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Dimitry K., Esq.
Dimitry K., Esq., Attorney
Category: Business Law
Satisfied Customers: 36753
Experience:  Run my own successful business/contract law practice.
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I have developed a product that I am filing for a patent for.

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I have developed a product that I am filing for a patent for. I have been approached by an acquaintance to enter into a partnership. We have estimated that it will take about $30k initially to start production. What is typical for this type of deal? Is it unreasonable for me to want to own the rights to the patent solely if their capital investment is only $30k? Can you direct me somewhere to find more ideas/information on typical solutions to this type of situation? Thanks so much!
Submitted: 11 months ago.
Category: Business Law
Expert:  Dimitry K., Esq. replied 11 months ago.
Thank you for your question. Please permit me to assist you with your concerns.

There is nothing really 'ideal' or 'typical' here because it is really based on you and the other person's expectations. What is your investment going to be? How much do you estimate or expect this product will bring as profit? What is the other person's expectation? I see they are going to put in capital investment, but what else, if any, will they provide?
Customer: replied 11 months ago.

Thanks for your reply! I own a gym and have been developing this fitness product (design, testing, changes, etc) for 2 years. Obviously I have a lot already invested in getting the product to this point. It is also created for an industry that I am very familiar with. Our discussions to this point have been with the assumption that he will bring in capital, and will contribute in areas to be determined and outlined in our agreement. He also has partnership experience (is currently involved in 3 other partnerships).


 


I have two main concerns that I am looking to satisfy: 1) This product is one part of my business concept. I also have two other products that will be manufactured after this, as well as an entire fitness program designed around the implementation of these products. The partnership will only be for one of these products (as of now). Therefore, I don't know how to handle the possibility of the product being largely successful and at some point them wanting to sell. Would a clause defining an option to buy them out solve this?


 


2) I feel that the package deal of myself/experience/knowledge and the product are worth more than their capital investment of $30k. I'm not sure if this is ego or common sense (since this is all in theory at the moment).


 

Expert:  Dimitry K., Esq. replied 11 months ago.

Scott,

Thank you for your follow-up. Please allow me to respond to each point that you raised below:

1) This product is one part of my business concept. I also have two other products that will be manufactured after this, as well as an entire fitness program designed around the implementation of these products. The partnership will only be for one of these products (as of now). Therefore, I don't know how to handle the possibility of the product being largely successful and at some point them wanting to sell. Would a clause defining an option to buy them out solve this?

There are a couple of issues here. Typically any product development within the partnership is owned by the partnership unless and until the parties agree to keep those assets out of the partnership via agreement. It also may be a potential fiduciary breach of duty violation by creating further products outside the partnership which can compete with the current business. Those concerns can be first resolved in writing so that the parties know what belongs within the partnership and what does not. As for a 'buy-out', that is likewise possible to enter into the terms. But from what you are describing you appear to be looking more for a limited partner or silent investor rather than equal partner, if what you are seeking is a buy-out in terms of success. Perhaps you may want to consider exactly what the relationship may be especially since from a legal perspective 'sweat' equity, 'skull' equity, management, or financial backing make no difference in terms of larger or small rights to a partnership, what governs instead is the percentage on which the partners themselves agreed upon.

 

2) I feel that the package deal of myself/experience/knowledge and the product are worth more than their capital investment of $30k. I'm not sure if this is ego or common sense (since this is all in theory at the moment).

You may be right as there is no rule of thumb here--what counts is what you and your partner both legitimately evaluate each of your investments to be. If you believe his investment is worth 30% or even 10% and he agrees, it is valid. But this is something you both would need to discuss together and between the both of you so as to find out the fairest split. Some inventors hold the lion's share of the ownership while others keep a minority share due to the excessive financial investment. This is really for you both to fairly evaluate.

 

Good luck.

Dimitry K., Esq., Attorney
Category: Business Law
Satisfied Customers: 36753
Experience: Run my own successful business/contract law practice.
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