Watch Your Step When Negotiating

Do you have a new product or invention that you might want to sell to another company? When you negotiate the sale of rights, take these three simple steps to protect your interests:

1. File a patent application.

2. Make a record of what makes your product unique.

3. Sign a confidentiality agreement before beginning negotiations.

One court case -- straight out of the "truth is stranger than fiction" department -- illustrates how these steps can protect your company.

In the 1990s, Aldo DiBelardino and Andrew Ive developed a lightweight, tangle-proof, home fire-escape ladder The two men were Harvard Business School students who invented the ladder as part of a product-development course. They filed a patent application and began producing and promoting the "Emergency Escape Ladder" under their Virginia-based firm, X-IT Products LLC.

The team also designed the packaging. The box pictured a boy climbing down the ladder to a woman waiting below. The design was a money-saving family affair: Instead of using professional models, the people featured on the box were DiBelardino's nephew and sister-in-law.

Then along came Walter Kidde Portable Equipment Inc., a leading manufacturer of fire safety equipment that was interested in buying the rights to the ladder. The North Carolina unit of UK parent Kidde PLC, began negotiations and agreed not to use any information obtained during the talks.

Negotiations eventually broke down. But in 1999, X-IT discovered at a national trade show that Kidde was selling a knock-off of the original ladder

Here's the strange part: Kidde actually used that same picture of DiBelardino's relatives on its packaging.

The competition hurt X-IT's business and the company sued Kidde for copyright infringement, false advertising, breach of contract, trade dress infringement, misappropriation of trade secrets and unfair trade practices. X-IT won.

In this suit, the patent application and the record of what made X-IT's ladder unique gave the inventors important evidence that they needed. The documents proved that X-IT developed the ladder before ever talking to Kidde. Even if you don't consider getting a patent worthwhile because of costs or other issues, the process is helpful in cases like this.

Moreover, the confidentiality agreement between the two companies -- in addition to statutory and common law claims -- significantly strengthened the inventors' suit.

While Kidde's conduct was so egregious that the two former students might have won anyway, taking simple precautions reduced the risk of losing control of their product.

Take precautions as soon as you develop a product that the market hasn't seen before. Your company's financial health may depend on it.

The Award

Not only did the federal jury in this case find for X-IT, it awarded enormous damages.

The jury awarded $116 million in damages. The judge later reduced the award to $12.6 million, saying that the jury had misconstrued his instructions and that the award was based on duplicate damages for the same improper conduct on Kidde's part.

Kidde appealed. In 2002, X-IT agreed to settle for $17.4 million. The company got $10.9 million and its attorneys received $6.5 million.

(X-IT Products LLC v. Walter Kidde Portable Equipment Inc., No. 2:00cv513, E.D. Va.)

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