[?] Looking for advice on the best way to sell a design to another U.K. company.

Our small company has been in business for the last 17 years and during that time, apart from our regular work for specific customers, we have also designed, produced and sold some specialised electronic products, mainly into the U.K. police and security market.

To date few of our products have sold in large numbers (>100 units) because each has been designed to meet a very specific application where no other suitable product is readily available. They are usually hand-built in small batches as and when orders for them are received.

We have recently been approached by a large U.K. company who is most interested in one particular product of ours and wishes to discuss integrating it into a much larger electronic system that they intend to produce and market worldwide. We've not encountered this business situation before so we are looking for some advice about how best to deal with it.

Two ways of proceeding immediately spring to mind, but I'm sure that there are other, maybe better, ways also. I'm currently considering either :-

(a) Trying to retain all of the design rights and just adapting our product (mechanically and electrically if necessary) to suit their requirements and selling it to them on a per unit basis.

(b) Offering to sell the company our entire design and negotiating for them to give us commission on every unit that they sell.

I'd really like to take full advantage of this possible opportunity for our design to be sold to a much larger market providing that we can negotiate a satisfactory business arrangement.

Any suggestions, warnings, or other advice from anyone in this NG about the best way for us to proceed and the possible pitfalls, will be very much appreciated.

TIA - Dave.

David C.Chapman - Chartered Engineer. FIET. ( snipped-for-privacy@minda.co.uk)

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David Chapman
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(c) Negotiate a large license fee to sell your design IP outright to the company. Payment comes after you adapt the design to their product for them. License terms are that they get unlimited usage rights for that specific product but you retain rights to sell similar derivatives of the core IP into other markets that do not compete with the customers product.

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Michael Karas
Carousel Design Solutions
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Reply to
Michael Karas

I like this approach, but I think I'd try to open up an informal conversation with the person at this company who is championing this cause and figure out what it is that they expect in the way of arrangement (and ballpark budget, if at all possible). Then see if it could fit your business model.

If you have a tough time finding anyone who'll talk candidly, proceed with caution and don't give away too much or spend too much effort. I certainly would not be quoting high volume bespoke unit costs without finding out more of what they are about (have they made this kind of arangement before with other smaller companies?). They could be trying to use you in a fishing expedition for their own similar project or as an easy way to harass an internal group, for example. Assuming they are serious, it would be good to find out who or what the competitor (and there is _always_ a competitor of some description) is.

Good luck with it!

Best regards, Spehro Pefhany

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"it's the network..."                          "The Journey is the reward"
speff@interlog.com             Info for manufacturers: http://www.trexon.com
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Reply to
Spehro Pefhany

Congratulations. Think of me when you're sitting on your private beach on Mallorca. ;)

I think it depends on your IP position, how much you trust the licensee, and who you want to be when you grow up.

If you have good patent protection and enough money to enforce it, or you know and trust the licensee, you can license the design. However, you'll lose access to incremental improvements they make, and eventually their design will be different enough from yours that they stop paying you. At that point you'll have to decide whether or not to sue, and since you won't have their current schematics to start from, you'll have to buy and reverse-engineer their product to find out if they're still using your stuff. Messy.

If you don't entirely trust them, or you're relying on trade secrets for design protection, or you want to become a real manufacturer, you're better off selling them products. It's harder for them to cook the books that way--they'd have to rip off the design and have it made on the sly, and if they do that, they're easier to catch. Do figure out a way to protect your trade secrets, though. Microsoft uses frequent patches, other folks use encryption. Don't rely on the security fuses in your MCU.

Cheers

Phil Hobbs

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Dr Philip C D Hobbs
Principal Consultant
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Phil Hobbs

Outright sale with a big upfront payment puts all the risk on the buyer, which is good because it avoids all the policing worries, but bad because they won't be willing to pay nearly as much for the design, in case it doesn't sell as well as they hope. It's probably easier for an established product, but if there's market creation to do, estimating sales accurately is essentially impossible.

Good wisdom. Kremlinology stinks.

Cheers

Phil Hobbs

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Dr Philip C D Hobbs
Principal Consultant
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Phil Hobbs

Does that company design their own electronic devices or do they just tie boxes together? Even if they design & produce their own devices it may not be possible for them to produce your device in an efficient way due to small quantities, calibration, mechanical work (drilling holes), etc.

One of my employers was a company which also made small quantity products. This company was purchased by another company which produced in largers quantities. The owners soon found out that their production department couldn't produce the products of my former employer.

Sounds to me like: a) keeping your workforce busy b) retire

Don't get greedy and don't make your company rely on one customer. I'd try to arrange things in a way they commit to an annual purchase volume. This gives you room to hire extra staff and/or make the devices when there are no other projects to work on.

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Failure does not prove something is impossible, failure simply
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Nico Coesel

On the other hand, you might make a heap more money in the long term if you accept a modest up-front "customization" or "documentation" fee, and a perpetual per-box license fee.

It's often hard to get people to front a huge initial expense. If you go for the license fee, you're betting with them on their success. That is a good psychological approach, especially if they are a small or midsize company that's trying to grow.

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John Larkin, President
Highland Technology, Inc
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John Larkin

VERY MANY thanks to all those in this NG who took the time to respond to my posting, and for the most constructive comments they made.

I'm now in a much better position to make some sensible decisions about the best way forward.

ATB - Dave.

David C.Chapman - Chartered Engineer. FIET. ( snipped-for-privacy@minda.co.uk)

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