I my younger, dumber years I did a lot of these types of agreements. NONE of them ever worked out and the one that I did get commissions for I had to sue for.
BE VERY CAREFUL.
I would not do a fixed fee either cause even that is abused. They can keep making you do a ton of extra work and call meetings over and over again for no additional pay. In the end you may make less than the guy who picks your grapes in a field. Your time is valuable cause it’s other opportunities and paying work time lost.
If you discount, discount your hourly rate, not a fixed fee. Give them a good faith estimate but say it will be based on actual time spent in the end. Take a deposit to start, ideally 50% down and then run hourly rate. Collect money at milestones BEFORE handing over key deliverables like CAD files. No $ No CAD database. Be firm on this.
Say if you charged $100 per hour, you can say you will reduce the RATE to $50 - $75 or something like that in exchange for a percentage of NET SALES. Not NET PROFITS. A company can report no profits so don’t fall for that scam. Sales, on the other hand have a paper trail. Set the percantge against the price they actually invoice customers, again for a auditable paper trail. They have to be able to produce invoices and report that to the IRS. So say 5% of a $100 retail item is $5 bucks without the freight and taxes. Set when these payments are to be made, like quarterly, 30 days after the quarter, etc. Set a late penalty like 1.5% interest per month. Ask for a signed sales report be provided with each payment so you have written evidence should your investigations on actual sales reveal otherwise. This way they can’t wash over what they already stated in their statement later. Get EVERYTHING in writing.
Always protect yourself. You must think carefully about the assignment of IP rights. Do not willy nilly assign your inventions to them. If they did not contribute to the invention, do not let them be named as Co-Inventors on the patents cause they can really screw you if you aren’t careful. Recording assignments at the patent office are absolute and co-inventors can do anything they want without your permission unless you have conditions in place. One way is to record the patent assignment as a “Conditional Assignment.” where they retain rights to make and sell the intellectual property only if certain conditions are being met. So for example, if they stop paying royalties or lie about it and get caught, you can pull their license and right to use your patented ideas for proifit. Decide wheter the license is exclusive or if they have limited rights like they can only use, make, sell in certain countires or to a certain industry.
Put a clause where you can audit their books and set penalties, cure periodsetc. to keep them honest.
A real royalty agreement is very involved and is the domain of an attorney. I’d consider hiring one to draft the agreement if you can afford it. Otherwise you’re letting yourself be potentially taken advantage of.
Oh when hiring any patent attorney or attorney and if the client hires the attorney, make sure you are listed as a client and officially give / sign over teh Power of Attorney to the lawyer, otherwise he doesn’t have a fiduciary duty to serve your interests. A client can hire and attorney and use that attorney to screw you if you are not officially also a client of the attorney he found.
You can tell I’ve been thru a lot of crap so I hope you don’t get suckerd and learn the hard way.