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Add to the List of Terms That Inventors Should Know

Postby Roger Brown » Thu Nov 01, 2012 6:28 pm

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Non-Disclosure (NDA)- A document that both parties signs agreeing to keep any information discussed or shown confidential. Each party must get a signed original for their records of the document.

Minimum royalty payment- The lowest amount per your contract you will receive quarterly in royalties no matter how many units of the product are sold.

Upfront payment or “advance on royalties”- payment made prior to the product going to market to the Inventor. Once the product is on the market the Inventor does not receive any royalties until the advance is equaled in royalties paying the company back for the advance.

Exclusivity- An agreement between the Inventor and the company stating that the company will be the only party entitled to manufacture and sell your product. It is normally written for one market or all markets for the life of the contract.

Non-exclusive- An agreement that the company has the right to manufacture and sell your product, but the Inventor is still able to make the same agreement with other companies.

Patent- An issued document by the U.S Patent Office that your patent claim has been recognized by the U.S. government and that you own that claim. It helps protect your right to that unique patent and claim.

Provisional Patent-is a cheaper method to file a holding spot with the patent office for one year on your idea. During that one year you need to be working towards preparing a full patent, getting your product to market or seeking a company to license the product from you.

Patent search- A search done by a patent lawyer or patenting firm to see if any other patent has been issued on the same or similar concept you have in mind. Any claims similar to yours will have to be addressed and rebuttal as to why yours is unique from the patent issued.

Letter of intent or MOU (memorandum of Understanding) Either document is used to state each parties intent and course of action to meet a common goal. These documents are normally followed by a formal contract between the two parties once everyone is in agreement.

Licensing agreement- Document stating the terms of payment both parties agree to for licensing the product. These include, minimums, advances, royalties, payment schedule, length of contract and assigned rights.

Sell sheet- A one or two page document with drawings, and benefit explanations specific to the product. This allows the reader to get a full overview of the product and its marketability.

Prototype- functional model that can demonstrate your products features. It can be crude to manufacture ready in quality.

Licensing agent or Broker- A Person that represents you and your product to possible investors, manufacturers, and licensing companies. They get a percentage of the royalties of any licensing deal accepted as part of their services.

Patent attorney-Writes patent claims, researches the patent , and works to help the client obtain a patent on their idea/product.

Patent agent-works with the product developer/Inventor to negotiate patent agreements. Does similar work as the Patent attorney, but is normally not a lawyer.

Proof of Concept- The ability to demonstrate via a prototype, engineering model, 3-D animation, etc that your product actually will work as claimed.

Investor/Angel Investor- Person(s) or group that invests money for the development and production of your idea/product. This investment is for a portion/ownership of the company/product.

3-D printer- Utilizing CAD drawing input the printer makes a 3-D solid model of the design.

Wholesale price- The price the manufacturer charges distributers, vendors and stores for the product. This price is what is used to base the inventors’ royalty percentage payment.

Product launch- date the company plans to have the product on store shelves available to consumers.

Retainer or hold fee- monetary payment made to inventor to allow company to keep your product/idea longer for further evaluation or development without the Inventor sending it to another company.

Invention Submission company- for a fee based payment provides services such as patent searches, prototyping, patent writing, sell sheets and negotiating licensing deals. Research these companies thoroughly for complaints, lawsuits, prior to using them.

Branding- Method used to promote the product to the consumer. A proper branding campaign can be more effective than patenting to protect your protect from knockoffs.

Copycats/knockoffs- product that is built similar to the original and is in direct competition with the original product. It may also be in violation of the original products patent. The term for this violation is called infringement.

Cold calling- contacting a company for the first time to pitch your idea/product and not knowing anyone within the company.

Minimums- Clause in the contract that states whether your product sells X-amount units or not, you still get paid X-amount per year.

Kill fee- amount you are paid for services rendered if the deal/contract is cancelled.

Wish list- some companies will send out a list specifying the areas they want to see new ideas .

ROI- Return on investment- This is what investors look at before putting in any money. What will the return in profits to them be versus how much they have to put in? This is where they decide what the risk factor is.

Work For Hire- Normally a fee paid for services rendered where the person providing the service has no legal ownership of the finished product. Example- you have a prototype made by a company. They performed the work but you own the finished product. If you sell a million of them they do not get any further compensation than the fee you paid for the original service of having the prototype made.

Product Development - normally consists of a business, a division of a company or companies that work on all or a single branch of the process that has dealings with design, innovation/creation and marketing of new products.

Product Search – Can be a company that holds an innovation search for a sponsor/company looking for innovation in a particular area.
It can also be the process of doing a search to see if a product already exists within the market place.

What the market will bare- the top price the consumer will pay before they decide it is too costly for what they are wanting/needing. Example music CDs could sell at $8 and still make a profit but they know consumers are willing to pay $12 and up for their favorite music group.

Perceived value- What a consumer sees as value that prompts them to buy one product over the other.

MOQ – Stands for Minimum Order Quantity. The minimum amount of product you have to order to get the product and the company selling to you to make a profit.

Market Share - The percentage share a company has of total sales within a given market.

Deliverables- Something specified to be accomplished or met in a contract.

FOB- Can be used as Free on Board or Freight on Board. It generally refers to which party the seller or the buyer pays for shipment and loading costs.

Die casting – A process of metal forming where molten metal is forced into a mold/form and put under pressure to fill all the cavities to produce a part or object.

Blow Molding - Method for making a product that requires a hollow space. Items such as bottles, cans, containers, jars, etc. The process normally uses two heated internal surfaces of a two piece mold, hot plastic and compressed air to make the product/part.

Injection Molding- Method similar to Blow Molding except you are squeezing the mold under high pressure. Molds are normally made from ceramic, steel or aluminum and used to make solid objects. Where Blow Molding objects are normally hollow inside.

Angel Investor- A individual or a small group of investors that provide capital for start-ups, new ventures and provides business advice and could possibly provide business contacts.

Landed Cost – the total amount it costs of a landed shipment that includes freight, insurance, port fees, purchase price and any other costs that might be incurred to bring the product to the final port of destination

Wholesale Price- The price a company charges for a product normally sold to a retailer. The retailer will then increase the price they paid and sell it to the consumer. Note: This is normally the price used when referring to a royalty rate percentage paid per unit in a licensing agreement to an Inventor. It is not to be confused with the Retail Price that is charged to the consumer.

Retail Price- The price for a product or service sold to the consumer. Note: This price is not used when calculating an Inventor’s royalty rate.

Buy Back – Normally a provision in a contract where the seller agrees to buy back the merchandise for a certain price after being sold to the retailer if it arrives damaged, unsellable, customer returns, late shipment (such as a holiday item that arrives after the holiday) and other issues that the two parties have negotiated into the contract.

Test marketing – where the product is exposed to a select sample of the population so the company can get a snapshot of consumer’s reaction to the product and based on these+ results they may decide to move forward with the product or reject it before going to a full scale launch of the public. It can also be used to find and fix issues found by the test market group prior to full scale launch.

OEM (Original Equipment by Manufacturer) producer of the end product. Example- the motor for your car that was originally installed at the facility where the car was built.

AfterMarket- parts/accessories that were not originally installed or they can be replacement parts for the original parts. Example- various kits you can purchase for your car that were not original equipment when it was made.

LOI- Letter of Intent – in most cases a LOI shows that a company is interested in moving forward towards a contract and outlines some of the terms under which they plan on proceeding.

SBA- (Small Business Association) organization that helps small businesses with loan programs and mentoring/counseling. They also ensure a certain percentage of federal dollars are expended to small businesses.

Business Plan- Documents that summarize how the company will be structured operate, and how money contributed by investors will be used. It gives an investor an overall view of the company and the projected milestones they will meet and the proposed profit the company and the investor is projected to attain.
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Re: Add to the List of Terms That Inventors Should Know

Postby Roger Brown » Sun Nov 04, 2012 11:08 am

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KISS method- (Keep it simple stupid) taking a look at any project, process, idea and finding the simplest and most direct path.

Milestone- a scheduled accomplishment that is met within a project. This can be a deliverable event in a contract or a process/project Most milestones are measureable and observable and are one portion of a series of milestones to end with the completion of the project.

Margin- The difference of the cost price of a product/service and the selling price of that product/service.
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Re: Add to the List of Terms That Inventors Should Know

Postby Roger Brown » Tue Nov 05, 2013 7:27 pm

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Was asked to update the listing with the following terms. Hope people find these helpful.


DC (Distribution Center) location used for receiving, redistribution, and sometimes temporary storage of goods. Other terms used are Branch Warehouse or Distribution Warehouse.

SKU- Stock Keeping Unit- Every SKU is identified with its own unique number tied to a particular item. This helps track product and inventory. These numbers can be tied to the items EAN or UPC.

UPC – Universal Product Code- This is normally a 12 digit barcode placed on the item being sold. UPC is used for pricing at the checkout, inventory, sales, ordering stock and a host of other options. (12 in the U.S.; 13 in Europe)

EAN- European Article Numbering- Standardized 13 digit bar code system for identifying almost anything. The EAN code is compatible with the UPC.
Shelf Life – for items such as produce, meats and other items that deteriorate it is the time that the item can remain effective/viable.
For other goods it generally means how long they expect it to remain in inventory.

Trade Secret- Know how, confidential information, formula, process that gives the company/individual a competitive advantage and if the know how, confidential information, formula, process is disclosed will harm the company/individual.

Hold Harmless Clause – A section in a contract/agreement that states one or both parties agree not to hold the other party liable/responsible for damages or other issues that may arise. These issues are normally stated in the agreement upon which they both agree.

Product Placement – A method of getting your product expose/publicity by having the product used in something the public sees such as advertisement, media events, celebrity endorsement, used in a movie or TV by the actors or placed in view in the background.

Product Adaptation – This is where you take a current product and make improvements/modifications to the existing product to hopefully make it stand out from the others currently on the market.

Line Extension (sometimes called Brand Extension)- Adding new products to an existing brand and hoping that the existing name recognition will help fuel sales and exposure of the new products.

Gap in the Market – This is where you find void in the market that has potential customers and no one is serving a need/service. These gaps can be opportunities for companies or individuals to grab a customer base and expand their reach into the market place.

Garbage-in Garbage-out (GIGO) - term used to describe the fact that your data/research is only as good as the information source you have gathered it from in the first place. So if you get faulty information your final analysis will be faulty.

Operation Cost Target (OCT) - Normally refers to the max amount a company will spend on a particular project. This usually covers the material, labor and overhead associated with the project to make final completion.

Limitation of Liability – a disclaimer you normally would see in a contract where you would list the conditions/limits under which the disclaiming party can be held liable for damages or loss.

Like for Like Sales – a process where you compare this year’s sales figures against last year’s sales figures to determine which products within your line moved better than the others.

Repetitive Manufacturing- the process of making the same product during a manufacturing cycle. This normally happens in an assembly line type of environment.

Discrete Manufacturing- this is the opposite of Repetitive Manufacturing because your product is accounted for by distinct serial numbers, distinct amount of units, instead of accounting for production by weight or volume as in some other processes.

Product Placement- Practice of getting your product placed in view or use in a movie, show or other media that will be seen by the public.

Distribution Channel – manner that services or products get from the vendor to the consumer.

Shipping Container – a container that can be sealed and reused normally used to ship product from one country to another via ship or overland by truck or train. They are typically two sizes twenty foot in length and forty foot in length.

CNC- Computerized Numerical Control- automated controls guide machines and varying tools to do the job that used to be done manually. A number of these machines use CAD (computer aided designs) or CAM ( computer aided manufacturing) written programs to run the commands to operate the machinery.

RTA- Ready To Assemble- examples of this would be the desks, bookcases and shelves you can buy but have to assemble once you get them home.

Liability Risk – The risk associated with liability for a product purchased by an individual that may cause or has caused damages to those owning the product. Most companies try to avoid these issues by proper design, testing and quality control of the product. Companies can purchase insurance to help defer the costs of lawsuits which may arise from liability issues.

How many Turns a Product will have- refers to how many units of a product you will sell on the shelf and how many times you will need to refill it in a year.

Running Royalty – is a royalty paid to the Inventor based on the number of units sold or manufactured instead of a onetime lump sum.

Gap Analysis – A process where you look at a particular product, its place in the market, its competitors, and figure what market share and profit you could attain.

Direct Response: (DR) Method of selling a product to consumers via television direct purchase.

Fulfillment: The distribution process of moving products from the factory to the retailer, managing sales, and collection and distribution of funds.

“Seeding the Market”: Placing small amounts of new product in strategic retail locations

“Sell-In”: The wholesale price a retailer is given from the manufacturer.

Drop Shipping: The process of sending product directly to a retailer’s stores.

ASN ( Advanced Shipping Notice) This is a document sent to the customer letting them know detailed information about their order such as the weight, number of boxes, how the product is packaged and how it is being shipped.

Intrinsic value- This is the price you see on a good or service based on its demand and availability. It does not reflect the quality of the good or service. Which means just because it costs a lot or a little doesn’t mean it is good or cheap.

Multi-Brand Strategy – This is the practice of marketing a number of competing products by the same company but using different brands to compete against each other. This allows the company to gain more shelf space and keep others limited to smaller shelf space. It also makes it look like there are more players in that space than there really are which can give the impression to the consumer this is a need product. The company hopes it gets the consumer thinking “Why else would there be so many choices if it wasn’t something a lot of people are using”.

First Right of Refusal - When an Inventor or company has a written contract stating that they will allow company X to see all ideas they design first and they will not send them out until written notice is given that company X has no interest in that product/idea. This is done prior to sending them out to other companies for review. You can also have a clause in your contract that says they have first right of refusal for products in a certain market and all others are free to pursue elsewhere.

Trademark - is a symbol, name, device or even a word that is used in trade with goods to indicate the source of the goods and to distinguish them from the goods of others. You can sometimes see the same name used by two different companies because they are in totally different categories of trade.

Copyright - a form of protection provided to the authors producing original works. Normally designated by a ©.

Products Footprint – amount of space it will take up on the store shelf or on the store floor as a display.

Blister Pack- normally a clear or lightly tinted piece of molded plastic attached to a cardboard backing . This blister pack is used to display the product to the consumer. Another name for it is Bubble pack.

Plan-o-gram or POG – This is a drawn plan that designates the placement/ location of the product on the stores shelves. These plans are normally prepared by the corporate office for the store/retail chain for its employees to follow.

TD’s (Technical Drawings) – Drawings showing enough detail, dimensions, and notes sufficient for the objects construction.

Oblique Drawing – A three dimensional drawing of the object that can be used by yourself or a business to showcase the product and its features.

As Built Drawings – A set of drawings showing all the changes made during the construction phase of the product. These normally show the exact dimensions and positions of all the parts making up the product.

Exploded View – Drawing showing the product disassembled so that the viewer can see the relationship of all the parts to each other. These are also used to in owner manuals to help the consumer order new parts.

Re: Add to the List of Terms That Inventors Should Know

Postby Roger Brown » Sun Dec 01, 2013 6:30 am

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AGR- Adjusted Gross Revenue – If your royalty is based on this it means your percentage is calculated based on the revenue left after costs such as charge backs, spoilage, damages, returns, allowances are deducted from the profits.

Display costs- The cost of a display holding your product divided by the amount of units it will hold. If your display will hold 40 units each unit is 1/40th the cost of your display.

Unit cost – final cost to the manufacturer after adding in all of the associated costs to manufacture. This can include the materials, molds, shipping, taxes, tariffs, employees, etc.

MGP – Manufacture Gross Profit – The difference between the development price and the wholesale price.

Add-on - A product or service added to the main product to increase interest and sales in the main product.

Consumable- a product used by consumers or businesses that have to be replaced regularly. Examples: paper products, foods, fuels, and more.

Durable goods – a product with a longer life span than consumables such as computers, phones, furniture, electronics, automobiles.

Re: Add to the List of Terms That Inventors Should Know

Postby Roger Brown » Fri Dec 13, 2013 4:03 am

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MBS- (Manufacturer’s Break Strength), Point at which the product will most likely fail. There are many variations of this break point depending on the materials used and the product itself. Example- the break point for a rope is different than the break point for an audio speaker. Each has its own set of parameters at which it will fail.

WLL- (Working Load Limit) This is normally the recommended safe area in which the product performs as desired/designed.

Trade Barrier- This has a lot of moving parts. The barrier is normally imposed by the government on the exchange of international services or products. This can be enacted by tariffs, customs policies, import/export policies, restrictions on licensing, quotas limiting so many of a certain product into the country, technology transfer restrictions and a host of other factors.

Intuitive Use - Example- seeing a knife you quickly understand it can be used to cut or puncture an object. In the case of some products you have to ask the question: Does the consumer understand the purpose of the toy, tool, product by just seeing it or is there a learning curve involved? Will it need a commercial built around it, specific packaging detailing how it is to be used, will it require an onsite video playing to get the consumers attention to the products value?

Re: Add to the List of Terms That Inventors Should Know

Postby Roger Brown » Sat Dec 28, 2013 4:51 am

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SME – Subject Matter Expert- the person that has the most knowledge of a particular subject. In an Inventors case they should be that expert on their product.

Elasticity of Demand – typically viewed where you see an increase in sales as the product price drops and a decrease in sales if the price rises.

LineSheet – basically a breakdown about your product you are selling letting the retailer know minimum quantities needed per order, the price per unit, a photo of the product, if they come in varying colors or sizes, discounts for orders over a certain volume, what are your best sellers, payment terms, lead time on orders, shipping method, damage and return policy.

Re: Add to the List of Terms That Inventors Should Know

Postby Roger Brown » Sat Jan 25, 2014 5:26 am

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Indemnify – (normally seen in a contract) protects a person or company against damage or loss.

Realistic Expectations (in reference to inventing) – having a good vision of the reality of a situation understanding what cannot and can be done. A good practical understanding of how things work and what can be expected. Knowledgeable of the industry they work within or at least willing to learn how the system works.

Unrealistic Expectations (In reference to inventing) unreasonably idealistic in their approach and vision of how things really work and what they feel should happen. Could be deemed impractical and difficult to work with from a company’s perspective. Not knowledgeable of the industry they are working within and feels the industry should bend to their demands.

Industry Standards- criteria within an industry that sets the rules they use for day to day operations.

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Re: Add to the List of Terms That Inventors Should Know

Postby Roger Brown » Sat Feb 08, 2014 5:21 am

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ETL – Electrical Testing Lab. They are recognized by OSHA (Occupational Safety Health Association) as a Nationally Recognized Testing Laboratory from which you can have them test your product and if it passes testing you can put the ETL symbol/logo on your product showing it has passed their testing and certification process. They are known for having a lower cost structure than UL certification and quicker turnaround through their process.

UL- UnderWriter’s laboratory - They are recognized by OSHA (Occupational Safety Health Association) as a Nationally Recognized Testing Laboratory from which you can have them test your product and if it passes their strict standardized testing you can put the UL symbol/logo on your product showing it has passed their standardized testing and certification process. They are known for having very high standards in compliance and do follow-up with companies to ensure they maintain those standards in production.

CSA - Canadian Standards Association is recognized by OSHA (Occupational Safety Health Association) as a Nationally Recognized Testing Laboratory from which you can have them test your product and if it passes their standardized testing you can put the CSA symbol/logo on your product showing it has passed their testing and certification process., CSA is very familiar with U.S. requirements.

CE – Commission of Europe- the CE mark is used to certify a product has met the European Union health, safety and environmental requirements that ensure workplace and consumer safety. If a manufacturer wants to sell their product throughout Europe they need this CE mark to avoid having to go through further product modifications from other European countries.

Re: Add to the List of Terms That Inventors Should Know

Postby Roger Brown » Tue Feb 11, 2014 6:15 pm

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Public Pair – (Patent Application Information Retrieval) A great resource for finding out if maintenance fees are current or the patent has lapsed. Gives information on issued or published patent application status.

Off Shore - Generally referencing manufacturing done outside the United States.

Spoilage - The number of items broken in a shipment from the factory or fulfillment center to a retailer.

Manufacturing Broker: Person, company or group that will find a factory to manufacture your parts or product and takes a direct fee, or percentage of each unit made as payment.
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Re: Add to the List of Terms That Inventors Should Know

Postby Roger Brown » Tue May 06, 2014 7:52 pm

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QR Bar Code- Quick Response Bar Code is normally a two-dimensional bar code that is inside a square block and can be read by most Smart Phones. It is associated with a link to a website, additional information, phone number, text, video and wide variety of other information. They are very commonplace outside the U.S. and gaining popularity within the U.S.

The Hook – The main feature/function your product has that will make a consumer see value in having your product. Example: saves time, saves money, does the task faster, easier than other product.

Misdirected perception in packaging (also involves perceived value) - When you make the consumer feel they are getting more for their money by making the packaging bigger. Example: Potato chips are sold by weight not volume, but the larger bag makes you think there is more inside until you open the bag. Think about how many products you buy that have a lot of dead space in the packaging.
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