Invention licensing is a formal agreement allowing a person or company the right to market and sell your idea, product or concept. This is usually done through a licensing agreement. These agreements can be structured in many ways but typically the inventor will receive a combination of up front payments and licensing royalties in compensation for the use of their idea.
There are three important things that inventors should know about licensing their invention.
reason these things are important to learn is to help manage the
expectations of inventors. Yes you can make a lot of money through
invention licensing. However nothing is ever as easy as it appears or as
others want it to appear.
There is a huge amount of misinformation in the world of inventing. A large percentage of it is intentional. 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. Be careful who you trust. Check out invention scams for more information on this topic.
The first thing to know as an inventor is that
invention licensing is the best way for the average inventor to make
money. Why is this so? The main reason is that licensing is simply
easier than starting and building a company. Licensing offers anyone who
has a great idea a way to get their product on the market. Notice that I
said a "great" idea. Your idea must be great if you are to interest a
company in licensing it.
Invention licensing allows inventors to focus on what they do best, conceiving and developing ideas. It is very difficult to manufacture, warehouse and sell a product. That is why licensing is the best fit for most inventors. You can approach a company that has manufacturing and a sales force ready to sell your product. This is a huge advantage over starting from scratch. The other thing that most licensee's will have that you likely do not is enough money to launch your product. Money is needed during all phases of bringing a product to market. It takes a lot of money to build and store enough inventory so it can be sold to the marketplace properly.
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 in my experience it is not only more difficult to do so but the
inventor will receive a much smaller piece of the pie.
The reason for this is that companies are always working hard to develop and bring their own ideas to market. Every company has only so much money to spend on new products. Many companies will not even look at an idea unless it is patent pending. There are many reasons for this but the main reason is they expect to get something that can be protected if they are going to invest in an idea. If they bring a product to market and have to pay an inventor they are at a disadvantage if one of their competitors decides to market a similar product.
There are exceptions to this rule. The main exception is when the inventor adds extra value to the idea by developing a brand or getting a trademark that can be registered. Other ways to add value would be to prove that there are customers willing to pay for the product. This is accomplished by going out and selling the product first.
Don't try to get paid all at once with hefty up front fees. It is always good to get an up front fee to offset some of the costs of developing the idea. However most companies are not willing to pay out huge up front fees. If you insist on it you may spoil the deal.
A better option is to get a smaller up front fee of maybe 1/3 of the anticipated first years royalties. Then take the rest of your compensation as product is sold on a royalty basis. This approach balances the risk that the company is taking to get your product to market while still giving the inventor a nice fee at the beginning of the process. The other benefit of this approach is that you may be able to negotiate a larger royalty percentage and make more money on the back end.
Always remember that you must create a win-win situation when licensing an idea. If the company has to spend too much money at the onset they may walk away from the deal or not have the capital to launch the product properly. Take the approach that you are partners and you will be more successful in the long run.
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