Licensing Your Invention or Product Idea
One of the most critical decisions that you as an inventor need to make is whether you should license your invention or sell the product yourself.
Should You License Your Invention Or Sell It Yourself?
In some ways the decision whether to try to license your product or make and sell it yourself is an easy one. You just need to answer the question, do you have the resources you need to make and sell your invention yourself?
The invention process is not a cheap one. If you simply have no money to invest in your product idea or almost no time to do all the work involved to personally manage if not personally handle all aspects of moving your invention forward, then making and selling your invention yourself is probably not a prudent or recommended course of action.
If you license your rights in your product idea to someone, you will need to share the money that your idea makes with your partner. But unless you have confidence that you can do everything you need to do to successfully launch and sell your product, getting a small percentage of sales of your product is better than getting nothing isn't it?
What Are The Key Things You Need To Know About Licensing Your Invention Idea
If you decide to license your invention, there are many things that you need to do to properly prepare yourself to successfully license your idea. As with all aspects of the invention process, your likelihood of succeeding is directly correlated with how much effort you put into preparing for and working on licensing your idea.
It Usually Requires Time And Money To License Your Product
One of the critical things you need to realize is that even to license a product and earn a royalty, it will take some of your time and money to do that successfully. You will in certain cases need to have some form of patent pending in order to discuss a potential agreement with a licensing partner. You will then need to find someone suitable to license your idea from you.
You can try to find a suitable licensing partner yourself or find a person or company to try to help you find a licensing partner. Although there are some folks who will work on a percentage basis, that is very rare. Most licensing specialists twill require you to pay fees in order to help you market your ideas and that expertise can be expensive.
There are many companies that represent that they can help you license your invention idea. They are often categorized as invention submission companies and invention promotion companies. BE VERY CAREFUL in dealing with such companies. Some of them are just interested in doing a minimal amount of work to justify earning your fee. They are not genuinely striving to find a suitable licensing partner for you. So in working with a licensing representative, be extremely cautious and make sure you conduct a thorough evaluation of the candidate company and their prior track record before signing any paperwork and working with them. Even highly respected and successful invention companies will have a low success ratio so make sure there are no indications that the company you are interested in working with is there to take your money and to not take your invention to market. (If you have not already done so, make sure to take a look at our information on Invention Frauds, Scams and Gotchas.
Even if you do most of the work yourself, you will need to pay for a decent lawyer to make sure that you are properly protected when you are dealing with potential partners.
Your Product Needs To Be Worth Licensing
Make sure you do the market analysis to make sure your product is unique and different and something people will buy. Do an extensive market analysis to make sure what you have to offer your licensing partner is compelling. Then, write up in a short presentation all of the reasons and factors that make your invention something worth licensing from you.
Of course, you also need to have gone through the necessary diligence with respect to patenting and the patent process for your invention idea.
You Probably Won't Get Rich Licensing Your Idea
Royalty rates for licensing your invention are not that high. It depends on a wide variety of factors including the product category, patent issues involved, and the value of the idea itself as to what type of royalty to expect.
So what do inventors get paid for their invention ideas? Usually, successful inventors get paid a licensing fee or royalty for the use of their invention idea from their licensing partner. Licensing fees generally range from a few thousand to a few hundreds of thousands of dollars. Royalty rates range from 1% for processed technology to about 10% for a patent with direct or significant market commercialization. The majority of the rates are between 3% and 6%, depending on net sales. And it is typical that in counting fees, any advance fees paid to the inventor will be deducted before additional royalties are paid. (Source: InventorSpot Forum)
The amount of licensing fee or royalty is determined on a case by case basis. It is usually determined and differs based on the type of technology, its stage of development, the size of the potential market, the profit margin for the anticipated product, the strength of the patents, the estimated dollar value that has led to the discovery, the projected cost of development needed to complete the product, the scope of the license (nonexclusive vs. exclusive; US vs. worldwide; narrow vs. multiple fields of use; etc.), royalty rates for similar products, and the expected cost of bringing the product to the market. (Source: InventorSpot Forum)
A company may take into consideration that the invention idea is not fully developed and thus requires further research and development before the idea is ready for the marketplace. If so, the licensing fee or royalties will be lower as it will be based on an increased level of risk involved.
How Do You Find A Good Licensing Partner For Your Invention Idea?
Unless you are very active and knowledgeable about the market for your invention idea, it will take many hours of research and quite a bit of luck to find a suitable licensing partner.
InventorSpot recommends that when you have an invention idea, go shopping!
Go to the type of store or other type of retailer that will likely sell your finished product and then look around for anything similar in some way to your idea. Look at who the manufacturer of those products, and collect that information to create a list of companies that could be potential licensing partners. Try to collect as many suitable names as you can since you will likely need to contact dozens of companies in order to find someone who may be interested in your invention. The go shopping on the internet. Look for anything that is in some way similar to your product, get information on it and get info on the manufacturer or distributor of the product.
Also look on online directories and listings of manufacturers that make items in the category that your new product will be in. Information about companies and what they manufacture can be found at the sites we have listed below. Info on inventor friendly companies for your area of interest can also be found by search on our site and other inventor sites as well as searching on LinkedIn.
What To Do To License Your Invention
When you have collected a suitable list, do a thorough internet search to find out everything you can about the potential candidate companies. We have an article that details out some of the information you should find out about your potential candidates on Licensing - The Good, the Bad and the Ugly.
Put together your selling piece to market your invention to potential licensing partner.
Contact the companies you are interested in and find out the process for submitting your ideas or who you need to contact to submit your ideas. (You can try calling and ask for the companies business development or licensing department.)
Make sure to understand their terms for handling intellectual property issues. Make sure you are properly protected. Make sure that you have a suitable Non-Disclosure or Confidentiality Agreement in place before disclosing details about your invention idea. (You can find samples of Non-Disclosure Agreements in our Legal Section.)
Submit your ideas.
While you are waiting for a response, move on to your next potential candidate partner.
Expect that you will have to reach out to many possible partners and that the possibility of a positive response is usually very low.
Make Sure You Get A Motivated Licensing Partner And A Strong Licensing Deal
If after all of your hard work, you are successful enough to find a partner for your invention, be careful to familiarize yourself with common negotiating hot points on a typical license agreement. You don't want to be greedy or unreasonable but you also want to make sure your licensing partner will deliver on your expectations and that you can get out of your licensing agreement if things don't work out.
Always make sure you have a satisfactory termination or escape clause otherwise you could end up with a contract that earns nothing and a partner that has blocked your invention from coming to market or having a product that dies in the marketplace.
We can't get into the details of the common pitfalls in licensing deals here but there are many. So study licensing like your future depends on it, as it does, and then unless you really know what you are doing, hire a licensing attorney to at least look over your licensing agreement before you start negotiating it and before you sign it.
Looking for more information on licensing your invention to a partner? Here's some resources for you to review:
LES - Licensing Executives Society- extensive resources and training for its members but there is an annual fee and to join, you need to have referrals for existing members. Good basic Q & Af or licensing is here .
Thomas Register of Manufacturers - Database for industrial information, products, services available at most libraries. This is a great list to look for potential licensees.
Companies Looking to License Inventions
InventorSpot.com Helpful Articles and Resources