MAKING YOUR INVENTION PAY
After reading what has gone before you may well conclude that an
inventor’s life is not a happy one but let me remind you that whatever
road you take to seek fame and to win fortune you will find it just as
full of petty strife and big difficulties.
In sooth inventing is one of the easiest and pleasantest pursuits in
which you can engage to make a good living and many inventors who were
as poor as Job’s turkey when they began to think up new ideas and
concoct useful schemes now have their thumb-nail biographies in _Who’s
Who_ and live on the fat of the land.
And you can do the same thing too if you have a real invention and a
lot of native shrewdness. Yes, to be a money-making inventor you must
have inventive ability plus business ability, or rather the other way
about, for business ability counts for more in the game of success than
inventive ability.
There are hundreds of inventors of the highest type who are
comparatively poor men for the lack of business ability while many
others, like Edison, all round inventor, Westinghouse, inventor of the
air brake, and Eastman, inventor of the kodak, have made fortunes that
run up into the millions because they are first, last and all the time
hard headed business men. And you must be a business man too if you
want to make money out of your invention.
~How to Raise the Initial Funds.--~By _initial funds_ I mean the first
money. It is easy to tell an inventor who has a rich dad or a bank
account in his own name how to finance his invention.
But mine is a harder task in that I am taking it for granted you are
like 999 out of every 1000 inventors and that you have little or no
money, are fired with ambition and that you have a big idea.
Assuming that this is the precise state of affairs let’s go back to
where we started from in Chapter I, that is to the last part of it
where you had drawn out your invention on paper, written a description
of it and had some of your friends put their signatures to it.
Should your invention seem to your friends to have merit it will take
but very little urging to get one or more of them to furnish whatever
amount of money you think will be needed to carry on the experiments or
to build a working model. Of course you will in turn have to agree to
give him, or them, a certain small interest in your invention, and this
is fair exchange for you are putting up your brains against their money.
If your invention is a small one and but little money is needed to
develop it into a _marketable_ product a 5 per cent. interest is enough
to give those who back you for taking the risk. A 10 per cent. interest
is ample to offer for sufficient funds to develop a more complicated
invention.
This will leave you a 30 or 35 per cent. interest to sell to others
later on, when you have a working model and your patent is granted,
to furnish the capital necessary for equipping a factory to make the
device and to provide funds to market it--that is if you work out a
plan along these lines.
But take my advice and keep a 55 per cent. interest in the invention
for yourself; otherwise the control of it is taken out of your hands,
and whenever it suits those who hold the controlling interest to freeze
you out they will do so with pleasure.
By using the following form you can save the expense of having a lawyer
draw up one for you and moreover you can also be sure there is no
_joker_ in it.
FORM OF AN INTEREST AGREEMENT
_Memorandum of Agreement_ made this _third_ day of _September, 1916_,
between WILLIAM FRANKLIN, of Peoria, Illinois (inventor), and GEORGE
WILSON, of Peoria, Illinois, WITNESSETH: That
WHEREAS, the said _William Franklin_ has invented what he verily
believes to be a new and useful improvement in _gas engines_ and for
which he will apply for letters patent of the United States, provided
certain tests which he shall make shall work out satisfactorily, and
WHEREAS, the said _George Wilson_ is desirous of obtaining an interest
in the net profits arising from the sale or working of the said
invention after the said letters patent of the United States has been
granted:
NOW, THEREFORE, in consideration of the premises and of One Dollar
to each in hand paid by the other, the receipt whereof is hereby
acknowledged, the parties hereunto do covenant and agree as follows:
FIRST: That the said _William Franklin_ for and in consideration of
the payment of $1000 by the said _George Wilson_ will pay to the said
_George Wilson_ 5 per cent. of all net receipts accruing in any manner
from the sale or working of the said invention and patent during the
term of its life.
SECOND: That the said _George Wilson_ shall pay to the said _William
Franklin_ the sum of $1000 which shall be applied to the making of a
_model_ of the said invention and to securing a letters patent of the
United States for the same.
It is understood and agreed that this instrument shall bind the
parties hereto, their heirs, executors, administrators, successor or
successors or assigns.
IN WITNESS WHEREOF, the parties hereto have hereunto interchangedly
set their hands and seals the day and year first above written.
IN THE PRESENCE OF
_Charles Howard_
as to the Inventor.
_John D. Prentiss_
as to George Wilson.
_William Franklin_ [L. S.]
_George Wilson_ [L. S.]
~About an Interest in a Patent.--~There is a big difference between
assigning an interest in your invention and assigning an interest in
your patent.
Many an inventor assigns an interest in his patent either before or
after it is granted to some one who will advance the needed money.
But this is a thing you should never do for after having made such an
_assignment_, however small the part, the person who owns it can make,
use or sell the invention which the patent covers, as he chooses, just
as though he owned the whole patent and you can neither stop him nor
even sue him for damages.
You can, of course, make, use and sell the invention covered by the
patent too but usually it is the other fellow who gets the best of the
bargain.
~Royalties, Shop Rights, etc.--~After you have built a working model
and obtained a patent on it there are many ways of making money out of
your invention.
One is to sell your invention and patent outright; another is to sell
_shop-right licenses_; another is to have some manufacturer give you a
_royalty_ on each machine or device he makes and sells, and yet another
way is to sell _territorial rights_, that is the town, county and state
rights to manufacture your invention. Forms of agreements for all of
these deals will be found in the _Rules of Practice_ of the United
States Patent Office.
Besides the above arrangements you can go into partnership with some
moneyed man, or interest, and finally a good plan, where a large amount
of capital is required to build a plant and start a business, is to
form a company, or _corporation_ as it is called.
~Forming a Partnership.--~Now that you have your model completed and
your patent granted you will of course want to begin _commercial
operations_ immediately, and let’s suppose you think better of forming
a partnership than any of the other above named plans.
There are a hundred ways to secure a partner, or _business associate_
as the sharer of your fortunes is called, but it is a mighty hard thing
to get a satisfactory one. A favorite way to enlist capital and one
that is often resorted to by inventors in large cities is to advertise
in the newspapers under the head of _business opportunities_.
An advertisement of this kind may put you in touch with the man you are
looking for but it will also bring you a lot of curiosity seekers, riff
raff and other undesirables who come generally with a view of inducing
you to part with your money rather than to invest any of their own.
This is also true of the so-called _brokers_ who advertise to procure
working capital for meritorious inventions.
One of the best ways to secure a partner who has the necessary capital
and requisite business ability is to arrange to show your invention in
operation and then invite your moneyed neighbors and the business men
of your town, though you may not know the latter personally, to call
and see it; and they will call and get interested if they believe in
its possibilities for they are as anxious to make more money as you
are to make a little of it, and they are keen to the fact that great
fortunes have been built up out of simple as well as complex inventions.
This method of showing your invention to your towns-folk, either
individually or collectively, is the safe way to get one or more
good, substantial men interested in your proposition and to lay the
foundation of a paying business.
~Where the Promoter Comes In.--~There are promoters and promoters; by
which I mean that there are various sorts of promoters and then some.
A _tin-horn promoter_ is an unprincipled fellow of some ability who
secures an _option_ on a patented invention, or on the stock of a
company based on an invention, and exploits it for all he is worth to
his own profit and without regard to the inventor or the stockholders.
The chief business of a tin-horn promoter is to secure control of the
entire stock issue of a company, sell it at inflated prices, pocket 90
per cent. of the proceeds and either doctor the books or disappear then
altogether. Steer clear of the tin-horn promoter.
An _ordinary promoter_ is merely an agent who acts as a go-between for
the inventor and people with money to invest and by his enthusiasm
brings them together for the good of the cause. A _real promoter_
is a genius who possesses both business ability and the necessary
wherewithal to start, _accelerate_ and carry on any kind of an
_industrial_, _financial_ or _commercial_ enterprise.
You will meet the promoter in one shape or another as soon as it
becomes noised around that you have an invention of merit. The ordinary
promoter will be of assistance to you at any stage of the invention
where experiments are still to be made and the patent is yet to be
granted. He may also prove of service after the _preliminary_ work is
done in securing for you a real promoter.
On signing contracts with the latter he will relieve you of all the
cares of starting the business or of starting a company to start the
business. And if you are not shrewd and careful and know just what
he is doing and you should fail to have a hard and fast contract he
will not only be likely to relieve you of the business cares but of
everything else you may hold dear and sacred in this world.
An ordinary promoter will ask about 25 per cent. of whatever money he
brings in for your use in developing the invention and a certain small
interest--1 to 5 per cent.--in the company that exploits it. The real
promoter wants and usually gets a working agreement of 50 per cent, of
whatever profits there may be made out of the invention. If possible
you should hold a 55 per cent, interest for this will give you the
whip-hand and will save you much trouble in the end.
Few promoters though will agree to such a division and about the only
way you can keep the controlling interest is to organize a company and
manage it yourself but this takes business ability of quite a high
order.
~What a Stock Company Is.--~A _company_ is a number of persons who
band themselves together for business purposes. A _stock company_, or
_stock corporation_ to call it by its proper name, is a company whose
_capital_ is represented by _shares_ and which is held either in the
_treasury_ of the company, or by persons who buy the shares.
Three or more persons may form themselves into a stock company for any
industrial purpose in the State of New York. A stock company must be
_incorporated_, that is _legally formed_, under the laws of a State
and different States have different laws. A copy of the corporation
laws of any State may be had free of charge by applying to the
Secretary of State.
[Illustration: FIG. 83. CERTIFICATE OF INCORPORATION]
~How a Stock Company is Organized.--~Suppose, now, you and two other,
or more persons want to organize a stock company under the laws of the
State of New York for say $10,000, although the value which you, and
those interested with you, place on your invention and patent may be a
great deal more.
Then you and the others make, sign, acknowledge and file a _certificate
of incorporation_, a reproduction of which is shown in Fig. 83 (see
outfit necessary for a Corporation), and this must contain: (1) the
name of the proposed company; (2) the purpose for which it is formed;
(3) the amount of the _Capital stock_ (which means the entire amount
of the stock, for which the company is capitalized and which, let’s
say, is $10,000); (4) the number of _shares_ of which the capital stock
is to consist (each share of which must not be less than $5 nor more
than $100 and the amount of actual capital must not be less than $500
in cash with which the company is to begin business) and the amount of
cash must be stated; (5) The certificate must also contain the name of
the city, village, or town, in which its principal business office is
to be located; (6) its duration, which you can put at 50 years; (7)
the number of its directors which must be not less than three; (8) the
names and post-office addresses of the directors for the first year,
and (9) the names and post-office addresses of the subscribers to the
certificate of incorporation and a statement of the number of shares
of stock which each agrees to take in the company. A _certificate of
incorporation blank_ ready to fill in can be bought for 10 cents of
stationers who deal in law books and forms.
~The Fees of the State.--~The fees for incorporating a company are
payable in advance at the Secretary of State’s office and these are for
(a) filing the certificate of incorporation $10; (b) recording it,
15 cents per folio of 100 words; (c) a _certified copy_, if you want
one, 15 cents a folio and $1 additional for the seal affixed to it;
(d) the _organization_ tax, payable _direct_ to the State Treasurer
_in advance_ is 1-20th of 1 per cent, on the amount of the capital
stock, which on a capitalization of $10,000 would be $5, and (e) all
personal checks for fees or taxes must be _certified_, that is to have
the paying teller of the bank your check is drawn on write _good_ on it
together with his name.
[Illustration: FIG. 84. STOCK CERTIFICATE]
~Outfit Needed by a Corporation.--~To begin business with after you
have received your certificate of incorporation you must have:
(1) A _minute book_ in which to record the proceedings of the
directors’ and stockholders’ meetings. A minute book with _printed
forms_ can be obtained which makes it easy to record the minutes
accurately.
(2) A _stock certificate book_; suppose your certificates, or
shares, have a _par value_ of $100 then you will need a book of 100
certificates to equal $10,000. A stock certificate is reproduced in
Fig. 84.
(3) A _book of account_ is required by the New York State _transfer
tax_ law where companies are doing business in the State, and _transfer
agents_ must also have one to show every transfer of stock. Neglect to
keep this book imposes a heavy penalty.
[Illustration: FIG. 85. A SEAL PRESS]
(4) The New York _transfer law_ also requires New York companies to
keep a _stock transfer book_ which shows when shares, or certificates,
are sold, or transferred, by one person to another.
(5) A stock ledger is also needed by every corporation to enter the
stock transactions of each day in. A combination book with all of the
three last named can be bought ready for use.
(6) A _corporate seal_, which is an embossed impression of the name of
the company, see Fig. 84, is made by a _seal press_ as shown in Fig.
85, and this is also required by law. The whole outfit above described
for incorporating and maintaining a company can be bought for the small
sum of $10 or less of the Brown-Green Company, 48 John Street, New York
City.
~How a Stock Company is Operated.--~When you receive your certificate
of incorporation you can then call a meeting of the _directors_ (named
in the certificate of incorporation) or _board of directors_ as they
are called. At this first meeting the directors elect the _officers_,
that is a president, a secretary and a treasurer.
The president then takes the chair and the secretary writes down all
the minutes of the business transacted at this and subsequent meetings.
The first business that will come before the directors after the
election of the officers is to make the stock of the company _full
paid_. To do this you must turn your invention and patent over to the
company in exchange for the full amount of the stock the company is
capitalized for, say $10,000. In other words you sell your right, title
and interest in the invention and patent for $10,000 worth of stock,
which is all of it.
Next you turn back into the treasury of the company 45 per cent, of the
stock and keep 55 per cent. for yourself. The 45 per cent. of the stock
in the treasury, which is called _treasury stock_, can then be sold
at its _par value_, that is full value, which is $100 per share or at
any smaller price the board of directors may agree upon. The sale of
the treasury stock gives the company the capital it needs to start the
business and to keep it moving until it becomes self-supporting.
If $4,500 is not enough money to finance your company then capitalize
it for whatever amount you think will be needed and add about 50 per
cent. more to it. You can incorporate a company for $100,000 just as
easy as you can for $10,000, but this is a matter you and your friends
should consider most carefully.
Should you at any time sell more than 5 per cent. of your holdings,
that is of the stock you own, the control of the company will pass out
of your hands and the other directors and stockholders will whip-saw
you as they like, if they can pull together, for the majority of the
stock will be in their hands.
The stock, or _securities_, as it is called, of a company can be sold
in a number of ways but the usual method is to sell it (a) by personal
solicitation, (b) through stock-salesmen, (c) have a broker take the
whole stock issue, and (d) by advertising. If your invention is what it
seems to be, your patent as good as the average patent, your company
capitalized for a moderate amount and the product looks good for making
quick sales and large profits you won’t find any trouble in placing the
stock with the moneyed people of your community.
Besides receiving 55 per cent. of the stock for your invention and
patent you should as the inventor and practical man be voted a salary
of $25, $50 or $100 per week to superintend the manufacturing end of
the business. Have a salary contract drawn up with the company in which
the amount you are to receive weekly and the length of time you are to
receive it is stated, and have it signed by the president and secretary
for the company.
~About Retaining a Lawyer.--~In all of your business dealings with
other people from the very beginning the safest way is to have the
advice and help of a _corporation_ lawyer and while he is keeping you
safe, whole and harmless from all damage be sure he doesn’t mulct you
while he is doing it.
A good way is to pay him a flat-rate for whatever advice he gives you
and the contracts he draws up for you. But if you can’t do this then
give him a 1 per cent interest in the net amount which you may receive
from your invention.
When you and your associates have decided on organizing a company the
usual and proper way is to retain a lawyer and have him take care of
the incorporation certificate, conduct the first meeting and open the
books, to the end that it may all be done right and in good legal form.