Hot Tot entrepreneur Meagan Gage invented a new line of children’s haircare products
Hot Tot Haircare Products
Hot Tot entrepreneur Megan Gage presented her new kids’ hair care products to the Sharks in episode 412 of Shark Tank. Megan created Hot Tot because she was concerned about potentially harmful chemicals and artificial fragrances in children’s haircare products. She set out to develop a children’s shampoo that was free of harsh chemicals.
Meagan Gage Pitches Hot Tot to Shark Tank
When Ms. Gage approached the Sharks, she had only been in business for 15 months. She only had $20,000 in sales. She was seeking $50,000 for a 15% share in the business. She made a deal with Mark Cuban, selling him $75,000 for 40% of the Hot Tot business. After making the deal with Mark Cuban, Ms. Gage used some of the money to perform clinical testing on her product and proved that it was hypoallergenic.
What about Hot Tot’s Patents?
Oddly the conversation about Hot Tot did not include a discussion of Ms. Gage’s patent portfolio. Any new (i.e., different) composition is potentially patentable. For haircare products, an inventor could pursue a patent for the composition of matter. Here is a video of Ms. Gage describing the Hot Tot invention.
According to Ms. Gage, Hot Tot filled an unmet needfor need for specialized styling options. Hot Tot is the onlyprofessional line formulated for the physical characteristics of children’s hair. The product is different from haircare products formulated for adults. Hot Tot uses a “unique combination” of highly effective natural ingredients. The product washes out of fine hair easily. Additionally, the Hot Tot line uses a unique “signature” fragrance inspired by the scent of cabbage patch doll. Lastly, the Hot Tot line provides products that are substantially free from a list of ingredients commonly found in other products.
According to the Hot Tot website, these are the shampoo’s ingredients:
Water, Disodium Lauryl Sulfosuccinate, Sodium Lauroamphohydroxypropylsulfonate, Cocamidopropyl Hydroxysultaine, Cocamide MIPA, Cocamidopropyl Betaine, Decyl Glucoside, Aloe Barbadensis (Aloe Vera Gel), Panthenol (Vitamin B-5), Glycerin, Camellia Sinensis (Green Tea) Leaf Extract, Methyl Gluceth-20, Oleth-10, Lactoperoxidase, Glucose Oxidase, Potassium Sorbate, Fragrance.
These ingredients were all known in the art at the time Ms. Gage made her invention. However, her finished products (the Hot Tot line) are new because they include new combinations of these compounds. Additionally, Hot Tot’s “signature fragrance” appears to distinguish it from other haircare products, offering another opportunity to distinguish the invention base on the fragrance.
The Shark Tank Season 5 premiere will be at 9 p.m. EDT Friday, Sept. 20, 2013. According to various blogs, the Shark Tank Season 5 premiere will provide unusual drama as Barbara Corcoran and Lori Greiner go head to head for the first time ever. Season 5 of Shark Tank will also give rise to an entire new season of Shark Tank patent issues. Entrepreneur Magazine recently discussed whether patents are overplayed on the show. We have also posted some comments addressing the common question of “Do I need a patent to go on Shark Tank?”
What patent issues might we see in the Shark Tank Season 5 Premiere?
Drama aside, the business ideas discussed on the Shark Tank Season 5 premiere will include the following:
Two entrepreneurs from Dallas, TX hope to bring a little sweetness to the masses with their savory cake balls. As we have discussed in some previous posts, an entrepreneur can pursue patent coverage for a truly unique food. Depending on how the food can be distinguished from those that come before it, the inventor could pursue flavor patents, method patents or claims directed to the composition of matter. To date, both the Sharks and entrepreneurs have overlooked these opportunities for gaining market exclusivity, so it is unlikely that patents will be discussed during this pitch.
Two entrepreneur doctors from Tucson, AZ, claim they have a social media cure for the traditional means for communication between patients and medical professionals. Here, the inventors appear to have created a new software invention and potentially a business method. The potential for patenting social media software should not be new to anyone. The movie The Social Network placed a heavy emphasis on claiming the patentable aspects of social networking inventions.
Two entrepreneurs from Firecrest, WA pitch their business for gourmet pickles. Just like the cake balls, this class of invention would probably fall into the composition of matter category. Notably, the entrepreneurs in this pitch assert that the pickles are made from a 100-year-old family recipe. Since only new (i.e., different) inventions can be patented, (an inventor must file a patent application within one year of first disclosing the invention), it is unlikely that these entrepreneurs will have many opportunities for patenting the pickles. See 35 USC 102.
An entrepreneur from Los Angeles, CA has invented a mobile postcard application that provides a new way to send a traditional postcard. A mobile application would likely fall in to the category of software patents, which are among the most frequently patented inventions in today’s world.
It will be interesting to see how Shark Tank Season 5 premiere unfolds. How many times will the Sharks ask what the propriety technology is? Or will Kevin O’Leary ask whether they can cut the entrepreneur out of the business—”Why do I need you?”
Entrepreneur Magazine Discusses Shark Tank’s Emphasis on Patents
Entrepreneur Discusses Shark Tank’s Emphasis on Patents
Entrepreneur Magazine recently published an article called 3 Lies You Heard on ‘Shark Tank’. In that article, Entrepreneur noted that “The sharks always say, ‘You need a patent.'” This is a fair point, the Sharks almost always ask about a startup’s patent portfolio. See Shark Tank and Patents. However, the author (Steven Key) contends that this overemphasizes the importance of patents for startup companies. Mr. Kay opines:
Naturally, it’s in [the Sharks] best interest to keep competition at bay. But in reality, the majority of products and services on the market today don’t have patent protection. Most of the time, if you have a good idea, I’d argue that speed to market and great customer service are much more important than patent protection.
Patents Provide the Entrepreneur with a Competitive Advantage.
Here, Mr. Key recognizes that a patent “keep[s] competition at bay.” Clearly, having a federally recognized exclusive right to sell your product provides a tremendous market advantage. With a patent you have a monopoly. Competing with another company over MSRP does not enter your business experience. For an entrepreneur or startup company, having the ability to fend off competition seems like a good thing.
Mr. Key seems to discount the value of a monopoly because “the majority of products… don’t have patent protection.” This logic suggests that a patent monopoly isn’t valuable simply because most companies do not have patents. This seems completely wrong. Scarce resources are more valuable—having a scarce resource would be an advantage. If a company’s competitors do not have a patent portfolio, having patents would provide a competitive advantage to the patent holder. Score one for patents.
An Entrepreneur Should Patent the Inventive Technology.
A careful reading of Mr. Key’s argument suggests that an entrepreneur should file patent applications protecting their technology. As discussed above, the patent holder receives a scarce and very powerful asset—the exclusive right to make, use, and sell the technology defined in the patent claims. The only disadvantage stated in the article appears to be a significant advantage—most companies don’t have a patent. Score another for patents.
Lastly, Mr. Key suggests that patents are overvalued for the following reason:
“If someone wants to try to rip your idea off, they will. But if you’ve established a powerful brand and supported it with outstanding customer service, they’re going to have a much more difficult time succeeding.”
Again, this point supports the conclusion that entrepreneurs should protect their ideas by filing a patent application. Mr. Key states that “if someone wants to try to rip your idea off, they will.” When “ripped off,” the patent holder has recourse. The patent holder can seek royalties from the “someone” who rips them off. Without a patent, the ripped off company has no recourse. Having a powerful brand or outstanding customer service would not provide a legal right to shut down your competitor’s business. Only the patent system provides this exclusive right. Score another for patents.
The Sharks like patents because patents are valuable.
As Mr. Key points out, “The sharks always say, ‘You need a patent.'” The Sharks most likely pay so much attention to patents because those patents are very important. Having a patent changes the company’s entire business by providing the right to exclude competitors from selling the product falling within the patent’s claims. The Sharks recognize how important patents are… so they ask about patents.
No. A contestant on Shark tank does not need a patent. But, it would be foolish to go on Shark Tank without at least filing a provisional application for your invention.
As we have discussed generally, the investors on ABC’s Shark Tank (“the Sharks”) place a strong emphasis on an inventor’s use of the patent system. See Shark Tank and Patents.
An inventor should file a provisional patent application before going on Shark Tank
An entrepreneur does not need a patent to go on Shark Tank.
ABC’s Shark Tank application process does not explicitly require that an applicant apply for a patent. The owner of a startup company can apply for a chance to pitch to the Sharks without a patent. But, an inventor hoping to do well on Shark Tank should give serious thought to using the patent system before going on the show.
An entrepreneur may need a patent to succeed on Shark Tank.
In almost every episode of Shark Tank, the entrepreneur faces the following question from the Sharks: Why do we need you? Unless the entrepreneur can provide some evidence of a proprietary technology, the unfortunately answer is: the Sharks do not need you.
By contrast, when an inventor or a startup can offer a proprietary technology, the Shark Tank investors pay close attention. Here are some articles discussing how the Sharks respond to inventors with patented (or patent pending) technology as opposed to inventors who did not file patent applications. Clearly, we support the position that an inventor should protect the invention so that others cannot steal it. But, some others, including Entrepreneur Magazine have come out on the other side.
SoundBender (red) clips onto iPad to direct (and amplify) sound to the user
In Season 4, Episode 13 of ABC’s Shark Tank, Rabbi Moshe Weiss pitched his SoundBender product to the Sharks. The “Soundbender” is a piece of curved plastic with a magnet. It clips onto an iPad (as shown) over the iPad’s speaker. Although it seems simple, this invention improves an iPad’s sound quality dramatically. (Normally the iPad’s speaker points away from the user).
The Soundbender very cleverly attaches (magnetically) to the iPad. It redirects (toward the user) the sound coming out of the iPad’s speaker.
The SoundBender greatly improves the sound quality experienced by the user. The sound becomes louder and more focused.
SoundBender’s Patent Protects Huge Margins
Rabbi Weiss makes each SoundBender for $1. He sells it retail for $12.99. He asked the Sharks for $54k for a 26% stake in his business.
Notably, Rabbi Weiss has a patent pending for the SoundBender. Were this not the case, the Sharks undoubtedly would have asked this question: Why can’t I just make it myself and drive you out of business?
Kevin views the patent as the single most valuable asset. He asks whether the Rabbi would consider licensing the patents and sending the manufacturing overseas. But Rabbi Weiss is not open to licensing, so Kevin is out.
Eventually, Rabbi Weiss partners with Daymond on account of Daymond’s marketing experience.
Notably, the only reason that Rabbi Weiss was able to discuss deals of this magnitude is because he filed a patent application before negotiating a deal. Without a patent application, the Sharks (like many others) would simply hire a contract manufacturer to produce the SoundBender independently.
In season one of Shark Tank, Erin Whalen and Tim Stansbury pitched their company, Grease Monkey Wipes. The duo formed Grease Monkey Wipes in response to problems cleaning road slime (grease) off of their hands during bike rides. Grease Monkey Wipes are single use cloths having a special citrus formula. The citrus formula cuts through grease and grime. Ordinary moist towelettes do not wash away grease. For example Wet-naps and baby wipes smear grease around but do not remove it from surfaces. Grease Monkey wipes solve this widespread problem by using all-natural citrus oils.
Grease Monkey Wipes Not Patented
About 2m and 45s into the episode (see below), the Sharks are clearly impressed with the technology. The product solves an existing need and it does so with an all natural solution. At this point, Ms. Whalen and Mr. Stansbury are well-positioned to strike it rich with their invention. However, the Sharks then ask about whether the company has protected the technology by filing a patent application.
At about 3m and 20s into the episode, Kevin O’Leary asks what would stop him from making a competing product. Specifically, he asks the following:
“is that patented?”
“is there any patent here?”
“what stops me from doing this?”
When the Grease Monkey team says “no,” the pitch falls apart. Kevin’s face drops. ABC’s production team cues the dramatic music. See 3m 35s – 3m 45s. Although Mr. Stansbury attempts to offer reasons for why they decided not to patent the invention as part of their business strategy, the Sharks are not impressed. Mr. Stansbury indicates that the company decided not to patent the invention for financial reasons and to keep the recipe secret. But Kevin O’Leary becomes visibly aggitated with these reasons. The photo below sums up how he responded to Grease Money Wipe’s “decision” not to patent the invention.
“My problem with this is the lack of proprietary content.”
After the Shark’s uncover the complete lack of patent protection, they start dropping out of the negotiations. They Sharks express concern with the fact that the invention can be easily “knocked off.”
Ultimately, the Grease Monkey Wipes team does get an investment. But, the investment is secured on strictly personal grounds. They Sharks stop treating Grease Monkey Wipes seriously and instead consider pity investments. They jab at one another, saying “look at that face.” Ultimately, the deal goes through based on Ms. Whalen’s repeated assurances that “I promise I won’t let you down.” (That’s not a great business reason).
The situation would have been completely different if the inventors had used the patent system to claim the invention. Properly protecting the invention would have eliminated all of Kevin O’Leary’s concerns about the company having no proprietary content. Securing patent protection would have protected the company from knock off products. In all likelihood, the two business partners would have received a much better deal if they had at least filed a provisional patent application.
In season 2 episode 7 of Shark Tank, inventor Jeff Stroope pitched his quick-connecting hose technology to the Sharks. Mr. Stroope conceived of the quick-connector while working as a fireman. His experience connecting hoses to fire hydrants taught him that the process was both time and labor intensive. Accordingly, he worked to “come up with a solution” to this problem. Mr. Stroope spent several years developing it. Now, the technology serves the basis for Mr. his company, HyConn LLC.
HyConn provides a faster way to connect hoses
According to Mr. Stroope, the HyConn technology is newand completely differentfrom existing technology. He notes that there is “nothing out there like it.” These words indicate that HyConn’s technology includes patentable technology.
To be patentable, an invention must be new and not obvious. See Graham. Mr. Stroope’s description of the HyConn technology indicates that it meets these criteria. Notably, he describes the HyConn technology as better than existing products, promising to”…revolutionize the way you provide water to the fire scene.” (If it were “obvious,” one would imagine that the technology would already be on the market, given these benefits).
HyConn’s Critical Patent Moment
The pivotal moment in the episode came when Mr. Stroope was asked this question: “Do you have a patent on that?” See embedded video below. After Mr. Stroope says that he does have a patent, the tone of the negotiations shift heavily in his favor. See 6m 35s into the episode below.
After Mr. Stroope discloses that he does have apatent,the Sharks begin competing to make a deal with him. Because Mr. Stroope had protected his invention, the Sharks were able to discus a variety of licensing deals and other opportunities for monetizing the invention. If Mr. Stroope had not claimed his invention, the negotiation very likely would have turned to questions of how the Sharks could simply cut him out of the loop, manufacturing the device by themselves.
For those interested in Mr. Stroope’s patent application, here is a link to the application on Google Patents: US 20100244435 A1.
Shark Tank’s season 1 episode 7 featured Sawyer Sparks and his Soy-Yer Dough invention. Soy-Yer Dough is a wheat-free soy-based play dough. The product provides an alternative to Play-Doh. Unlike Play-Doh, Soy-Yer Dough can be used by children who are allergic to wheat. (Approximately 1 in 8 children suffer from this allergy and can’t use Play-Doh).
Soy-Yer Dough’s Patents
Very early in the negotiation (2m 25s into the clip below), the Sharks begin to discuss the patents covering the Soy-Yer Dough product. This conversation highlights the importance of using the patent system. In this case, Mr. Sparks claimed his invention as a composition of matter, which is extremely powerful because it covers all uses of the composition.
Mr. Sparks notes that he has been courted by a variety of investors because they want his patent. He notes that Hasbro (the makers of Play-Doh) have contacted him multiples times because they want his patent. The Sharks are very interested in that patent. When Mr. Sparks discloses that his patent excludes all others from making, using, or selling his invention, Kevin O’Leary concludes that the situation is “outstanding.”
Because Mr. Sparks filed a patent application, the Sharks begin selling to him. The negotiation becomes a seller’s market. Mr. O’Leary boasts, “my whole business career is built around licensing properties.”
Notably, the above situation could have been completely different had Mr. Sparks not used the patent system. For example, HasBro (the makers of Play-Doh) could have simply made their own gluten-free children’s play dough. With Hasbro’s resources they would have easily pushed Mr. Sparks out of the market.
Mr. Sparks makes his Soy-Yer Dough product in his mom’s kitchen. Hasbro has a factories, distribution channels, and a full sales team. But, because Mr. Spark’s patent provides him with the right to exclude competitors from making his invention (as claimed in US 20110302887 A1), his negotiating position is completely different. Because he used the patent system, he will likely receive what he deserves for improving the children’s modeling clay space.
Soy-Yer Dough Patent Claim
Mr. Sparks’s patent claims:
1. A soy-based modeling product, comprising:
a quantity of water;
a quantity of a salt;
a quantity of an oil; and
a quantity of a flour;
wherein at least one of the oil and/or the flour is derived from soybeans.
Accordingly, in order for Hasbro to make a product falling within that claim, they must receive Mr. Sparks’s consent, either through purchasing the patent or by licensing it. Here, the critical limitation appears to be the inclusion of a soybean-derived flour.
The above scenario should be a lesson about chemical inventions. Using the patent system to protect the idea provides important protections against copyists. Here, it gives the true inventor the opportunity to benefit from his insight rather than being ripped off by a larger company with more resources. Good job Mr. Sparks.
Pink Shutter Photo Booths recently went on Shark Tank to pitch their photo booth company to the Sharks. See Shark Tank S04E24 Episode 425 (May 10th, 2013). This episode illustrates the importance of acquiring patent protection for a new and useful technology (here atleast a larger, more versatile photo booth).
Notably, the entrepreneurs get off to a good start by getting the Sharks interested in their product. Their financials also appear to be headed in the right direction. The company is profitable. They own all of their assets. They have no debt. But, then things take a turn for the worse. The Sharks inquire about patent-related features of the technology.
First, the Sharks ask about what makes the Pink Shutter Photo Booth different. See embedded video below at 2m 26s.
Notice how this question gets to the issue of what gives Pink Shutter a lasting advantage over their competition. Although Pink Shutter is enjoying success, the company has nothing to prevent competitors from entering the market and undercutting them. They have no property right. They have not ownership of their invention. This point is really driven home about a minute later, when Kevin O’Leary points out that Pink Shutter has nothing proprietary. See embedded video above at 3m 30s.
On account of Pink Shutter failing to protect their invention by drafting patent claims and filing a patent application, the Sharks immediately devalue the company. Ultimately, Pink Shutter does strike a deal. But the critics posting on their blog feel that it was not a good deal:
Man, I think you got screwed. 33% split three ways is going to be tough. Not to mention giving Groupon and Living Social up to 50% commission. In 5 years when you start to make your money back from the investments, the competition will be 10 times what it is now. The mom and pops photo booth companies run by one person will be able to make the same income as you guys because you are splitting your money too many ways. Just my opinion.
Lesson learned: if you have something new and better than the competition, keep it that way. Use the patent system to protect your invention.
The hit ABC television series Shark Tank has brought patents to the mainstream. In each episode of Shark Tank, small entrepreneurs pitch their businesses to a panel of five big time investors (the “Sharks”). The entrepreneur asks for an investment in exchange for a percentage of the business. Before investing, the Sharks ask an array of probing questions, aimed to uncover the risks and opportunities inherent to the business.
Shark Tank Illustrates the Importance of Patents for Start-ups
In practically every episode of Shark Tank, a Shark inquires about the entrepreneur’s patent protection. Here are a few examples of questions that probe the entrepreneur’s patent position:
“Why do I need you?”
“Why can’t I just go an make this myself?”
“Is there anything proprietary about your product?”
“What’s your secret sauce?”
These questions illustrate the importance of filing a patent application at the United States Patent and Trademark Office. Without claiming an invention as property by drafting patent claims and filing a patent application, the inventor risks being scooped. For example, a large investor could compete with the inventor (rather than investing). The large investor would probably win on account of having more resources. Accordingly, an inventor is well advised to protect the invention before disclosing it to anyone . . . especially savvy business people like the Sharks.
The Shark Tank Application Stresses the Importance of Patents
Shark Tank is a reality TV program. Notably, in 2012 “Shark Tank” received an Emmy nomination for Outstanding Reality Program and a nomination for a Critics’ Choice Television Award for Best Reality Series. As a reality TV program, the contestants are members of the public. Each contestant must submit an application, describing various aspects of the business. In the application for season 5 of Shark Tank, the “Application Packet” includes an entire section entitled “Intellectual Property Questionnaire”.
The Intellectual Property Questionnaire includes questions like these:
“Describe the circumstances surrounding how you conceived and developed your business.
Is your business in any way related to your past employment? If yes, please describe the relationship and provide a copy of the applicable employment agreement.
Is your business an improvement upon any current product, service and/or idea? If yes, please list the specific product(s), service(s) and/or idea(s) and how you have improved upon it/them or what differences exist between them.
Describe any third parties … that offer products or services similar to or competitive with your business, including the differences between them.
List any third party intellectual property (e.g., patent, trademarks and copyrights) that you are aware of that relate in any manner to your business or may otherwise impact your business.
Have any records or logs been kept with respect to your development of your business . . . inventor logbooks, etc?
Do you own or have you applied (or intend to apply) for any patents and/or copyright and/or trademark registrations in connection with you business? If so, explain (include filing date, application type (e.g., provisional/utility/ITU, etc.), application number, serial number, publication number, jurisdiction(s) filed in, assignments, status (pending, published, issued, expired, abandoned, etc.) and/or issued patent number/registration numbers, as applicable).
Are you the sole creator, inventor …?
Have any of the products or services ever been manufactured, offered for sale and/or marketed? If yes, please give details and dates….
Has a patentability search or a trademark or copyright search been performed and/or a legal opinion rendered in connection with your business? If yes, please provide the name of person/entity performing the search and/or rendering the opinion and the date of the service.
The above-listed questions emphasize how important intellectual property is to a start-up business. Each of these questions (especially the italicized terms) probes facts that are important to determining the strength of the inventor’s intellectual property. Often the inventor’s idea is the most valuable part of the start-up business. Accordingly, owning that idea should be a high priority.