LEARNING CURVE: McELROY CO. : One Size Fits All : Patience Pays Off for Lid Inventor
One day I was buying drinks at 7-Eleven and we went into the back room to find some lids. They had them in all different shapes and sizes, and I thought to myself, “There’s got to be a better way.” That’s when it hit me--a lid that could stretch to fit any size container!
I’m not an engineer, so I called some balloon manufacturers and explained what I had in mind. We created a prototype together. I was already running a mail-order business selling books about Hollywood, but this seemed very promising so I decided to get a patent.
U.S. law gives you one year from the date you first put your product up for sale. But I was anxious to protect my idea so I applied in 1988, the year I came up with the design. I got a patent attorney and brought him samples of my product. It took about a month to put the application together.
You have to convince the U.S. Patent [and Trademark] Office that your idea is novel and not obvious to a person of ordinary skill. They typically reject you several times and you have to clarify things many times until they are satisfied. I was rejected two times before the patent was finally awarded in 1990.
The application fees for the patents are in the $500 to $700 range, but that’s just a fraction of the total cost. By the time my first patent was approved, I had spent a total of $18,000, a lot of it on legal fees.
I also decided to apply for patents in Canada, Mexico, Europe, Japan and Australia. The general rule is that you have to file within one year of bringing your product to market or of filing for a patent in the U.S., whichever comes first. Some of them were just approved last year.
I hired a firm to do some focus group testing. It cost $10,000, but it had to be done. It proved that I wasn’t the only person who thought this lid was a good idea. I used the focus group results to sign up manufacturers and distributors.
After the initial meetings, the lawyers did almost everything. That gave me time to line up manufacturers and distributors to whom I could sell licenses. Now it’s my full-time business. I have 24 licensees, including five in the U.S. The lids have been selling in Asia for a couple of years, but they’re just starting to come out now in this country under the name Total Top.
My whole business depends entirely on royalty income from my licensees. I get a percentage of their gross sales, plus some upfront fees. My licensees collected $4.5 million in combined revenue on an annual basis, and I’m still signing up more.
Altogether I’ve spent almost $200,000 on patents in 20 countries. About 80% of that was in legal fees. It’s really expensive because you have to hire a firm in each of the countries where you apply, plus a translator. It all adds up.
Once you get the patent, you have to pay periodic maintenance fees. I couldn’t keep track of them all and run my business the same time, so my lawyer tells me when to pay and how much. They vary from $310 in Luxembourg to $651 in the Netherlands. In the U.S., the maintenance fee averages out to $175 per year.
The whole process was a lot more complicated than I thought it would be. Sometimes I was frustrated as hell, but I would still do it all over again.
On the patience required to get a patent . . .
“You have to clarify things many times until they are satisfied. I was rejected two times before the patent was finally awarded in 1990.”
On the cost of getting a patent . . .
“The application fees for the patents are in the $500 to $700 range, but . . . by the time my first patent was approved, I spent a total of $18,000, a lot of it on legal fees.”
On making money from a patent . . .
“My whole business depends entirely on royalty income from my licensees. I get a percentage of their gross sales, plus some upfront fees.”
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AT A GLANCE
Company: McElroy Co.
Owner: Steve McElroy
Location: Los Angeles
Nature of business: Licenses design for stretchable lids
Year founded: 1994
Number of employees: 7
Annual revenue: $400,000
