The Nevada INVENTOR
Official newsletter of and by the Nevada Inventor's Association
Volume: XIV No. 5 -Education, Assistance, and Networking for the Inventor- Sept. 2003
Next Meeting: September 27, 2003 9:00 AM Washoe Medical Center Room cr101
Our web site is 'www.nevadainventors.org' Founded in 1988
We are a 501(c)6 group under IRS rules.
The purpose of NIA is to educate inventors and potential inventors through whatever means available, including regular meeting, classes, seminars, workshops, and evaluations, within NIA or in cooperation with other persons or organizations. The education of inventors, or potential inventors, may also include the publishing of written materials, such as a regularly published newsletter, flyers, notices, or letters.
Additional goals of NIA are to inform its members of private, civic, governmental, and public resources which may be of assistance to inventors; to promote a positive public image of inventors; to provide for its members a referral/resource directory; and to furnish assistance to its members, whenever possible, by directing their efforts toward the successful development of their inventions.
By Brad Marshall from Inventors Digest Wednesday, October 23, 2002
Pricing is a determining success factor for almost every organization. Yet many organizations, especially small
to mid-size companies, fail to apply appropriate focus, resources, or expertise to the task. Pricing becomes even
more critical and complex when Intellectual Property or a large fixed asset is involved.
Why is pricing Intellectual Property unique?
Intellectual Property (IP) represents a much greater pricing challenge than, for example, manufactured items. What makes IP so different? With a manufactured item, a cost per unit can be determined based on materials, labor, and overhead costs. A price is typically determined by adding cost plus a profit margin. This is a 'cost-plus' approach to pricing.
IP usually involves a very large upfront fixed cost for development, sometimes called a sunk cost. Once developed, the IP can be sold and resold for very little additional (ie incremental) cost. The same principles hold true not only for IP, but any large fixed asset that can be sold to multitudes of customer, for example a telecommunications network. One of the reasons Microsoft has been so financially successful is their ability to leverage a fixed software asset to millions of customers. Indeed, IP has a much greater investment return potential for these very reasons.
Why
doesn't the cost-plus approach to pricing work for IP? Utilizing a cost-plus approach would require an allocation
of the sunk cost across the current and/or projected customer base. Such an allocation requires assumptions of
future volumes and other criteria. These assumptions and resulting allocations can lead to arbitrary and disproportionate
cost burdens assigned to various customers or opportunities. Therefore, attempts to allocate a sunk cost across
all customers will often lead to poor price decision making from both a list price and individual deal perspective.
A different approach must be taken to pricing IP.
Establishing list pricing
Instead of cost-plus pricing, IP should be priced using a 'market based' approach to determine appropriate price points. The first step is to establish a market based list price. A list price is essential and should be developed for every product. A published list price lends legitamacy to the pricing as well as lays a foundation for the sales organization to formulate sales strategies. Even for highly customized products, list pricing should still be established based on certain sets of assumptions.
There are three main considerations for establishing the market based list price for any IP product; Market Conditions, Product/Organizational Strategy, and related Incremental Costs.
Pricing should be established in accordance to market conditions for the product or service. In other words, pricing should be established in the general area of your main competitor's similar products, taking into account how they package and price their product. It is extremely important to understand the competitive landscape and market conditions when setting a price. Most organizations do not place appropriate importance on this fact or perform the necessary research.
In addition, the price structure should be aligned with product and sales strategies
as well as market and competitive factors. IP can be priced in an almost infinite variety of pricing structures
and product packages. Therefore, it is important to have a clear executive agreement on strategy. Strategy should
be aligned with the business model, goals, organizational resources, strengths, value proposition, and product
positioning against top competitors in the market. For example, if your organization is positioning to be a single
solution provider, a single price f
or
a predetermined package of product and
services supports such a strategy much more effectively than an ala carte pricing menu for various components. A focus on obtaining market share would tilt the pricing policy to be aggressive for large opportunities.
Lastly, any direct incremental cost should be considered. An incremental cost would be any cost directly related to adding a customer (royalties owed to a patent provider for example). List pricing should be structured to ensure any such costs are covered appropriately.
The inclusion of all three of these factors; market conditions, product/organizational strategy, and related incremental costs, allows creation of an optimal list price.
For completely new or innovative products which do not face a comparable competitive product in the market, pricing should be established based on any similar products or industries, price testing to determine what the market will bear, or based on cost savings of an alternate solution.
List pricing should be continually monitored for effectiveness. As a general rule of thumb, established list pricing should address 80% of the opportunities, leaving the other 20% as special requests based on the situation. If special requests are higher than 20%, this typically signals a list price that is out of sync with the market. Pricing Unique and competitive situations that require special pricing or price structure will inevitably occur during the course of business. An organization should maintain the appropriate level of flexibility to adjust pricing or pricing structure when the business opportunity is attractive and has been qualified as a legitimate opportunity from a sales perspective.
Determining appropriate actions in these opportunities is critical, as they usually constitute larger transactions or strategic partner opportunities. IP typically involves many more custom opportunities than other business models. When considering such opportunities, it is important to identify all direct costs required to support the transaction, including opportunity costs and resource allocations. Pricing for these opportunities should also be approached taking into account the list pricing and pricing strategies previously discussed. Additionally, many such opportunities will require top executive feedback, operational buy-in, product/engineering input, and sound business judgment. Pricing strategy is closely tied to the overall business strategy in nearly all these situations.
Pricing accuracy is a constant challenge due to the market dynamics of today's
business environment. It is extremely important to analyze lost opportunities, obtain competitive price information
when possible, an
d analyze internal
data for pricing trends in the business. Such a continuous feedback loop allows adjustment of pricing and strategy
moving forward in order to allow an optimum pricing strategy in the market. Since pricing is tied closely to overall
strategy, the feedback loop should also include all points involved in the organization's strategic decision making
- product, engineering, sales, marketing, and executive management.
Proper focus and expertise on pricing allows an organization to maximize revenues, limit risk, and make well-informed business decisions. Given the challenges Intellectual Property business models face, such pricing focus is critical to long-term success.
Harvey Korman: "Using Viagra is like putting a new flagpole on a
condemned building."
UIA Press Release May 14 2001
Invention Promoters Plead Guilty
By Bob Lougher, Executive Director, UIA
Also See: 'http://dailynews.yahoo.com/h/ap/20010514/us/brf_inventors_fraud.html'
SPRINGFIELD
MA: In a precedence setting court action, the three top executives of American Inventors Corporation (AIC) officially
changed their pleas to guilty. In federal District Court presided over by Judge Michael Sponsor they all accepted
a prosecution deal which includes prison time. Ronald Boulerice, owner and president of AIC, facing a maximum sentence
of 53 years, pleaded guilty to conspiracy to commit mail fraud, mail fraud, money laundering and filing false tax
returns. As part of a prosecution deal, Boulerice would receive 8 years in prison, and forfeiture of all assets.
Also part of the deal, his wife Judy would not be prosecuted. This arrangement still needs the approval of Judge
Sponsor. Codefendant John Samson, vice-president of AIC and president of American Institute for Research and Development
(AIRD) also pleaded guilty to five counts of the 18 count indictment. Samson was facing a maximum sentence of 33
years in prison. Under the agreement Samson would serve 3 years in prison, one year under house arrest and forfeiture
of 50 % of his assets. It was pointed out by the prosecutor William Welch that Samson cooperated substantially
with the prosecutors. AIC salesman John Hoime pleaded guilty to one count of misprision of a felony. Hoime told
prosecutors that he did not admit to taking part in the criminal activities, he did know that felonies were being
committed and did not report them. As part of the arrangement Hoime would receive 18 months in federal prison.
Judge Ponsor made it plain to all defendants that although there was a deal struck between the prosecutors and
the defendants, he had the final say so in sentencing. Judge Ponsor also warned defendants that he could impose
sentences far in excess of those agreed upon. Sentencing is scheduled for September, 2001. It should be noted that
federal crimes do not receive parole. Only a small amount of time can be deducted for good behavior. In essence,
8 years means 8 years. All the indicted AIC and AIRD salespeople came to various arrangements with the courts.
The only trials left to be held are for Boulerice's two adopted daughters and patent attorney Leon Gilden. Gilden
is a fugitive at large According to the FTC, this is the first time that criminal charges have been filed against
an invention promoter. I hope that this case has now established a precedence, much like the previous FTC raids
on invention promoters. Criminal prosecutors now have a blueprint for success. May 14, 2001 was another day in
history.
FAQs © Copyright Angenehm Law Firm 'http://www.angenehm.com' and PatentCafe.com
0.1 What are trade secrets?
"Trade secrets" is the legal term for confidential business information. A good nonlegal definition of
a "trade secret" is a secret belonging to a business. This information allows your company to compete
effectively. Examples of trade secrets include customer identities and preferences, vendors, product pricing, marketing
strategies, company finances, manufacturing processes and other competitively valuable information.
Under the Uniform Trade Secret Act, information must meet three criteria to qualify as a trade secret. First, the
information must not be "generally known or readily ascertainable" through proper means. Second, the
information must have "independent economic value due to its secrecy." And third, the trade secret holder
must use "reasonable measures under the circumstances to protect" the secrecy of the information. These
requirements are explored throughout these frequently asked questions.
0.2
Why protect trade secrets?
Failure to adequately protect your company's proprietary information will allow your competitors and ex-employees
to reduce your profits. The trade secret laws will help prevent such misfortune if your company acts in accordance
with its requirements.
Imagine if your top employee left your company. The employee had learned every major area of your company. S/he
was an invaluable asset to the company. Now imagine if that employee set up his/her own business in direct competition
with you or became an employee of your toughest competitor. You can stop this individual if your company protected
its business information properly under the trade secret laws. Proper protection requires action today to be ready
for tomorrow.
0.3 What technology is protectable by trade secrets?
0.4 How long is a trade secret protectable?
Information is protectable as long as the information fits the definition of trade secrets. This can be moments
or decades.
0.5 What specific type of protection is offered by a trade secret?
Trade secret law prevents wrongful taking of confidential or secret information. Independant
development and reverse engineering by another party are defenses to claims of trade secret theft.
0.6 What is the geographic scope of protection of a trade secret?
Trade secret protection is a state right. A vast majority of states, including Minnesota, have adopted the Uniform Trade Secret Act. Other states have a law or laws similar to the Uniform Act. Foreign countries have similar laws, although, the particular country should be checked before reliance is placed on trade secrets in a foreign country. The rights will seem to be national or international in scope, since registration of trade secrets is not required and since most states and foreign countries protect trade secrets.
0.7 How important is trade secret protection?
Trade secret protection is a must for virtually any business. It's most often not addressed until an employee or
competitor obtains and uses against you valueable secret information, thereby stealing your sales, customers, technology
base, damaging financial information, or other.
0.8
What is misappropriation of trade secrets?
Trade secret law prevents misappropriation, wrongful taking, of trade secret information. A wrongful taking can
occur in a variety of manners. For example, the taking of information would be wrongful when the taking is a: breach
of contract, breach of fiduciary obligation, theft, or other legal wrong.
0.9 What remedies are available when trade secrets are misappropriated?
Control of the information can be recovered along with payment of damages. Attorney fees and/or exemplary (e.g.,
punitive) damages can be recovered in an exceptional case. Criminal penalties are available in cases of theft.
0.10 What is the Uniform Trade Secret Act?
Trade secret laws are state granted rights. Minnesota, along with most other states, has adopted the Uniform Trade
Secret Act. The Uniform Trade Secret Act
'http://www.execpc.com/%7Emhallign/usta.html' attempts to make the trade
secret laws the same from state-to-state. These frequently asked questions follow the Uniform Trade Secret Act.
0.11 What states have adopted the Uniform Trade Secret Act?
Nearly all states have adopted the Uniform Trade Secret Act (UTSA). The UTSA has been adopted by 38 jurisdictions.
0.12 What is meant by "not generally known?"
Information known to someone or known to non-competitors is still capable of being a trade secret. In fact, more than one competing company can claim trade secret rights in the same information independent of one another. Information generally known to one's competitors is not a trade secret. Trade secret protection can be lost through publishing the secrets. Be careful in disclosing information if secrecy of the information is important. Trade secrets are often lost through disclosures in the absence of a confidentiality agreement.
0.13 What is meant by "not readily ascertainable?"
Information that is readily ascertainable is not capable of trade secret protection. The method of manufacturing your product (perhaps a new shoe design) is not a trade secret if someone can learn how to make your product by simply examining the product.
0.14 What is "reverse engineering?"
Reverse engineering is the determination of someone else's trade secret information via examination and testing of publicly available information. While the amount of effort needed to reverse engineer can show the information is readily ascertainable, this defense applies even when the reverse engineering is difficult and the information is not readily ascertainable. Reverse engineering is a complete defense, since it shows the information, trade secret or otherwise, was properly acquired from public sources of information.
0.15 What can one do if the information has or may become "generally known or readily ascertainable?"
Your company may still protect the information even if the information is or might become generally known or readily ascertainable. Patents (design and utility), copyright, and trademark laws will provide protection for certain information even when the information is generally known or readily ascertainable. Contracts can also provide rights that exceed the bounds of trade secret law. A decision to pursue patent protection instead of trade secret protection is an involved decision that should be discussed with competent counsel. Such a decision, however, turns in part on your likelihood of succeeding on showing the information "is not generally known or readily ascertainable."
0.16 What is meant by "independent economic value due to secrecy?"
To be a trade secret the information must have some value due to its secrecy. This criteria is almost always proven when secrecy is proven, since companies typically do not put forth effort in a lawsuit to protect and recover control of valueless information.
0.17 What is information that is "wealth creating" or "wealth preserving"?
The
value of the information may be wealth creating such as your customer list and customer preferences. The value
of the information may also be wealth preserving such as knowing which mistakes to avoid. Perhaps your company
made a mistake in a marketing strategy. Knowing to avoid the mistake is
of value, since it preserves wealth. Your company stands to gain competitively if your competitors make the same mistake. Wealth preserving information and wealth creating information should both be closely guarded secrets.
FAQs © Copyright Angenehm Law Firm <http://www.angenehm.com> and PatentCafe.com
"Inventions have long since reached their limit, and I see no hope for further developments."-----Roman engineer Julius Sextus Frontinas, 10 AD
Rodney Dangerfield:
"My wife said she'd like to have sex in the back seat of the car... and she wanted me to drive."
AND a note from a fellow inventor in NY.
From Joseph,
body = To all of you; What I would have giveing to find this Info 30 years ago, I will be 76 on Oct 23 03
but I keep on learning every day, Inventing must become a required subject in every High School in
the U.S.A, NOW! Since 9/11 We need laws to to bring this to every school in America, Yes education costs a fortune, But ignorance cost 100 fortunes, I would like any info you may be able to
send me on any Inventors clubs here in the N.Y, area; I live about 60 miles due east of Albany NY,
I have printed pages of some of your meetings,
Powerfull stuff, Your all doing grate works;
Thank you, Joseph Salomon, Life member D.A.V,
OFFICERS of the NIA
President Dr. Bill Torch Our web site www.nevadainventors.org
Vice- Pres John Martison www.uspto.gov
Sec-Treasure V. Chemist www.inventorsdigest.com
Sergeant at Arms Floyd Krebs www.patents.ibm.com
Programs Carol Foldvary-Anderson www.inventorfraud.com
Nia founder Don Costar Don's site www.doncostar.com
Page done by Vince Chemist.
Created on Oct 10 2003
Updated on November 29, 2005