Profit From a Patent

Let's say you've got an idea for an invention but you're not in the business of selling, producing or marketing that type of product or service. Short of starting up a new company or subsidiary -- a task not everyone wants to undertake -- how can you profit from the invention? There are several possibilities.

After a product or service is patented, the inventor often contracts with an existing company to develop and market the invention. This arrangement usually takes the form of a license providing the company with commercial benefits in exchange for paying the patent owner royalties. The royalties may represent a percentage of net revenue or payments for total products sold. Alternatively, the inventor may agree to sell the rights to the invention, for a lump sum or royalties, in an arrangement called an assignment.

A license can be either exclusive (only one company can develop the invention) or non-exclusive. It can last for the duration of the patent or a specified period of time. The territory is usually limited to the geographic extent of the patent protection. For example, the owner of U.S. patent can license the rights for the U.S., but cannot extend beyond that patent territory.

In some cases, the licensee may in turn license other companies to market or distribute the invention. These sub-licenses are generally covered under the terms of the original agreement between the inventor and the licensee. In some cases, an inventor or a company may even trade licenses with other companies so they can benefit from each other's technology. "Cross-licensing" arrangements should also be addressed in the original agreement.

Assignments are often used when the inventor already works for the company. The assignment contract typically includes confidentiality provisions that prevent the employee from using his or her knowledge for personal gain. If properly designed, the assignment affords sufficient protection for both sides.

For more information: Seek assistance from your patent attorney, who can explain the available options that can provide protection under the law.

Licensing Guidelines

Before offering licenses to other parties, here are five basic guidelines to follow:

‍Make sure you can prove ownership. For example, ownership could be contested by a colleague or independent contractor with information about the project or someone else outside your realm. Try to head off any potential disputes. ‍
Secure patent protection. As a general rule, you should not try to license your invention if it hasn't already been patented. Others will be able to use your work -- even companies you're offering licenses to.
‍Be able to demonstrate your idea. This usually entails creating a prototype or presentation that effectively conveys the benefits. No one will be willing to put up money without a convincing argument. If you're not a good person to pitch the product, find someone else who is.
‍Create a nondisclosure agreement for prospects to sign. If your idea can't be patented or you haven't completed that step yet, this is the optimal approach. In the event a properly drafted nondisclosure agreement is violated by a company -- in other words, it uses or conveys your secret without authorization -- you can sue for damages.
‍Investigate prospective licensee companies. Make sure you feel comfortable working with these other parties. Don't jump at the first dollar signs dangled before your eyes -- be knowledgeable about the value of your invention before pitching it.