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Company offered me software deal/royalty possibility need advice??

Posted on 2004-09-04
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The company that I work for has offered me 10% of each sale for a program I have created on my OWN TIME.  I believe this program could be worth quite a bit.  I was wondering if any of you guys are getting any royalties and at what percentages.  They want me to sign the rights over to them and give them exclusive sales rights.  Do you think these terms are fair?  I would love to sell it on my own but I don't have the power of a company behind me, although I stand to make more from it if I go it alone.  It appears software patents are VERY expensive.  What do you think I should do?  I haven't signed the contract yet??  Best advice/solution will get the points.
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Question by:bluedragon99
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by:LRHGuy
LRHGuy earned 71 total points
ID: 11983103
I've done deals like that in the past. For me, it comes down to TRUST. Do you trust the company to fairly pay you, report the sales accurately, pay on time. What about when they make refunds? Do they promise (contractwise) to promote the software?

In one deal I made, they handled all the sales, but I handled the distribution, so I knew what was going out, and I had the addresses of their customers. In that case, I received 50% and handled 2nd line support, but they did all the marketing and 1st line support.

If you are "out of it" for a 10% cut, it's a more of less fair deal if they do ALL the work from there out, and if you get additional programming money for a) 2nd line support, b) enhancements and changes, c) certain bug fixes (such as anything that takes more than ten minutes to fix, or some other trigger).

Best of luck!
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by:LRHGuy
ID: 11983105
Correct that to "more or less a fair deal" ... thanks.
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cookre earned 74 total points
ID: 11983117
If you sign and it doesn't sell, you've lost only the rights to a flop.

If you don't sign and it doesn't sell, you've lost your marketing expenses.

If you sign and it sells, you get 10% of the gross.

If you don't sign and it sells, you get 100% of gross less expenses.

You have to ask yourself whose marketing power is greater, yours or theirs.

Presuming the best market is corporate sales, from whom is BigCompany, Inc more likely to by 1,000 licenses - MegaSystemsCorp or Joe Schmedlap?

If this is a big package for corparate use, I suspect your company will be able to generate far more sales than you.

If it's a small utility for the geek or home user, I'd be tempted to go it alone.



Without knowing more about the product, one can't get much more detailed.
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by:bluedragon99
ID: 11983136
The program is very enterprise level.  It has a very wide marketing potential (many companies would be interested).  I have briefly discussed the idea and have done brief demos for about 15 engineers that I work with and have spoken with three of our clients about it and they have been blown away by it.  All three clients stated they would be interested in purchasing as soon as it was finished.  There is proven sales potential here.  I just don't know if I can walk away from guaranteed money.  I work for the company but haven't been with them very long (about 3 months).  They have been treating me very well so far.  I have been dealing with the president directly with this deal.  My company is a medium sized company (50-100 employees multistate region).  The president seems pretty interested and called a lunch meeting with me immediatly after seeing the reaction of fellow engineers to the program.  He stated he would like to draw a contract with basicly the following:  The retain exclusive sales rights, I believe the patent and I will recieve 10% off the top plus a percentage increase past X number of sales.  I am very nervous about the situation as I believe quite a bit of money may be generated with the idea/program.  Never expected the quick/excellent advice guys, Thanks ;)
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by:bluedragon99
ID: 11983148
Also I would be the lead on deployments as I have created it exclusivly so I would know the clients and they would have a reason to keep me around.  What if they let me go, where do I stand then?  What if they pass $100,000 and say screw him lets let him go we own the patent anyways.  Not good.  Might be a good idea to keep patent/rights to myself which of course they probably won't want due to their time/investment of making it work.  The pres told me they are only going to take home 50% after overhead.  Other than the sales monkey and lawyers WHAT overhead, I wrote this all on my own time.  Very little investment from them if you ask me, I am coming to them with a complete packed product tested and ready to go.  10 percent seems low to me but I don't want to anger the pres of my new company by asking for more, maybe I should be happy I am getting anything at all.  Sticky situation...
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by:cookre
ID: 11983435
At least you can be thankful that your employment contract isn't like some that gives the company rights to everything you do - even on your own time.  

Also consider the possibility of a law suit should you quit and go it alone.  Regardless of any merits the suit may have, it's unlikely you could afford to defend yourself against them.

Also consider that 50% they mentioned.  They're including in their costs the marketeer(s) and associated marketing expenses, up-front costs such as having their lawyer develop, or approve, a EULA, and continuing maintenance, enhancements, and user support (i.e.., your salary).

The bit about the bonus after a certain sales level has been met tells me they're being fair.  To wit, after they've recouped startup costs (and some understandable payback for the investment risk), they're willing to give you a larger share of the goodies.

Given all you've said, I'd tend to suspect that their corporate imprimatur would generate far mor sales than you could on your own.  

Personally, I think I'd take the deal.  I'd also have my own lawyer look at it first.  

But then, I'm not the entreprenuerial type - and I know I'm a lousy salesman.

My $.02
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by:pjcrooks2000
pjcrooks2000 earned 71 total points
ID: 11984130
Try and see if you can get a larger offer somewhere in the regions of 20%

Then get everything they say to you tied up legally, i.e royalties, intellectual property rights etc etc.  They may take you idea re badge it and then you will get nothing.

Make sure you cover your back, i personally would not trust them.  But then again i was offered a 1% stake in a company that claimed to be worth 1.8 Billion over 5 yrs.  I did not get it all tied up so I lost out.  

Your main clause should be that the product should remain your intellectual property (http://www.ipwatchdog.com/) and any changes made to it should be done by you!  Do not release any code to them only the working article (executables/packages etc etc).  

I hope this helps - remember the IT industry is full of people who will cut your throat to get one over on you!

good luck

pjcrooks2000

Some links on IPR:

http://www.w3.org/IPR/
http://law.freeadvice.com/intellectual_property/
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by:DrWarezz
DrWarezz earned 71 total points
ID: 11984133
You should say to them; "I remain the owner of the software; you simply market it, and create the sales. Then, for every sale you make, you get 60%"!. lol..

I lack business skills peronally (as it probably shows), but, the way you talk of this product, it's some AMAZING package, and the fact that you designed, coded and tested the whole thing on your own, in your own time, well... you should definitely get more than 10%!!!   (that's how I see it).

I hope you make the right choice.  :o)  - And remember, you have nothing to loose!

Best of luck with it!
[r.D]
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by:CBF-IT
CBF-IT earned 71 total points
ID: 11987041
I'm not looking for any points, I just wanted to reiterate several things that others have said and add a couple of additional notes from the perspective of someone who has been in similar situations and who also has a corporate law background:

- the terms that your employer has offered you sound pretty decent. You might want to go a couple of rounds with them on the actual percentage just to see if you can up it, but 10% is pretty good, provided that they would assume all risk and expenses associated with the distribution of the software. You might also consider asking for an up front flat payment in consideration of your agreement to assign your rights over (whether you decide to sign all or just SOME of your intellectual property rights over-- a very good point of consideration that DrWarezz brought up) in addition to royalties from sales.
- You should most *DEFINITLEY* have your own attorney review any agreement before you sign it should you decide to pursue any sale or distribution arrangement with your employer (This is probably the number one most important thing for you to do, that cookre also brought up previously).
- You might also consider offering them exclusive distribution rights for a limited (renewable) time period rather than unlimited rights.
- Whatever the terms you end up agreeing to, if any, you will want to make sure that your cemployer agrees to assume any and all liability for suits arising from the use of the software; to that end, if you are in the U.S., you might also consider forming your own corporation which would be the entity that is dealing with your employer, which would take all personal liability off of your back.
- Another thing that you may want to consider, given that your company is so hot to trot on on marketing your software, is that you just give it to them or give it to them at better terms--in exchange for an employment contract that would give you a better salary and maybe a better job title, perhaps even your own team or division, and get some of your compensation in the investment of getting some additional muscle and prestige into your resume. (less along the line of fancier vacations and house this year, but in that type of situation, but more of a long term investment strategy...)

I am really looking forward to seeing your follow-up on this.... I have been in similar situations, and through trial, error ususally end up where every body does well and every one is happy (at least NOW, after getting royally screwed, pardon my french, a couple of times! ;) )

Overall, it sounds like a good company and like a good deal that you may want to negotiate a bit on some of the details. AND... congrats!!!!... I know how thrilling it is to develop a piece of software and then to have other people actually think it is valuable and worthy! Not too many things in life feel better than that!
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by:bluedragon99
ID: 11987141
Thanks cbf and everyone else.  Another question, what I leave/am let go from the company?  Is there anyway to protect myself against this contractually?  How would I know the sales numbers and how would I know them anyway?
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by:LRHGuy
ID: 11987146
As was mentioned before, TRUST is important...and build that scenario into the contract. Maybe agree on an independant quarterly sales audit.

Best of luck!
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by:CBF-IT
ID: 11987260
bluedragon--

your last question, regarding what happens when/if you leave the company is why the advice offered to you by cookre (Sorry in advance if I'm not giving proper credit to any one else on this thread) regarding having your own attorney review any agreement before you sign it, is really the most crucial step in your decision process.

If your employer is a properly functioning company and makes any attempt to adhere to their other software licensing agreements (and I will assume that you think they are, since you work for them, and have at least some knowledge of their practices, and unless you have personal knowledge to believe otherwise or that they are likely to operate in a manner that is unethical/illegal or in non compliance with their other licensing agreements-- e.g. do they properly account for all of their software licensing on other software packages??) most companies are usually always interested in gettting the best deal for themselves... but not necessarily (totally) screwing developers. If you are suspicious of their intentions/practices, you could write into your code something to pull a 1 kb pixel image or other file from your own web server so you have the ability to audit use of your software in a (kind of) unobtrusive manner.

Above all, your contract, should you choose to enter into a contract with your employer, should most definitely include contingency terms regarding your responsibility for maintaing the codebase and your continued compensation packages if you leave the company, whether voluntarily or involuntarily. Seriously... this type of agreement is best drafted by and reviewed by a practicing attorney and not by any well meaning, no matter how well educated or experienced people that you will find on here. It is going to cost you some bucks initially, and I know that is a PITA and pulls some money out of your pocket, but this is really your best protection for all of the contingencies that have been brought up here and a lot of others that none of us on here have even conceived of.

I truly wish you well!
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by:pjcrooks2000
ID: 11987907
Hmmm you could ship licences that are the legal property of yourself!

That way you can see how many they sell by providing the licences yourself.   Hmmmm but "Trust is a big part of it comment", i put it to you that you do not trust them ?

Otherwise you would not be here asking for advice on the matter, if you do not trust them I advise you to take all possible precautions to ensure your side of the bargain.  Otherwise you will get shafted in a big way!  

Good luck to you

pjcrooks2000
0
IT, Stop Being Called Into Every Meeting

Highfive is so simple that setting up every meeting room takes just minutes and every employee will be able to start or join a call from any room with ease. Never be called into a meeting just to get it started again. This is how video conferencing should work!

 
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by:PreachDotNet
PreachDotNet earned 71 total points
ID: 11989627
Through my own bouts with the corporate biggies theres a couple of other things you need to consider.
Software is practically uncopyrightable unless you can find a unique feature that is the sole invention of you.  So if you created the software in your own time, those man hours are the only barrier to them stealing the idea anyway.
If you say no how long would it take them to reproduce the functionality of what you did?  In a single developer own time scenario you usually aren't talking a great deal more than a couple of man months.
Once you lose control of the project you'll find that their sales team causes your project to grow, company Z wants such and such a function, I thought it would only take 10 minutes so I said we'd do it (i know the 'sales person' and 'think' scenario is stretching reality)
Any problems with the product will land squarely on your doorstep and could possibly jeopardise your full time job.
If they think its a valid product then they'll be willing to up your side of the deal, 50% of profit sounds fair to me and doesnt take into account sales / marketing costs.  I wouldnt settle for less than 25% of profit.  Plus retainer if they wish to extend the product, plus an agreement that your current job does not involve supporting the product and any work on supporting the project will be under a contractor basis.
Sometimes when the working relationship is awkward its better to put a fall guy in place, to limit the comeback.  "Im afraid I cannot continue to develop this project and Im handing over all further development to John Smith", of course John Smith gives the work back to you.  He will be in a stronger position to negotiate not being an employee.  (My brother does this for me a lot)
Oh, and dont do what I did and leave your mobile phone number on the main F1 page.  For support, please call ...
I know it sounds silly but sometimes I wish I'd left the project in vb.net instead of packaging and selling it.  The future maintenance of a couple of products cost more than the initial sales.  Mostly my bad programming but lots of calls when people were upgrading and the usual user stupidity errors.  (I'll get struck out of the British Computer Society for calling them user stupidity errors) I did remain anonymous right ....

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by:santosh26676
santosh26676 earned 71 total points
ID: 11995871
I think its a fair deal. but may be with 25% royalty. This is because teh company to whom you are selling the sales rights will actually invest a lot in sales & marketing, which believe me is a huge investment. Also, they will have the brand on it.

Also, may be you do not sell the sourcecode and only give them the rights on the distributable package.

Hope this advice helps you.
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by:bluedragon99
ID: 12044787
They decided to incorporate a new company name and sell under it.  I will recieve 10% of sales and be 49% owner.  Not bad..
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by:DrWarezz
ID: 12044822
That sounds good :o)
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by:cookre
ID: 12044965
Go for it.
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by:pjcrooks2000
ID: 12046736
you need to own 51%, a recent company i was working at tried to steal a guys idea away from him.  But he was too clever not to let them have any more that 49% as they were contributing to the running of the company.  I remember the investors saying while he was on holiday.  We need to get 51% then we can do whatever the hell we like.

It's up to you however, just don#t let them get one over on you.. Ask them why they want 51% ?  Better still get some advice on the matter from a lawyer.

good luck

pjcrooks2000
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by:bluedragon99
ID: 12133831
Well if you are 49% owner of an LLC you are owner no matter what they can't just write you off as a partner correct?
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by:pjcrooks2000
ID: 12135726
Nope not correct, the 51% will carry any decisions over your 49%

I presume the 51% is owned by either one other person or a combination of managers, if it come to a vote on any decisions 51% beats 49% in simple terms.  You need to tie up the copyright and intellectual property legal issues so that they cannot just go and make a new version of your idea, that would be my biggest worry if i was to simply release the product to them to do as they wish with it.

Seek some legal advice if you can!  

pjcrooks2000
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by:bluedragon99
ID: 12213482
true but what I meant is that they can't just delete your 49% and take full ownership, which is some protection
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by:pjcrooks2000
ID: 12213650
At the end of the day 51% means that they have ownership already.

Do the math 49% - Less than 51% that means they already own it.  As long as you have less that 51% that means they can do whatever they like as 51% overrides 49%.

I have been involved with a company recently whereby the intellectual property owner (idea owner) had full onwership of the product.  the major players and investors or the company were trying to prise away his ownership but investing in his product and for that investment they wanted percentages of the company.  He was very very careful not to give over any more than 49% as he knew that if he did he would no longer have ownership regarding all of the decisions that were made in relation to his product.

I don't know what the situation is, but i would tell you now do not under any circumstances give over any more than 49% total to any number or parties inclusive as these partied can override what ever decisions you wish to make.  

Evidenly it is up to you and you can always demand a 49% share in profits, but as long as you know that if they have 51% they can make all the decisions and basially tell you what to do and in some case make it very difficult for you to retain ownership.

pjcrooks2000
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by:bluedragon99
ID: 12213661
hmmmm interesting..dunno if the pres of my company is going to go for that as it's in their best interest to have it.
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by:pjcrooks2000
ID: 12213705
Well in that case the decision is yours I am only offering advice based on my experiences.  If your fine with it then by all means go for it.  I still wish you the best of luck.  

p.s.   Can I have a free copy of the software ?  :)
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by:pjcrooks2000
ID: 12410039
Fine by me :)
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by:pjcrooks2000
ID: 12453901
Thanks :)
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