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Category: Licensing

  • What is Patent Licensing? A Comprehensive Guide

    What is Patent Licensing? A Comprehensive Guide

    Patents are a form of intellectual property (IP) that grant inventors exclusive rights to make, use, and sell their inventions for a set period of time, typically 20 years from the patent filing date. Patent holders can choose to monetize and commercialize their patents in various ways. One common and lucrative option is to license the patent rights to another party, known as patent licensing. In this comprehensive guide, we’ll dive deep into what patent licensing entails, its benefits and risks, the different types of patent licensing agreements, key considerations when negotiating a deal, real-world examples, and more.

    Patent Licensing

    Patent licensing is the process by which a patent holder (the licensor) grants permission to another party (the licensee) to make, use, sell, offer to sell, and/or import a patented invention, usually in exchange for a fee or royalty. The licensor retains ownership of the patent. The licensee gains the right to practice the invention according to the terms outlined in a legal contract called a patent license agreement.

    Instead of the patent owner commercializing the invention itself, which requires significant investment in manufacturing, distribution, sales and marketing, patent licensing enables another party to shoulder those operational and financial responsibilities. The patent holder receives a revenue stream from the licensee, while the licensee gains the ability to leverage the patented technology for their own business interests.

    Why License a Patent?

    There are many strategic reasons that companies and individual inventors choose to license their patents:

    1. Monetization: Patent licensing can provide a lucrative income stream without the patent holder having to invest in commercializing the invention themselves. Royalties from successful products or technologies can add up to significant sums. According to a survey by the Licensing Executives Society (LES), the top 25% of their members’ licensing deals generate over $25 million annually in revenue.
    2. Faster route to market: Bringing a new product to market requires major upfront investment and lead time. By licensing a patent to an established company, the invention can be rolled out much faster and at scale using the licensee’s existing resources and distribution channels. In industries like pharmaceuticals, it often takes over a decade and billions of dollars to go from initial discovery to an approved drug. Licensing the technology to a big pharma company can accelerate commercialization.
    3. Risk mitigation: Commercializing an invention is inherently risky and expensive. With a licensing model, much of that risk is transferred to the licensee. The licensor receives guaranteed payments while the licensee bears the cost and risk of productization. Studies show that nearly 95% of patents never make money for the inventor directly. Licensing helps derisk the commercialization process for patent holders.
    4. Lack of resources: Many inventors, startups, and small companies lack the extensive financial resources, infrastructure, and expertise to bring a product to market on their own. Patent licensing allows them to tap into the resources of larger, established companies to commercialize their inventions. For example, a small medical device startup may have developed a groundbreaking new surgical tool, but lacks the sales force and industry connections to get it into hospitals. Licensing to a major supplier solves that problem.
    5. Accessing new markets: A patent holder may not have the capabilities, market penetration, or distribution channels to address certain industries or geographic markets. Licensing enables them to profit from the invention in markets they would otherwise be unable to serve. An electronics maker might license its technology to an auto parts manufacturer to integrate into vehicle subsystems. A U.S. company could license to an overseas company with an established presence in Asia.
    6. Maintaining focus: For companies with broad intellectual property portfolios, licensing non-core patents allows the business to maintain its strategic focus on core offerings while still drawing revenue from other assets. IBM is famous for generating over $1 billion annually from licensing patents outside its core business. This additional revenue stream funds further R&D in the company’s main areas of focus.
    7. Defensibility: Having an actively licensed patent can help prove its commercial value if the patent is challenged by competitors. Active licensing also helps protect against claims of patent non-use or abuse of monopoly power. In fast-moving technology areas, patent licensing is as much a defensive necessity as an offensive revenue driver. Companies with large patent portfolios often license to each other to prevent litigation.
    8. Technology transfer: In some cases, patent licensing is motivated less by direct revenue generation and more by the desire to broadly disseminate an important technology. Universities are prime examples. They frequently license patents to commercial entities to further development and societal deployment of their inventions. The COVID-19 pandemic spurred some companies to license IP related to vaccines and treatments on favorable terms to maximize accessibility.

    The Drawbacks and Risks of Patent Licensing

    While the potential benefits are significant, there are also notable drawbacks and risks associated with patent licensing that rights-holders must consider:

    • Loss of exclusivity: When an inventor licenses their patent, especially on a non-exclusive basis, they give up a degree of market exclusivity. Enabling competitors to also practice the invention might lead to price erosion and loss of market share. Exclusively is a key factor driving the value of patent license rights.
    • Dependence on licensee performance: Under most licensing deals, the bulk of the licensor’s compensation is tied to the commercial success of the licensee in selling products/services based on the patent. Lack of effort or disappointing sales by the licensee will directly impact the licensor’s returns. Milestone requirements and minimum royalties can mitigate but not eliminate this risk.
    • Enforcement challenges: With licensing, the responsibility to monitor infringement and enforce the patent typically remains with the licensor. But having an active licensee using the technology in the market can complicate both detection and enforcement of infringement by third parties. An outside infringer may counter that their allegedly infringing activity is actually authorized under the licensee’s rights.
    • Licensee instability: Over the lifetime of a patent, the financial stability, ownership structure, and strategic priorities of a licensee can shift significantly. A once-promising corporate partner could be acquired, go bankrupt, or pivot away from the market the licensed technology serves. Even with well-structured termination rights, having to unwind and transition a license is disruptive.
    • Antitrust concerns: In certain situations, patent licensing deals can raise red flags from an antitrust perspective. Exclusive licenses of critical patents, licensors controlling licensee pricing, mandatory package licensing, and preventing development of competitive technologies could all be seen as anticompetitive behavior. Active antitrust enforcement in the IP realm is on the rise globally.
    • Scope of rights: Careful drafting of the fields of use, territories, and exclusivity provisions in a patent license is critical. But ambiguous wording or unforeseen situations can lead to disputes over the scope of the licensee’s rights under the agreement. This is common when licensed technologies are integrated into new products the parties did not contemplate during negotiations.
    • Knowledge transfer: Teaching the licensee how to successfully practice the licensed invention often requires transferring a significant amount of technical know-how and trade secrets to the other party. While strong confidentiality and limited-use clauses in the license can help, policing the spread and potential leakage of this knowledge is difficult. Especially for manufacturing processes, this risk must be weighed carefully.
    • Valuation and pricing: Unlike tangible assets, patents and other intellectual property can be extremely difficult to value accurately. Forecasting the sales and profitability of products based on the invention is more art than science. This uncertainty makes it challenging to set fair upfront fees and royalty rates. Underpricing the license cheats the inventor, while overpricing may deter licensees.
    • Opportunity cost: Finally, patent holders should consider the opportunity cost of licensing compared to alternate commercialization options like developing the invention in-house or assigning the patent outright. Does the licensing income make up for forfeited product revenue? Will the license preclude you from other promising go-to-market channels? What if the licensee’s offering cannibalizes your existing products?

    Types of Patent License Agreements

    Not all patent license agreements are structured the same. The specific type of licensing deal depends on factors like the industry, the nature of the invention, the financial needs and goals of both parties, and the desired relationship between the parties. Common types of patent licensing agreements include:

    1. Exclusive license: The licensor grants exclusive rights to make, use, and sell the invention to a single licensee, typically within a defined field of use and/or geographic territory. The licensor cannot grant licenses to any other parties and may be restricted from practicing the patent itself. Exclusive licenses provide the most protection and potential upside for the licensee, but also carry the highest price tag and risk. They are common in the pharma industry where exclusivity is required to justify huge R&D investments.
    2. Non-exclusive license: The licensor can grant rights to make, use, and sell the invention to multiple licensees. The licensor also retains the right to practice the patent and to allow others to do so. Non-exclusive licenses are common with broadly applicable “building block” technologies used across an industry like semiconductors or software. They enable widespread adoption of the invention and a diverse revenue stream for the patent holder, but the non-exclusivity inherently limits the value of the license to any single licensee.
    3. Sole license: Less common than exclusive or non-exclusive licenses, a sole license gives the licensee exclusive rights to practice the patent, but the licensor also reserves the right to practice it. So there are only two parties with legal rights to use the invention – the licensee and the licensor. This approach gives the licensee strong exclusivity protection while allowing the licensor to continue internal development in parallel. However, the licensor’s retained rights can be a deal-breaker for some potential licensees seeking unfettered exclusivity.
    4. Cross-licensing: Two or more parties grant licenses to each other for IP rights they each own. This commonly occurs between companies holding complementary patents for related technologies. For example, in the semiconductor industry firms frequently cross-license overlapping patent portfolios to each other to enable freedom-to-operate without risk of litigation. Cross-licensing allows the participants to share technology, mitigate patent infringement risk, and foster collaborative innovation. But the interdependence it creates between parties can raise antitrust concerns.
    5. Sub-licensing: This type of agreement grants the licensee the right to “sub-license” patent rights to third parties. Those third parties would then owe royalties to the original licensee who would in turn pay some portion to the original licensor. Sub-licensing rights must be explicitly granted in the primary license agreement. They are most common when the nature of the technology inherently involves multi-tier supply chains and sales channels. The wireless SEP licensing world relies heavily on sub-licensing structures.
    6. Mandatory licensing: Some nations have laws that require patent holders to license certain types of inventions under “reasonable and non-discriminatory” (RAND) terms, often with government-imposed limits on royalty rates. This most commonly applies to “standard essential patents” that are required to implement key technologies like wireless communications standards. The policy intent is to foster widespread availability of critical technologies and prevent patent hold-up. But mandatory licensing significantly limits the negotiating power of patent holders.
    7. Package licensing: Rather than licensing a single patent, a package or portfolio license bundles together rights to multiple patents often covering different aspects of a technology. In some cases, licensees can select which specific patents in the portfolio they want to license. In others, the entire group of IP must be taken as a whole. Package licensing is common from academic institutions looking to license an entire suite of research in a particular field. But package licenses, especially with unwanted patents, can also raise tying concerns.
    8. Territorial licensing: Patent holders can split up the geographic territories in which they grant patent rights to the invention. For example, a company might retain rights to commercialize a technology itself in its home country but license the rights for all other international markets. Or an inventor could grant different exclusive licenses to separate entities in the U.S., Europe, and Asia. Territorial licensing allows patent holders to tap into licensees’ regional expertise and market access. However, contractual restrictions and monitoring are required to prevent parallel imports between the territories.
    9. Field-of-use licensing: Similar to territorial divisions, the field or application area where the licensee can practice the invention can also be limited. A patented algorithm might be licensed exclusively for use in self-driving vehicles to one company, and for medical imaging devices to another. Even with the same underlying technology, field-of-use licenses allow the patent holder to separately address distinct market opportunities. But careful definition of fields is required to prevent overlap and disputes.
    10. Duration licensing: Patent license rights can be granted for varying lengths of time, from a few years up to the full remaining statutory term of the patent. Licenses with shorter durations are sometimes used when the commercial lifecycle of the patented invention is expected to be brief, or the licensee only needs access for a limited product generation. Shorter-term licenses can also be used strategically to ramp up the royalty rates over time or to allow the patent holder to pivot its commercialization approach down the road.

    Key Terms in Patent License Agreements

    Every patent license agreement is unique, tailored to the specific deal circumstances and needs of the parties involved. However, there are some key terms and considerations that apply to most licensing deals:

    Licensed patents

    This may seem obvious, but a clear definition of exactly which patents are being licensed is crucial. Reference them by patent number, title, or a unique schedule. Ensure that the listed patents have not lapsed or expired. For pending applications, address contingencies and responsibilities in the event of allowance, office actions, abandonment, or appeals.

    Scope of license

    Clearly specify exactly what rights are being granted to the licensee. What activities are permitted – making, using, selling, offering to sell, importing? Are there any carve-outs or restrictions on certain applications or technical implementations of the invention? Ambiguity here is a recipe for future conflict.

    License vs. assignment

    A license grants usage rights while the licensor maintains ownership of the patent. An assignment, on the other hand, is a complete transfer of ownership to the assignee. Economically, an exclusive license can resemble an assignment, but the retention of title is a key legal distinction. Assignments are generally irrevocable while licenses can be terminated under certain conditions.

    Exclusivity

    The agreement must unambiguously state whether the license is exclusive, non-exclusive, sole, or subject to other licenses. If there are other licensees, or the potential for them in the future, the licensee will want to understand those dynamics. If the license is being granted within a limited field or geography, exactly how those boundaries are defined is crucial.

    Sublicensing

    Are sublicenses to third parties permitted under any circumstance? If so, the specific parameters and mechanics must be spelled out, typically including flow-down limitations and royalty responsibilities. If sublicensing is prohibited, the licensor may still want to permit limited sublicensing rights to the licensee’s subsidiaries or development partners.

    License fees and royalties

    Compensation structures for patent licenses can get complex. At the most basic level, the agreement should state any upfront fees, annual fees, and/or running royalties. Royalty calculations must specify the royalty rate, the royalty base (e.g. net sales or profits), reporting periods, and potential true-ups or offsets. Minimum annual royalties or fees are also common.

    Royalty stacking

    If the licensee’s commercialization of the invention requires licenses to additional third-party patents, the agreement may need to account for royalty stacking. A pre-determined royalty floor and ceiling keeps the total licensing royalty burden reasonable for the licensee while ensuring the licensor a minimum return.

    Milestone payments

    It’s common to tie certain lump-sum license fee payments to achievement of development, regulatory, or sales milestones by the licensee. This helps align the licensee’s performance incentives with the licensor’s financial interests. But milestones should be objective, measurable, and reasonably attainable to avoid future disputes.

    Payment terms and audits

    Don’t overlook the mundane but important details of exactly how and when payments will be made. Be sure to cover currency, invoicing mechanics, and timing of royalty reports and wire transfers. The licensor should also reserve the right to audit the licensee’s books to verify royalty calculations. For international deals, address withholding tax and VAT responsibilities.

    Term and termination

    How long will the license remain in effect? Usually, this is either a fixed period of years or until expiration of the last-to-expire licensed patent. Under what circumstances can either party terminate the agreement early? Typical examples include material breach, bankruptcy, failure to meet performance milestones, or failure to pay fees. Termination notice periods and cure periods should also be specified.

    Diligence obligations

    Most patent holders want their invention actually commercialized, not just sitting on a shelf. As such, it’s common to include certain diligence obligations or performance milestones that the licensee must meet to retain rights. These could include technical metrics like prototype development or clinical trial initiation, or commercial metrics like first sale or minimum annual sales.

    Representations and warranties

    Both parties usually make certain baseline representations in the contract. The licensor warrants that it has the authority to grant the license and that, to its knowledge, the licensed patent is valid and enforceable. The licensee warrants that it has the ability to perform its obligations. But both sides typically want the reps and warranties as limited as possible.

    Infringement procedures

    When a third party infringes the licensed patent, who has the first right and/or obligation to respond? Typically, the licensor retains this primary enforcement responsibility, with the licensee having certain notification and cooperation duties. The agreement should specify how any litigation costs and recoveries are split between the parties. In an exclusive license, the licensee may want the secondary right to sue infringers if the licensor declines to do so.

    Marking and attribution

    How and where must the licensee mark products with the applicable patent numbers? Will there be any press releases or other public announcements of the license by either party? To avoid future fights, the agreement should cover if and how the licensor’s name and patents are used in the licensee’s product literature, website, and other marketing materials.

    Improvements and grant-backs

    What happens to improvements to the patented invention made by the licensee? Do they automatically flow back to the licensor? Is the licensee required to formally “grant-back” an exclusive or non-exclusive license to the licensor under any improvement patents? There are a range of approaches here, but a carefully constructed grant-back provision is advised to promote continued innovation.

    Confidentiality

    Both parties are likely to exchange confidential technical and business information during the license negotiations and later in the commercialization process. The agreement should include mutual confidentiality obligations and spell out any exceptions like disclosures required by securities laws or court orders. Consider including liquidated financial penalties for violations to give the confidentiality terms real teeth.

    Disclaimer of warranties

    Licensors typically disclaim any warranties of merchantability or fitness of the invention for a particular purpose, and provide the IP rights on an “as is” basis. Similarly, the licensor usually dodges responsibility for the licensee’s product development and regulatory approval. These warranty disclaimers can be heavily negotiated and the specifics vary deal-to-deal.

    Limitation of liability

    The parties usually mutually waive any liability for consequential, incidental, punitive, or special damages arising out of the agreement. Statutory damages may also be waived. The licensee typically indemnifies the licensor for any third-party product liability claims related to their commercialization of the patented invention. Like warranty disclaimers, liability limits and indemnities are highly deal-specific.

    Insurance

    For exclusive licenses or high-risk technology areas, the licensor may require the licensee to maintain certain levels of commercial general liability, product liability, or IP defense insurance coverage. Universities are particularly sensitive about the insurance profile of their spinout licensees. Proof of insurance and policy renewal obligations need to be clearly expressed in the contract.

    Product quality control

    Nobody wants the licensed invention to be synonymous with shoddy products. To protect its own reputation, the licensor may reserve the right to establish certain quality standards, testing protocols, and periodic QC audits for the licensee’s products that incorporate the patented technology. This is especially common in trademark and brand licenses where consistent customer experience is paramount.

    Change of control

    What happens if the licensee gets acquired, sells off the business unit commercializing the licensed patent, or undergoes other ownership changes? An established licensor won’t want its patent rights flung far and wide without approval. Typical compromise language gives the licensor consent rights over assignment of the agreement, with that consent not to be unreasonably withheld.

    Governing law and disputes

    Last but not least, the governing law and dispute resolution provisions are key. Many licensors insist that their home state or country law governs interpretation of the contract. Arbitration is increasingly common to resolve licensing disputes, as it’s generally faster and cheaper than court litigation. But think carefully about the nuances – one or three arbitrators, administrator, venue, appellate rights, and the like.

    Proper attention to all these key terms, and a well-crafted patent license agreement, is key to a successful and rewarding licensing partnership for both parties.

    Negotiating a Patent Licensing Deal

    Like any business deal, negotiating a patent license agreement requires thorough preparation, strategic thinking, and a clear understanding of your priorities and expected outcomes. Below is a basic framework for approaching the patent licensing negotiation process:

    Determine your goals
    Before starting any substantive negotiations, the patent holder should define what they aim to achieve with the licensing deal. Is the primary objective a lucrative revenue stream, widespread adoption of the invention, a strategic partnership, or entry into new markets? This will shape your strategy and priorities. Establish your must-haves and nice-to-haves upfront to guide your approach.

    Assess the leverage
    Realistically evaluate how much negotiating power you have. The value of a patent depends on factors like its remaining term, breadth of claims, litigation history, adoption by industry standards, and availability of non-infringing alternatives. An honest assessment of your leverage will inform your negotiation posture. Aim high, but don’t over-estimate your position or you’ll sour the discussions.

    Understand the other side
    Research the potential licensee’s business, competitive landscape, and IP strategy. Try to understand their motivations for seeking a license and any time-pressure they may be under. Consider how the licensed technology fits into their product roadmap and its potential to create or disrupt revenue streams. True insight into the other side’s needs will help you craft win-win deal terms.

    Determine your walk-away
    Know the minimum deal terms you are willing to accept before walking away from the negotiation. This prevents you from agreeing to a sub-optimal deal in the heat of back-and-forth discussions. But remain flexible – as more information emerges, your acceptable outcomes may shift. Having a walk-away number in mind provides powerful clarity when the pressure is on.

    Listen and ask questions
    Enter negotiations with a curious mindset. Engage in active listening and ask open-ended questions to unearth the other side’s most important needs, concerns, and priorities. Understanding their position will help you craft win-win deal terms and solutions. Negotiations stall when both sides are simply waiting their turn to speak rather than genuinely striving to understand.

    Create and claim value
    Structure the licensing deal in a way that creates new value for both parties, not just carves up the existing pie. Brainstorm creative ways to grow the overall pot through joint technology development, co-marketing arrangements, access to broader IP portfolios, introductions to new customers, and the like. Prioritize the issues that are most important to you and trade off on those that aren’t.

    Present multiple options
    Rather than a single take-it-or-leave-it offer, propose a few different deal structures with an array of trade-offs. For example, pair a higher upfront payment with a lower royalty rate, or a longer license term with a larger guaranteed minimum. Providing optionality increases the odds of reaching a mutually agreeable middle ground. It also helps uncover which issues are most sensitive to the other side based on how they react to each package.

    Use objective criteria
    Frame your proposal in terms of objective metrics and industry standards as much as possible. Rather than arbitrary figures, royalty rates should be justified based on comparable transactions and accepted norms in the field. Tie diligence and performance milestones to quantifiable measures. By couching your positions in neutral, third-party terms you telegraph reasonableness and make it harder for the other side to dismiss out-of-hand.

    Involve legal counsel
    Patent licensing is an inherently legal process. Have your attorney review all drafts of the license agreement. Be wary of any terms that might create unintended obligations, consequences or precedents. But avoid over-lawyering straightforward clauses and negotiating against yourself. Let counsel advise, but don’t let them dictate the business points – you must own the final deal.

    Think long-term
    While hammering out the best possible deal now is important, consider the long-term relationship you want with the licensee. Punitive terms or one-sided conditions may sour the dynamic and make the licensee less collaborative or invested in the success of the patented technology over time. Approach the negotiation as the start of a partnership, not a zero-sum game where the winner takes all.

    Keep an open dialogue
    Maintain open and professional communication with the other side throughout the negotiation process, even if you disagree on certain points. If talks stall, don’t be afraid to suggest a break or change of scenery. Sometimes socializing in a more casual setting can break down barriers and lead to creative solutions. Most importantly, always follow up promptly and do what you said you’d do. Your integrity and credibility are priceless assets.

    Set clear post-signing expectations
    Once the deal is inked, clearly communicate your expectations and priorities to the licensee. Confirm the points of contact and issue escalation channels on both sides. Align on the cadence of royalty reporting and knowledge transfer. Patent license agreements are living documents that require ongoing care and feeding to reach their full collaborative potential. Don’t just sign and set aside.

    Real-World Patent Licensing Examples

    To get a concrete sense of how patent licensing plays out in practice, let’s look at a few real-world examples spanning several industries:

    Smartphone patent wars

    Over the last decade, major smartphone manufacturers like Apple, Samsung, Google, and Nokia have engaged in high-stakes patent licensing negotiations and litigation around fundamental communications technologies. In 2015, Nokia agreed to license its patents to Samsung for $2.6 billion. Competing for dominance in the smartphone arena, these big players both license and litigate standard-essential patents in a complex web of offensive and defensive moves.

    Pharma university tech transfer

    It’s common for pharmaceutical companies to license drug compounds and related technologies from university research labs and hospitals. For example, Pfizer licensed a novel nanoparticle drug delivery system from MIT and Brigham & Women’s Hospital. The deal involved upfront, milestone, and royalty payments, with part of the royalties flowing back to the inventors. Pharma companies tap into early-stage university R&D while institutions realize returns on federally-funded research.

    CRISPR patent dispute

    The revolutionary gene-editing technology CRISPR-Cas9 has been at the center of a long-running patent dispute. Key patents are held by UC Berkeley and the Broad Institute. In 2019, the Broad Institute granted an exclusive license to its CRISPR IP for the development of human therapeutics to Editas Medicine. Separately, UC Berkeley granted exclusive licenses in other fields like agriculture to multiple startups. However, overlapping claims and continuing patent interference proceedings make commercialization pathways uncertain for many would-be licensees.

    Tech cross-licensing

    To accelerate innovation and mitigate legal risks, major technology firms often engage in broad cross-licensing of each other’s patents. In 2014, Google and Samsung, leaders in the Android smartphone ecosystem, signed a global patent cross-license agreement covering both existing patents and new ones filed over the next 10 years. While exact terms are confidential, the companies can leverage each others’ innovations while reducing the threat of litigation.

    Lump-sum patent licensing

    Universities often prefer lump-sum patent licenses over long-term royalty deals. In 2007, Northwestern University sold part of its lucrative Lyrica pain drug patent rights to Royalty Pharma for a $700 million lump sum. The one-time cash injection funded new research programs without the risks and revenue volatility of annual royalties. Conversely, Royalty Pharma gained rights to a blockbuster drug franchise with sales of nearly $5 billion annually.

    Licensing for good

    In the early 2000s, the World Health Organization and the Gates Foundation pressed Yale University and Bristol-Myers Squibb to license their patent rights on key HIV drugs to the Medicines Patent Pool and generic manufacturers in Sub-Saharan Africa. The licenses, on a royalty-free basis, enabled the production of more affordable HIV drug cocktails in low-income countries. The Gates Foundation also required its grantees to outline global access strategies in any patent license agreements.

    From the garage to 3M

    In 2008, a North Carolina dentist named Richard Fields started experimenting with a nasal dilator device to help his patients breathe more easily. Constructed from simple materials like tongue depressors and rubber bands, Fields began offering free samples to pro athletes and patented his invention. Fields granted an exclusive license to manufacturing giant 3M to commercialize the device worldwide under the brand name Breathe Right, which 3M promoted heavily via infomercials and athlete endorsers.

    Kodak’s digital downfall

    Believe it or not, Kodak engineer Steve Sasson actually invented the digital camera back in 1975 and was issued patents in 1978. But Kodak failed to license the technology or to commercialize it internally, seeing it as a threat to its dominant film business. As late as 2004, Kodak was still banking on licensing revenue from instant camera patents rather than pivoting into digital. By 2012, Kodak was in bankruptcy, a victim of its own short-sighted licensing strategy. The company did, however, sell off its massive portfolio of imaging patents for $525 million to help cover its debts.

    Tesla tears up the patent playbook

    In a stark departure from typical patent licensing practices, Elon Musk made headlines in 2014 when he pledged that Tesla would not initiate patent lawsuits against anyone using its electric vehicle and battery technologies in good faith. Musk argued the move would help accelerate sustainable transport and electric vehicle adoption. While some competitors like Nissan and BMW have taken advantage of Tesla’s good-faith pledge, the traditional automakers have so far largely steered clear of the proposition.

    Microsoft’s Android end-run

    Microsoft has long licensed its patent portfolio, on royalty-bearing terms, to Android smartphone manufacturers. By 2013, analysts estimated Microsoft was bringing in nearly $2 billion per year from these Android licenses – more than it made from its own Windows Phone licenses. Microsoft shrewdly targeted Chinese smartphone makers who were eager to break into Western markets and could not risk a costly patent battle. It didn’t matter that Microsoft’s own mobile OS struggled; the company still came out ahead through Android licensing.

    Going forward

    In the realm of intellectual property monetization, patent licensing stands out as a strategic option that can generate significant revenue streams without the steep costs and risks of direct commercialization. By granting rights to make, use, and sell their patented inventions to other parties, patent holders can tap into new income sources, access broader distribution channels, and accelerate their innovations’ route to market.

    However, patent licensing is a complex endeavor. Structuring win-win deals requires a deep understanding of the competitive and technological landscape, command of industry norms and valuation metrics, and keen negotiation skills. Whether an exclusive license to a single mission-critical patent or a sprawling web of cross-licenses with industry peers, myriad legal and business factors shape each unique licensing scenario.

    From individual inventors to universities to Fortune 500 firms, entities across the economy are leveraging patent licensing to extract greater value from their intangible assets, form strategic partnerships, and foster open innovation. When approached thoughtfully, with sound counsel and clear alignment between business objectives and agreement terms, patent license deals can prove a powerful tool for IP rights-holders. As technology and globalization continue to expand the knowledge economy, expect patent licensing to only grow in prevalence and importance.

    Successful patent licensing demands rigorous IP portfolio management, market-attuned valuation practices, and artful drafting of agreement language. But with the right strategy and execution, the one-two punch of patents and licensing savvy can unlock new revenue, propel innovation, and secure companies a lasting edge in fiercely competitive global markets. For inventors and companies alike, patent licensing will remain an essential arrow in the IP quiver for decades to come.

  • The Inventor’s Guide to Bringing Your Invention Idea to Life

    The Inventor’s Guide to Bringing Your Invention Idea to Life

    Have a great invention idea but not sure where to start? You’re not alone. Many aspiring inventors have an exciting product concept but need guidance on how to take the next steps. This comprehensive guide provides expert tips and resources to help turn your invention idea into reality.

    Researching Your Invention Idea

    The first step is thoroughly researching your invention idea to make sure it is novel and hasn’t already been patented by someone else. Here’s how to research your idea:

    1. Search online databases: The United States Patent and Trademark Office (USPTO) has a searchable database where you can look for existing patents similar to your idea. Google Patents is another excellent resource to explore. Spend time carefully reviewing abstracts, claims, drawings and full specifications of relevant existing patents or published patent applications to determine if your idea is truly unique.

    When searching, think broadly about all potential variations of your idea, not just your specific design. Consider alternative uses, materials, manufacturing methods, and complementary products. The goal is to uncover anything that could be considered prior art and limit the scope of your potential patent.

    1. Check commercial availability: See if any products like yours already exist on the market. Search major retailer websites and online marketplaces like Amazon, eBay, Walmart, Target, and specialty stores related to your invention’s category. Browse catalogs, magazines, and trade show listings in your industry.

    If you find products that are identical to your idea or solve the same problem, even if the specific design differs, your invention may not be patentable. Commercial availability doesn’t automatically disqualify your idea, as you could potentially obtain a patent on an improvement to an existing product, but it does require careful analysis.

    1. Conduct market research: Investigate if there is consumer demand for a product like yours. You can create online surveys using tools like SurveyMonkey or Google Forms to gather feedback on your invention idea from your target market. Conduct focus groups or interviews with potential customers to gain insights.

    Analyze relevant keyword search data using tools like Google Keyword Planner to see how many people are searching for terms related to your invention or the problem it solves. Study industry reports, trade publications, and market research firms like Statista or IBISWorld to understand the competitive landscape, market size, and growth projections in your product category.

    1. Document everything: Keep detailed records of your research, including database searches, website links, photos, market data, and your own notes. Create a spreadsheet or document to organize your findings. If you work with a professional patent searcher, keep their reports.

    This documentation will be important for proving you did your due diligence in investigating the prior art before filing a patent application. It can help you make a strong case to patent examiners or potential licensees. Your notes may also spark new ideas for differentiating your invention.

    If your research confirms your idea is unique and marketable, you can move forward confidently in the invention process. But if you discover your invention already exists, don’t get discouraged. Consider how you could improve upon the existing product in an innovative way. There may be an opportunity to design something faster, cheaper, easier to use, more eco-friendly, or with enhanced features.

    Perhaps your invention could appeal to a slightly different target audience than current offerings. Maybe you could use higher quality materials, a sleeker design, or add a complementary accessory. With creativity and market insights, you may be able to take an initial idea that seems unoriginal and make it fresh and valuable.

    Protecting Your Invention Idea’s Intellectual Property

    Before publicly disclosing your invention idea in any way, it’s critical to protect your intellectual property. The U.S. has a “first to file” patent system, so you’ll want to secure a filing date as soon as possible. The main types of protection relevant to inventors are:

    1. Patents: A patent gives you the right to exclude others from making, using, selling or importing your invention for a set period of time, typically 20 years from the patent application filing date. It’s a powerful form of protection that can be used defensively to stop copycats or offensively to demand royalties from infringers.

    There are three main types of patents:

    • Utility patents for new processes, machines, manufactures, or compositions of matter, or improvements to existing inventions. This is the most common type for physical products. A utility patent must meet requirements for being novel (new), non-obvious (inventive step), and useful. You’ll need to describe how to make and use your invention so others could reproduce it.
    • Design patents for new, original, and ornamental designs. These protect the visual appearance of a manufactured item, such as the shape of a bottle or a graphical user interface. The design can’t be purely functional – it should have a decorative aspect.
    • Plant patents for newly invented or discovered asexually-reproduced plant varieties. The plant must be distinct, new, and non-obvious. Tuber-propagated plants and plants found in uncultivated states can’t be protected this way.

    Obtaining a patent is a complex process, but it typically starts with filing a provisional or non-provisional (regular) patent application with the USPTO. You can file a provisional application to establish an early priority date while continuing to develop your idea. This gives you “patent pending” status for 12 months while you evaluate the commercial potential.

    If you need more time to refine the design, test the market, pursue investors or find licensing partners, you can use this period to work out details before filing a non-provisional application. A provisional application has fewer formal requirements, but you’ll still need to describe your invention in enough detail that someone could make and use it.

    When you’re ready to file a non-provisional utility patent application, you’ll need to include:

    • An abstract summarizing the invention
    • Detailed background on the field of invention
    • Explanation of prior art and how your invention is different and better
    • Thorough description of the invention so others could make and use it
    • Precise drawings or photographs of the invention
    • One or more claims that define the scope of legal protection
    • Declaration of inventorship
    • Appropriate filing fees

    A patent examiner will review your application to make sure it meets all requirements and will conduct their own search for prior art. It’s common for patent applications to initially be rejected. You’ll have an opportunity to argue against the rejection or amend your application. The process from filing to receiving an issued patent can take several years.

    Many inventors work with a registered patent attorney or agent to help conduct a thorough patent search, determine which type of protection is most appropriate, and prepare a strong patent application with broad claims to maximize the coverage. Look for a practitioner with specific technical expertise in your field of invention. Organizations like the American Intellectual Property Law Association and USPTO can help you find a qualified patent professional in your area.

    1. Trademarks: A trademark is a word, phrase, symbol or logo used to identify the source of a product and distinguish it from competitors. By registering your trademark with the USPTO, you gain exclusive rights to use it nationwide with your product line. You can use the ® symbol once your mark is registered.

    Choosing a strong trademark from the start is important. It should be unique and memorable, yet also convey the key benefits of your product. Avoid generic or descriptive terms that others in your industry likely need to use. Think about how the mark will look on packaging and marketing materials.

    Before settling on a trademark, search the USPTO database for similar marks in your product category. You may also want to search domain name registries and common law sources like business directories to check for any unregistered trademarks that could conflict with yours. An attorney can help ensure your trademark doesn’t infringe on anyone else’s rights.

    1. Copyrights: While less common for physical inventions, copyright law can protect original artistic works like drawings, photographs, website copy, packaging designs, instructional manuals, and videos related to your invention. Copyright doesn’t protect ideas themselves, only original expressions.

    You automatically have copyright as soon as you create an original work and fix it in a tangible medium. Put the © symbol, your name, and the year on any copyrighted materials. You can also register your copyrights with the U.S. Copyright Office for stronger protection, including the right to sue for infringement and get statutory damages and attorney fees.

    1. Trade secrets: Any confidential business information that gives you an economic advantage over competitors can potentially be protected as a trade secret. Examples could include secret formulas, manufacturing techniques, business strategies, and customer lists.

    You don’t register trade secrets, but you do need to take reasonable precautions to keep the information secret. Use nondisclosure agreements before sharing sensitive info with employees, manufacturers and business partners. Restrict access on a need-to-know basis. Implement confidentiality policies and consider digital security measures.

    Deciding which types of IP protection you need is an important strategy question. Most inventors should at least consider filing a provisional or non-provisional patent application before any kind of public disclosure to preserve the opportunity for patent rights worldwide. Many countries require “absolute novelty,” meaning any public disclosure prior to filing a patent application could compromise your ability to get a patent in that country.

    But some inventors may want to rely primarily on trade secret protection, particularly if the invention is a process that can’t be reverse engineered. The recipe for Coca-Cola is the classic example of a trade secret that has been successfully kept under wraps for decades.

    You’ll also want to think about potential brand names and logos early so you can identify strong trademark candidates and file trademark applications around the same time as any patent application. It takes time to secure trademark rights, and you’ll want your brand protected before any product launch.

    Your IP protection strategy will depend on your specific invention, industry, and commercialization plans. Consulting with an intellectual property attorney can help you chart the best path forward. Just be sure to take steps to protect your valuable idea before showing it to anyone.

    Making a Prototype for your Invention Idea

    Developing a prototype is an essential step for demonstrating the functionality and marketability of your invention idea. A prototype brings your concept to life and provides something tangible to test, refine, and show potential licensees or investors. You should develop at least a basic prototype before filing a patent application, as you may uncover additional design innovations in the process.

    Here are some prototyping suggestions for inventors:

    1. Create a 3D model: Start by sketching your invention idea from multiple angles. Consider various configurations. Then turn your sketches into a three-dimensional computer model using computer-aided design (CAD) software. These schematic models don’t need to show every little detail, but they should illustrate all key components and how they fit together.

    3D modeling allows you to easily visualize your product from all sides and make quick design changes. You can use free browser-based apps like Tinkercad or Vectary for basic designs. More sophisticated CAD software options include AutoCAD, SolidWorks, and PTC Creo, which have free trials or maker editions for inventors.

    Once you have a 3D model, you can create photorealistic renderings or even animate it to demonstrate functionality. You can also get price quotes from manufacturers and use digital prototyping tools to assess the feasibility of your design with real-world physics.

    1. 3D print or handcraft an initial prototype: Use your 3D model to create an initial physical prototype using affordable materials and rapid prototyping techniques. 3D printing technology has revolutionized the inventing process, allowing you to quickly “print” a prototype in plastic or other materials based on your 3D design file.

    Many public libraries, universities, and maker spaces now offer access to 3D printers where you can create prototypes for a reasonable fee. You can also use online 3D printing services like Shapeways or Sculpteo, where you just upload your 3D model and get your 3D print shipped to you in a few days.

    If 3D printing isn’t necessary for your design, you may be able to create a basic prototype by hand using simple tools and materials from a hobby shop or hardware store. Moldable materials like clay, foam, wire, or popsicle sticks can help you physically construct a preliminary model. The key is to make something tangible that conveys your concept, even if it’s rough.

    At this stage, your prototype might not look exactly like a final manufactured product or work perfectly, and that’s okay. This is just a “proof of concept” model to test feasibility and function. Try to keep your initial prototyping costs low until you validate your idea, as you’ll likely go through multiple iterations.

    1. Test and refine: Put your physical prototype through its paces to identify any design flaws or areas for improvement. Assess whether the size, shape and features are user-friendly and if the components work smoothly together. Get feedback from trusted friends or colleagues on what works well and what could be better.

    Based on your testing, go back to your 3D model and make any necessary modifications to the design, materials or functionality. Then create an updated prototype and repeat the cycle of testing and refinement until you have a model that effectively demonstrates your vision.

    It’s better to identify and fix any issues at this early stage than to spend a lot of money on an expensive final prototype that doesn’t perform as intended. Don’t be afraid to pivot your design based on feedback and real-world testing. The prototyping process is meant to be fluid.

    1. Develop a presentation-ready prototype: Once you’ve finalized the core design and functionality, you’ll need to create a more polished prototype suitable for presenting to potential licensees, investors or customers. This model should closely resemble a final manufactured product in terms of materials, size, weight, color and finish.

    If your invention will require custom manufacturing, you’ll need to work with a professional prototyping firm to create a looks-like, works-like prototype that meets design tolerances. 3D printing can be used for presentation prototypes, but you may need to explore other rapid prototyping methods like CNC machining, vacuum casting, or injection molding, depending on your design.

    For electronic inventions, you may need to have printed circuit boards (PCBs) or other custom components manufactured and assembled. Online service bureaus like PCBWay or Tempo Automation can fabricate PCBs, while firms like Fictiv offer full-service rapid manufacturing of mechanical parts or assemblies.

    Appearance prototypes don’t necessarily need to have full functionality (think display models or props), but they should allow users to interact with the product and experience its key features. If your invention involves an app or software component, consider creating an interactive digital mockup to show alongside the physical prototype.

    Keep in mind that presentation prototypes can be expensive, so you’ll want to be judicious about how many you create and ensure your design is solid based on earlier testing. You may be able to get feedback on a basic prototype first before investing in a polished model.

    Throughout the prototyping process, make sure to keep detailed records of your efforts, including photos, videos, sketches, and notes on design changes and test results. Systematically organize your prototyping files. This documentation can be valuable for demonstrating the inventive process and showing the uniqueness of your design.

    You should also include photos or drawings of your prototype in your patent application to give a clear visual representation of your invention. Be sure to add any refined design elements, features or functionalities to your provisional or non-provisional patent application to ensure you get proper protection. Update your 3D model for manufacturing based on your finalized prototype.

    While developing a prototype takes time, it’s an integral part of the product development process for most invention ideas. Embrace the opportunity to experiment and perfect your vision. A strong prototype proves the real-world value of your idea and gets prospective business partners excited about the market potential.

    Licensing vs. Starting a Business

    After you’ve developed a polished prototype and secured appropriate intellectual property protection, you have two main options for commercializing your invention:

    1. License your idea to an established company in exchange for royalties on sales
    2. Produce and sell the product yourself by launching your own business

    There are pros and cons to each approach. Licensing can be a simpler, lower-risk path for individual inventors, while starting a business offers more control and potentially greater financial rewards if your product takes off. You’ll need to weigh various factors to decide the best route for your specific situation.

    Advantages of licensing for inventors include:

    1. Leveraging an existing company’s resources and expertise: Licensing your invention to an established manufacturer in your industry allows you to tap into their production facilities, distribution networks, sales force, and customer base. They have the infrastructure in place to produce your product at scale, get it to market quickly, and support a national sales effort.
    2. Lower cost and risk for you: The licensee company assumes the financial risk and heavy lifting of commercializing your product, including the costs of final production prototyping, tooling, packaging design, safety certifications, and marketing. This is helpful if you have limited funds to invest or are risk-averse.

    You’ll typically receive an upfront payment when signing the licensing agreement and then ongoing royalty checks based on a percentage of wholesale price. Royalty rates can range from 2-10%+ depending on the industry and the exclusivity of the agreement. With this model, you have no outof-pocket manufacturing or marketing costs, and you’ll see a return on your invention much faster than starting from scratch.

    1. Proven experience bringing new products to market: Established companies have already navigated the new product development process many times. They know how to optimize a product design for efficient, cost-effective manufacturing. They have longstanding relationships with raw materials suppliers and understand the logistics of inventory management and order fulfillment.

    The licensee will also know how to price and position your product strategically within their existing product lines. They can feature your invention in their catalogs, websites, trade show booths and media outreach to get it in front of buyers. You get to piggyback on their reputational capital and marketing muscle.

    1. Freedom to focus on what you love – inventing: Licensing lets you be the “idea person” and hands off the time-consuming details of running a business to someone else. You can get your product to market without the years of hard work involved in building your own company. Instead, you can move on to your next great invention while collecting passive royalty income.

    The potential drawbacks of licensing include:

    1. Loss of control over your invention: When you license your invention, you give up a significant degree of control over how it’s manufactured, marketed and sold. The licensee company will make the final decisions on product design, pricing, packaging, distribution, and promotion. They may make changes to your original vision without your input.

    You’ll also have no control over the company’s commitment to your invention in terms of sales and marketing resources allocated. If your product isn’t an immediate hit, they may lose interest and put their efforts elsewhere. Your royalty payments are entirely dependent on their success.

    1. Difficult to find the right licensing partner: Identifying companies that are a good fit to license your invention takes time and persistence. You need to find businesses with the right manufacturing capabilities and an existing customer base that aligns with your target market. They should have experience selling products at the right price point through relevant retail channels.

    Not all companies are open to receiving invention idea pitches from independent inventors. Many prefer to develop new products in-house. Those that do take outside submissions are often inundated with proposals. You’ll face stiff competition and will need a compelling pitch to cut through the noise.

    You may need to approach dozens of potential licensees before finding one that’s interested. It requires thick skin to deal with rejection. If your idea is too niche or doesn’t have mass market appeal, it may not attract any licensees.

    1. Upfront research, prototyping and patenting costs: While licensing allows you to avoid the expense of manufacturing and marketing your invention yourself, you’ll still need to invest time and money upfront to develop a viable licensing opportunity.

    Prior art searching, prototyping, and obtaining a patent or other intellectual property protection can cost thousands of dollars. If your invention is especially complex, you may need to hire professional design engineers and prototyping firms to create a licensing-ready design. A typical licensing deal may not be lucrative enough to recoup these costs.

    1. Disputes over royalties and licensing terms: Licensing agreements can be complex legal contracts. You’ll need to negotiate the specific terms, including the royalty rate, exclusivity, geographic territory, duration of the agreement, and performance benchmarks. The licensee’s interests won’t always align with yours.

    It’s common for inventors to feel they’re not being fairly compensated. If sales take off, the company may try to renegotiate more favorable terms. You’ll need to carefully track your royalty payments and possibly audit the licensee’s records to ensure accuracy. If there are any disputes, you may need to hire an attorney to interpret the contract and protect your rights.

    If you’re willing to navigate these challenges, licensing can still be a worthwhile strategy for commercializing your invention without the heavy lifting of manufacturing and selling it yourself. But if you’re excited by the idea of building a business around your invention and have the risk tolerance to go for it, entrepreneurship may be appealing.

    Advantages of starting your own business include:

    1. Maintain control of your invention: As the founder, you get to bring your exact vision for your invention to life, from product design to packaging to marketing. You can experiment to find the perfect market fit. If you want to add features, explore line extensions, or pivot the positioning, you can.

    With your own company, you also control your level of commitment to your invention. You get to decide how much to invest in development, manufacturing and marketing. You’re not at the mercy of someone else’s budget and priorities.

    1. Build a company and valuable intellectual property: Starting a company around your invention allows you to build something of lasting value. As you grow sales and market share, your business becomes a sellable asset that likely exceeds the value of your original invention.

    You may be able to expand your intellectual property portfolio by filing additional patents on refinements to your original invention or developing a family of products. Trademarks associated with your brand will also accumulate value over time.

    1. Potential for significant financial upside: While starting your own product-based business requires significant upfront investment, the payoff can be substantial if you’re successful. As the owner, you keep all the profits.

    If you’re able to scale effectively and capture a loyal customer base, your invention could generate a lucrative ongoing income stream. You could expand into new markets or sell the company down the road for a major windfall.

    1. Sense of accomplishment in seeing your invention through: There’s a deep sense of pride and fulfillment that comes with shepherding your own invention from initial concept through a successful product launch. You get to see your solution making a difference in customers’ lives.

    Tackling the diverse challenges of running your own business and learning new skills along the way can be immensely rewarding on a personal level. Knowing you built something from the ground up is the dream of many inventors.

    Disadvantages of starting your own invention-based business include:

    1. Significant costs and financial risk: Launching a new physical product and scaling manufacturing is capital-intensive. You’ll need to fund final production prototyping, tooling, inventory, packaging, fulfillment, and marketing. If you’re not able to bootstrap, you may need to line up angel investors or take out small business loans.

    Carrying inventory ties up precious cash. Forecasting demand is difficult for a new product, and storing and managing inventory can be costly. There’s always the risk that your product won’t sell as well as projected, leaving you with excess stock. If you have to pivot your design, you may need to write off that inventory.

    1. Lack of established manufacturing and distribution infrastructure: As a startup, you won’t have longstanding relationships with suppliers and retailers. You’ll be starting from scratch to source cost-effective, reliable raw materials and contract manufacturers. Negotiating price breaks on small early production runs can be difficult.

    Getting distribution for a brand new product is also challenging. Many retailers prefer to buy from known brands with a proven track record. You’ll need to convince them to take a chance on your unproven product. They may expect you to spend heavily on marketing to create consumer demand. If you sell online, you’ll need to drive your own website traffic and reviews.

    1. Responsibility for all aspects of the business: When you start your own company, you wear all the hats. In addition to perfecting your product, you’ll need to tackle manufacturing, packaging design, pricing strategy, sales, marketing, customer service, bookkeeping and more. It’s a steep learning curve.

    You may not have the expertise in-house to handle every business function well. You’ll likely need to recruit talented team members and give up some equity or control. Overhead expenses like salaries, facilities and insurance add up quickly.

    The time commitment of running your own company can be all-consuming, with long days and sleepless nights. Work-life balance may be elusive in the early years. There’s constant pressure to manage cash flow, grow sales and scale smartly.

    1. High risk of failure for new consumer products: Competition for shelf space and consumer attention is fierce. Retailers and customers have abundant choices. Even with a great invention, cutting through the clutter is difficult.

    According to HBR, about 75% of consumer packaged goods and retail products fail to earn even $7.5 million during their first year. Harvard Business School professor Clayton Christensen found that each year over 30,000 new consumer products are launched and 80% of them fail.

    Common reasons new products fail include underestimating costs, setting prices too low, targeting the wrong market, and lack of product-market fit. Even great ideas can flop due to poor execution, insufficient marketing or bad timing.

    Beating the odds requires an exceptional product, a compelling unique selling proposition and solid business fundamentals. You’ll need the humility to learn from your mistakes and pivot when necessary. Resilience is key.

    The choice between licensing your invention and starting your own business depends on your invention’s market potential, your appetite for risk, available capital, and your desired level of involvement in the commercialization process. If your goal is to get your invention to market as quickly as possible while minimizing your own financial exposure and time commitment, licensing may be the best bet.

    But if you have experience in business, access to funding, and are energized by the idea of entrepreneurship, launching your own startup could be an exciting challenge. You’ll have the opportunity to bring your complete vision to life and reap the rewards if you succeed. Some inventors do both – they license their inventions for certain applications or territories while building their own companies to produce and sell the products directly in others.

    You don’t necessarily need to decide right away. You can file a provisional patent application to protect your invention idea, develop a compelling prototype and test the market. You can simultaneously pitch potential licensees while also conducting your own customer research and refining your business plan. The further along you get in the product development process, the more you’ll know which path makes sense.

    Just be sure to set a deadline for making a decision so you don’t get stuck in limbo. If you’re leaning towards licensing but aren’t able to land a deal within 9-12 months of active pitching, it may be time to shift gears. On the other hand, if you’re excited to start a business but your market testing reveals major flaws in the product-market fit, you may want to pursue licensing instead.

    Whichever route you choose, stay flexible and open-minded. Setbacks and pivots are common in the invention commercialization process. Your product may evolve and find markets you didn’t initially envision. The key is to keep learning, iterating and charging forward.

    Here are some additional tips for inventors navigating the idea-to-market journey:

    1. Get objective feedback early and often: It’s easy to fall in love with your own invention and assume others will too. But you need to make sure you’re solving a real problem for a specific market. Run your idea by people in your target demographic to gauge their interest level.

    You can use online surveys, consumer focus groups, or one-on-one interviews to gather input. Be sure to show them your prototype and pricing estimates to get a true response. Take the feedback seriously and look for ways to refine your design to better meet customer needs.

    1. Vet potential licensees and business partners carefully: Whether you decide to license your invention or outsource parts of your own product development process to third-party firms, choose your partners wisely. Make sure they are reputable, financially stable, and have deep industry experience.

    Ask for references and talk to other inventors or entrepreneurs they’ve worked with to understand their business practices and integrity. It’s essential to find partners you can trust and who share your vision.

    Consult with an attorney to ensure any agreements you sign, such as licensing contracts or manufacturing agreements, are in your best interests. Watch out for companies that charge large upfront fees with vague assurances.

    1. Connect with other inventors and entrepreneurs for support: Inventing and running a business can be lonely endeavors. It helps to find others who understand what you’re going through. Consider joining local inventor clubs, attending industry trade shows or participating in startup events.

    You can find valuable mentors who can share insights from their own experiences, saving you costly mistakes. You may even meet potential investors or partners. Commiserate over the struggles and celebrate the victories together. Having a strong support network is invaluable for staying motivated.

    1. Keep inventing and protecting new ideas: Successful inventors are always working on their next great idea. While you’re focused on taking one invention to market, keep track of all the product innovations and improvements you conceive during the development process.

    Conduct further market research on overlapping opportunities and consumer pain points that emerge as you dig deeper into the buyer personas for your initial product. Use slow times in one idea’s lifecycle to flesh out concepts for your new project.

    Be sure to keep detailed documentation of each new idea and file provisional patent applications as appropriate to preserve your intellectual property. Treat your creative output as a valued business asset to be strategically managed and monetized over time.

    Bringing an invention to market is exhilarating, but there will be peaks and valleys on the journey. Remain persistent in your vision and learn to embrace the obstacles as an inevitable part of the process. Take pride in your resourcefulness and ingenuity to solve problems creatively and keep moving forward. Trust that the path is leading you to where you’re meant to go.

    There will likely be moments when you doubt yourself and want to give up, but remember your original inspiration and let your passion fuel you. Small wins along the way are energizing, so celebrate each milestone. Believe in the value you’re creating for future customers and let that conviction shine through in your consumer research interactions, investor pitches, and marketing efforts. Authenticity and commitment attract believers.

    Embrace the unknown and get comfortable being uncomfortable. The invention process is ambiguous and unpredictable by nature. You’re creating something new that the world hasn’t seen before. There is no step-by-step roadmap that can eliminate the inherent uncertainty. Have faith in your ability to navigate the challenges as they arise.

    If your first attempt doesn’t work out, learn everything you can from it and try again with a new and improved approach. Failure is a teacher that propels you to a better solution. Pivoting isn’t a weakness; it’s a strategic strength that helps you iterate towards the optimal market fit for your invention.

    Remember that perfection is the enemy of progress in the invention world. Don’t get so caught up in trying to perfect your design that you never put it out there for feedback. Charge ahead when you have a concept that’s around 80% there and then rely on consumer insights to guide you the rest of the way.

    Stay nimble and open to surprises. You may discover an entirely new application for your core technology or a niche market that’s a better target than your original plan. Follow the unmet needs and be willing to evolve your invention’s positioning to capitalize on the ripest opportunities.

    Most importantly, enjoy the ride. The invention journey is rife with mishaps and misadventures. Learn to appreciate the crazy twists and tumbles for the growth opportunities they provide. Cultivate a wry sense of humor. Know that each dead end is actually new information you can use to optimize the next experiment.

    See the entire process as a grand adventure into uncharted territory, an odyssey of the mind that few have the courage to attempt. Simply by endeavoring to bring something novel into existence, you’re exercising your creative abilities in rare air. You’re expanding what’s possible and nudging humanity forward, one idea at a time.

    Revel in the magic of holding your first prototype in your hands, imagining all those whose lives could change if your vision makes it to market. Reflect on how much you’ve evolved as a person through the rigors of the inventor’s path. Treasure the lessons, relationships and self-discoveries as much as any fame or fortune your invention may bring. The true rewards are who you become and what you contribute on the journey itself.

    The world needs more inventive minds like yours willing to believe in ideas and do the work to bring them to life. Whether your invention changes one life or millions, the insights you gain will make you a wiser, more compassionate and resilient human being. Trust that the inventing skills and entrepreneurial know-how you’re developing will serve you well wherever your creative journey takes you next. The future belongs to the innovators.

  • How to Sell an Idea to a Company

    How to Sell an Idea to a Company

    In this article I’ll talk about how to sell an idea to a company. I just want to provide you with a disclaimer upfront: it’s not easy, and sometimes it’s best to have a professional invention company work on your behalf (that’s why I offer a free invention kit on the right to budding inventors to help them professionalize their offering).

    Ok, so now that you know it’s not a walk in the park, let’s get on with it. Like most things that lead to success, it’s best to follow a methodical approach.

    1. Is it unique or protectable?

    Firstly, let’s distinguish between an’ idea’ and an ‘invention’.

    Idea

    If the idea that you want to sell to a company is a new feature for a website, a better way for an existing product to function, or a scenario for an advertisement, it clearly falls into the ‘idea’ space. This means that it may not be patentable or protectable. In saying that, have a look at our feature on patenting an idea. Much of the time you may not wish to spend too much money on protecting it if you come to the conclusion that it is not something that can effectively be patented or protected in some form.

    Invention

    If your idea is a new kind of product, a new process or a new technology, then it falls into the ‘invention’ space. This means that you may need to consider protecting it in the form of a patent. The first place to start is doing a free patent search. You can then look at doing a provisional patent application and going down a process to protect it before you try and sell it to a company.

    2. The Market

    The next step would be to get a better understanding of the market for your idea or innovation. Do some research online to see what else is out there (you may have done this already), go to shops in a similar space and speak to sales consultants, or just consult with family, friends or co-workers about your idea.

    Talk to people. Sometimes it’s best to be open about things and not too cagey, but you can judge for yourself. See what the feedback is for your idea.

    This market research will be really valuable and can help you tweak your idea, or provide you with some questions that need answers, or give you the boost you need to take your idea to a company. Sometimes it will open up new ideas in your mind, or someone will suggest something seemingly obvious that you didn’t think of. Be psychologically prepared: your idea may be criticized or put down. Listen to the criticism, but in the end it’s up to you whether to dismiss it or to incorporate some of the feedback into your idea.

    Also try and find out the potential size of the market for your idea. If it’s a niche market, try work out how big it is. Is it a product that could only work in the USA, or does it have potential to go international? Is it limited to one category, or could it be expanded into new ones? In doing this research, be realistic. Don’t assume that since the market you are targeting is a billion-dollar market, that you’ve suddenly got a billion dollar idea, or that it will be easy to capture even 1% of that market. Do your sums.

    3. Sourcing and Manufacturing

    If your idea is a tangible ‘real-world’ product, then it is going to have to be produced. Before you step into potentially difficult meetings with the companies to whom you will be trying to sell the idea, it will really help for you to be prepared. Research how your product is made, what materials are used, what processes are involved. What are the costs of the raw materials, and where are they sourced? Is your product something that could be manufactured locally, or will it need to be manufactured in China? Obvious questions but you’ll be surprised how often this is overlooked. If you can, do some kind of cost analysis based on quantities of production, and quantities of scale. When you do finally step into the meeting, you’ll be well prepared to answer some of the questions the may have. It will also place you in a much better negotiating position,

    And don’t worry too much if you don’t have ‘perfect’ information (the company you are selling the idea to will probably have much more market data than you), but have enough information at your disposal so that it’s obvious you have done your homework.

    4. Research the Right Companies

    The web is your best friend here. You’ll be able to find, through Google searches most likely, target companies. Search for products in your idea’s niche, and see who manufactures them. Try find out who the parent company is of one of the companies you are researching, see how the companies are connected, and look out for who heads product development, research, or strategy. Go onto LinkedIn and see if you have any connections to these people. If not, just phone the company up and ask who is the person responsible for new ideas and development, and you’ll often be directed to the right person that way.

    5. Presentation

    It is very important that you are well-prepared for your meeting. Be sure to have some kind of presentation, whether it be Powerpoint slides, or designs that you hand out, or even a prototype. The more tangible you can show your idea, the more likely you are to sell your idea to a company . Watch Shark Tank on Youtube to see which presentation techniques work and which don’t.

    6. Stamina

    Be prepared to be rejected 9 times out of 10. Don’t walk into the first meeting thinking you are going to walk out a millionaire. It is going to take a lot of hard work and persistence to making this idea work for you.

    7. Negotiation

    If you’ve got to the point where a company is interested in buying your idea, you will need to have an idea of what kind of compensation you are looking for. This is probably a good point to bring in a lawyer or a invention advisory company to help you out, but generally your two options are:

    a. An upfront one-off payment: here you will get a once-off fee for your idea. In some cases, if you are offered this, grab it. In others you may wish to be a but more pushy in getting a better longer lasting deal.

    b. Royalties: sometimes this can be the best deal. You get a percentage (either for life or for a period of time), often a very low percentage such as 1-3%, of the wholesale price of each unit.

    Other factors you will need to consider is that the purchasing company often wants some kind of exclusivity over your idea locally or globally.

    How to Sell an Idea to a Company: Conclusion

    This very broad and brief overview should give you some idea of how to sell an idea to a company. I recommend you also consider the invention kit on the right hand side, which will provide you with further information.

     

     

     

     

     

  • Patent Licensing: How To Monetize Your Ideas

    Patent Licensing: How To Monetize Your Ideas

    patent-licensingIn this article we provide a brief discussion of patent licensing as an attractive way for inventors to monetize their patents.

    You have created a new invention and you have spent a lot time and a considerable amount money obtaining a patent for it. What’s next?

    Well, you probably want to be rewarded for the many hours you spent developing your invention, and you would most likely want to recoup the thousands of dollars you spent obtaining the patent.

    The solution then is to monetize or make money from your patent and the underlying invention.

    Monetizing Your Patent

    There are three basic ways you can monetize your patent:

    1. By entering into some entrepreneurial venture involving your invention. For example, you may manufacture and market your invention, or employ it in some service related business.
    2. By assigning or selling your patent and underlying invention to a third party for a financial gain.
    3. By collecting royalties from patent licensing.

    The decision ultimately depend on how you want to make money. For those who are business-minded, the first option may be the most appealing. With this option the potential financial rewards are greater, but so too are the risks.

    For others, however, the second and third options may be the easiest and most economical routes to monetizing their patent. With these two options, someone else assumes all of the business risk, while you, the inventor, get paid comfortably just for being an inventor. The rest of this article will focus on the last of these options, patent licensing.

    Patent Licensing

    Besides a patent holders ability to exclusively manufacture and offer for sale his invention, the most common way to monetize a patent is through patent licensing.

    A patent license is an agreement in which the patent holder, called a “licensor“, grants to a third party, a “licensee“, the right to commercially exploit a patent and the underlying invention. A patent license establishes the conditions under which a licensee may exploit the patent and the obligations with which the licensee must comply. Like other contracts, a breach of the obligations set forth in a patent license may result in the termination of the agreement and the return of the exploitable rights to the licensor. Thus, a patent license is revocable. This is in contrast to the second option above, where the patent holder sells or assigns his exploitation rights irrevocably.

    In return for granting the patent license, the licensor receives a series of payments over a specified period of time, usually the life of the licensing agreement. These payments are called “royalties”. A licensee’s failure to pay royalties would be considered a breach of obligations and will usually result in the termination of the license agreement. If this occurs, the licensee loses his right to exploit the patent and the licensor may choose to license the rights to someone else. This acts as an excellent deterrent against the breach of royalty obligations and makes licensing particular attractive to patent holders.

    Advantages of Patent Licensing

    Some of the other advantages of patent licensing include:

    – Low cost. Typically the only costs incurred when licensing a patent is for presenting and marketing to potential licensees and negotiating deal.

    – Transference of risk. The licensee assumes all of the business risk.

    – Freedom. An inventor is free to pursue other ideas while still profiting from his invention.

    Disadvantages of Patent Licensing

    A couple of the perceived disadvantages of patent licensing are as follows:

    – Low rate of return. Royalties typically range from 2% to 10% of the net revenues. Compared to the potential rewards from entrepreneurial endeavors, this may seem miniscule.

    – Risk of bad deals: A bad licensing deal can tie up your patent for an extended period of time and may result in expensive legal battles over royalties.

    That being said, the route you take to monetize your patent should depend on your personal desires, resources and know-how. If you are simply an inventor and do not possess the the means to finance an entrepreneurial endeavor or the business acumen to make it succeed; or you simply wish to receive an income stream from the exploitation of your patent, without bearing any of the business risks, patent licensing may be your best option.

  • Licensing Inventions The Right Way

    Licensing Inventions The Right Way

    licensing inventionsMany inventors have a great idea that they then go on to make into a machine, object , process or method. Once they create the physical object, though, many do not know what their next steps can be. Some decide to manufacture their invention themselves.

    For those who do not want to manufacture an invention, or do not have the means to do so, licensing inventions can be a viable and lucrative alternative.

    Why license an invention?

    You have a great invention, but either you do not want to or cannot afford to manufacture it yourself.

    Where do you need to be in the process to license an invention?

    Licensing inventions generally requires you to have  things in place: A working prototype and some sort of patent protection.

    A Working Prototype

    It is difficult to get a patent without some showing that the device or invention does what is claimed. It is also hard to get a patent if no one can see that the item works. It is also hard to describe something for patenting purposes without a functioning model.

    Patent Protection

    You need to own something to license. No matter how good the product is, if someone else can copy it without paying you, why would they pay for the license? They wouldn’t so you need the patent protection. You should have at least filed for the initial patent and had a patent search completed by someone reputable to show that the item can be patented before you look for a business to license your inventions.

    When you are talking with companies about investing in your invention, it is important to keep your goals in mind.

    What is the goal of licensing inventions?

    A licensing agreement for your invention with a reputable company.

    What is a Licensing Agreement? An agreement with between two parties, in this case, you the inventor and someone else who will manufacture or arrange for manufacture of the goods, where either the person manufacturing pays a fee to you, or a third party pays a fee to you, for the goods.

    What about Licensing Invention Fees? How Do They Work?

    The licensing inventions fee can be structured many different ways. A common way is royalties, where the other party pays a flat fee back for every item they sell. The price must be negotiated and varies greatly by type of industry, cost of product, nature of product, and what the market will bear.

    Another option is for the manufacturer to pay a lump sum for the right to the invention license up front, or an annual fee, rather than a royalty based invention licensing fee. The total fees under the agreement can be a combination of the two described fees or some other combination of fees and charges.

    How much should the fees come to?

    It depends on the industry and whether you have multiple businesses interested in your invention. It also depends on the potential market for the invention, which can be analyzed and assessed based upon trends already known in the industry. In addition, the amount of profit that a particular product can make matters. The potential manufacturer will evaluate what people will pay for the product in comparison to what it costs to produce it, or potential profit margin.

    Keep In Mind

    No matter how great an invention is, it may or may not generate immediate interest. The level of interest in a product is based on whether potential businesses can see the possible applications and money-making opportunities, not whether they exist. So if no one is interested in licensing an invention but you have confidence in the product and you own the patent, manufacture a small amount and establish that the invention will sell. It may enable you to get a potential manufacturer interested when you could not before, and thereafter negotiate invention licensing royalties.