A license to an Invention is a formal agreement allowing a person or company the right to market and sell your invention or product. The agreement can be structured in a variety of ways but typically the inventor will receive a combination of upfront payment(s) and licensing royalties in compensation for the use of their invention or product.
If you are thinking about licensing your invention, there are three important things you should know about licensing:
- Invention Licensing can be a great way for inventors to make money.
- Patents are required most of the time
- Don't expect to get rich immediately
Yes, you can make a lot of money through licensing your invention. However, nothing is ever as easy as it appears or as others want it to appear.
There are many companies that want inventors to believe that all they need is a good idea to make a fortune in the world of inventing, but before you go invest in an invention or patent, take a minute to learn what is involved in the licensing process.
The main reason licensing is enticing to inventors is that it is simply easier than starting and building a company. Licensing offers anyone who has a great invention a way to get their product on the market.
Licensing allows inventors to focus on what they do best, developing inventions. It can be difficult to manufacture, warehouse and sell a product, so licensing is the best fit for most inventors. Rather than start from scratch, you can approach a company that has money, manufacturing capabilities, and a sales force ready to sell your product.
Most of the time, a patent is required if you want to license your invention. Do some people license ideas that are not patent protected? Yes, but it is rare and difficult because you don't have any tangible asset to license and ideas are a dime a dozen.
Many companies will not even look at an invention unless it is patent pending because the companies want a competitive advantage for the invention before spending time and money to manufacture and sell the product.
The exception to the rule with patents can be if you already have a brand developed for the invention. Brands can be valuable when protected by a trademark and you can also license trademarks for a brand.
It Takes Time
Don't try to get paid all at once. It is always good to get an upfront payment to offset some of the costs of developing the invention, but most companies are not willing to pay a huge upfront payment.
Don't spoil a good deal by getting greedy. Get a smaller upfront fee (such as 1/3 of the anticipated first-year royalties) and then take the rest of your compensation as a royalty as the products are sold. This approach balances the risk that the company is taking to get your product to market while still giving you a nice payment at the beginning of the process.
* Remember to create a win-win situation when licensing an invention. If a company has to spend too much money at the onset, the company may walk away from the deal or not have the capital to launch the product properly.