Patent licensing disasters by Eli Whitney

Imagine inventing a devise that put America on the map, wrecked civilizations and changed the world, and you still end up dying broke. If you are a history buff, patent expert or licensing lover grab a copy of Big Cotton I forgot how great a read it was until I went through my notes again last night.

Eli was a bright young tutor from Yale heading South via boat to try his luck teaching the children of wealthy plantation owners. In a chance meeting he bumped into Katy Greene, the widow of a revolutionary war hero. Katy saw potential in the young poor teacher and asked him to sit in on a meeting of plantation owners. They had a big problem, an old problem; nobody could solve how to increase cotton processing speed. It took one worker 16 months, full time pulling the sticky green seeds out of enough cotton to make a 500 pound bale. After hearing the problem, Eli said he would come back with an answer. That week his big idea came while watching a cat trying to catch a chicken. He noticed that the chicken got away but the cat had feathers in his paws. That image jarred Eli’s mind into looking at the problem from a completely different direction.

“Instead of picking out the sticky green seeds one by one, why not comb the cotton away from the seeds?”

10 days later Eli came back with a working prototype that was so good, the basic mechanism and motion is still used today. Katy’s fiancé proposed he build the machines and he would license them out as fast as he could make them. He sent the design to Washington DC and Thomas Jefferson, the Secretary of State at that time signed his patent registration in 1794. The government was a lot smaller back then! Every cotton farmer in America wanted one. Greed took over and they charged the farmer 1/3 of the crop plus the cost to build a machine. Why all the excitement? The gin reduced the labor on 500 pounds from 16 months to 10 days! When they eventually added steam power or horses, they could produce 500 pound bales in 4 hours!

Improved gins came on the market with better licensing terms and they remained inflexible even in the face of a new issued patent on a competing product. By 1797 Eli had built 27 gins and nobody wanted them. He had set in motion the biggest economic upheaval ever to hit America, people around him were getting fabulously wealthy and he sat frozen with indecision. In relative terms it would have made the internet bubble look normal because almost the entire South was already dependent on farming. We cannot imagine how crazy it must have been to crank that gin wheel and know all the cotton you could crank had a buyer ready to snap it up.

Eli’s landmines we want to avoid with patent licensing:

• Alienated prospective customers with exorbitant royalty rates.

• Refused to license their design to other manufacturer to meet urgent demand.

• Opened themselves up to knockoffs because of their inflexibility.

• Went broke trying to repair the damage instead of changing course.

To see how staggering this invention was. The year of the invention, America exported 500,000 pounds of cotton to England. In 1800, just seven years later, it exported a whopping 17.8 million pounds! Think of the gold and silver pouring into the south to buy all the cotton and you watch everyone else get rich on your idea.

Just remember your best ideas are in the future. Don’t ever get married to a new innovation and become inflexible in the face of reality. The higher you price the license and royalties, the harder people will try to go around the patent. The really wealthy self made business builders put together a sting of winners, not one lucky grand slam. Next time you are at the negotiating table, remember Eli.

License Versus Franchise what should I do?

We had so many hits on Peter's podcast, here is a separate link to make it easier to forward to people and bookmark it. His permanent home is the podcast bar in the top right corner of Franchise Whale.

Listen as an international trademark, licensing and franchising attorney explains when a franchise fits better then a license. Peter Eichler shares 40+ years of experience with fortune 500 clients, celebrities and Hollywood studios in this 13 minute Podcast.

Anytime you know someone who did the licensing for Star Wars, Governor Schwarzenegger and the new Rambo movie, you know you like him already! In addition to his international franchising experiences, he is a great find and a joy to work with. Enjoy!

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Who knew cavemen could sell insurance?

Imagine having a caveman in your living room every Monday night and another billion or two for Warren Buffet who acquired GEICO several years ago. If the executives at ABC have anything to say, both will become a reality very soon.

The quirky commercials of the caveman GEICO series are tops for me. The PC Mac ads would be number one and the GEICO caveman would be a close second, both have a very powerful method at work underlying the psychology that makes people want to buy more of your stuff. That method is the hook. Think of looking at a chocolate cupcake with the letters scrawled in white icing, “Got Milk?” Great stuff! Many ad agencies write great copy and catchy phrases but they forget the most important thing, “Will this sell more product?” It seems as if they are more interested in receiving an award from their advertising peers and securing their careers with their agency than selling more products for their clients.

Not the case with the caveman series, very effective. The writer and creator of the series is Joe Lawson formerly with the Martin Agency, now making his move on Hollywood. I knew I liked the guy when I saw his commercials but I loved the guy when I read a quote from him being brutally honest about the advertising business in general. I quote from Joe as he had a chat with the Banterist shortly after creating the series.

“The most important thing is to avoid big industry functions. That way you're not reminded of the transitory nature of goodness in advertising. Every once in a while, if you are lucky, you catch the tail of an opportunity and put something on TV that doesn't annoy people, but most of the time 99% of us are producing crap.”

Well said, but why a caveman? That’s easy, literally it’s all in the hook presented in a way that does not annoy you. You can get commercials that entertain, but if they do not start with a hook, they will leave their clients with flat revenues while the agency fills up their trophy case with yet another creativity award.

If I asked you what type of beer would you drink at the beach? I bet Corona came to your mind. At the risk of upsetting some beer heretics, I don’t think any beer tastes more “beach like.” I am a non drinker so I could be wrong but I don’t know what the beach tastes like, do you? Anyone could have grabbed that spot but Corona chose to draw a line in the sand and say “This is our real estate, we own the beach.” I love their spots because they create an experience that transcends price and reason. It is difficult not to think of Corona when you have an idyllic summer beach day or if you want to be transported to the paradise while stuck in a dark bar at the end of a strip mall. The hook is the beach scene attached to Corona, like “Got Milk” to the cupcake or a milk mustache to a celebrities lip. “If I drink milk maybe I will look like Cindy Crawford too!”

The hook with the caveman is “It’s so easy even a caveman can do it.” To test the effectiveness of a hook, ask a 10 year old what is the BEST car insurance company and don’t be surprised that the “it’s easy” ads have even spilled over to the “best insurance” in their minds. When you can create generational shifts in buying patterns by using the right hook, it can be the most valuable time you will ever spend before branding what you do.

So what about the pilot for ABC? It sounds like it will be Seinfeld with hair. Cavemen will be filmed dealing with everyday issues living in Atlanta. GEICO, a unit of Berkshire Hathaway Inc., will have no creative control but will receive a royalty payment for the use of the character.

"We sell car insurance; we don't make TV shows," says Ted Ward, GEICO’s vice president of marketing. Ted please!!! Don’t go stuffed shirt on us now, we know you are dancing around in your caveman jammies laughing hysterically that you are the guy that actually approved Lawson’s wacky idea. If the caveman makes it past a pilot and actually gets picked up for 13 weeks we will have GEICO on the brain for the next 20 years. Good bye Aflac, I hated that duck anyway, what was the hook, Gilbert Gottfried in feathers? He is hard to take as a human, as a duck it just makes me want to eat more chicken, not call the 800 number.

What’s your hook? Before you start off down the long branding road, decide what differentiates you from your competition. What is the competitive advantage you bring that nobody else does? If you cannot think of one, maybe you should consider a different path in life. If you can come up with a few, how do you convey that edge to the market? Start with a hook. A hook promotes your franchise while you sleep, what could be better than that?