link issue.”
He also explained to the crowd how his firm switched from hourly payment to royalty payments to ensure fair compensation for its designs. “The benefits of the pure-royalty deal were enormous for us,”
he said.
That requires a licensing contract, Beckman said, but a contract is not enough.
“Legal documents are something you need, but you’d better feel comfortable without the document,” he said. “Do your due diligence about those you’re doing business with.”
Jeffrey Weiss, an electrical engineer and venture partner with Point Judith Capital, said that although he has been involved in licensing deals in the past, he attended the event to “learn from the experiences of others.”
The event lived up to his expectations, he said.
“The collective experience of the attorneys and the inventors who spoke was very helpful,” Weiss said. “Ralph Beckman of Design Labs indicated that he has negotiated over 200 licensing deals, and that is astonishing.”