How To License Your Patent - Help For Inventors With General Basic Rules of Thumb.

Patents, Prototypes, Manufacturing, and Marketing New Inventions

Help with basic licensing of your invention.






How To License Your Patent

How To License Your Patent - Help For Inventors

Licensing your patent to a company for a royalty means you give permission for the company to manufacture and sell your product, and in return you get a small percentage of each sale, or sometimes a fixed monthly or yearly payment.

The patent owners can set whatever licensing fees they want. In reality, there are industry norms. 

If a patent owner prices royalties too high then they will not be able to license their invention. 

Exclusive license means that only the firm licensing can make, use and sell, and are basically acquiring all rights in the patent. 

A non-exclusive license means that the patent owner can license whoever they want and as many times as they want. 

The pricing has to do with how much it costs to make and sell the product. The firm licensing the technology needs to be able to make a reasonable profit after having made the product, marketed the product and paid the licensing fees. 

Each industry has a different norm, and every invention really needs to be analyzed based on the size of the market, the expected return and whether an exclusive license or non-exclusive license is being obtained.

As damages in a patent infringement suit, the patent owner is entitled to either lost profits or at least a reasonable royalty. If lost profits cannot be proven, the reasonable royalty will be higher than what a fair negotiated rate would yield.

You will have ongoing expenses including maintenance fees that need to be paid to the Patent Office (the 3rd, 7th and 11th year after receiving your patent), an attorney to write your licensing contracts, and you should buy intellectual property infringement insurance to protect you in case another company infringes on your patent (the insurance will pay the big litigation legal bills).

A licensing fee and royalty is always arrived at by backing into the numbers - never by assuming the royalty will be a % of sales, regardless of what royalty payments the inventor may have heard of as being typical in the past.

Make an accurate market assessment, complete competitive market analysis, and discover how the potential buyer might profit before starting patent development. 

Prepare a business plan with as much detail as you can.  Preparing a detailed business plan will provide you with tremendous insights and familiarize you with a rough cost to manufacture and potential sales price.

Don't get greedy and lose touch with reality when it comes to negotiating a royalty. Could this be why almost 95% of all patents are never successfully commercialized? 

Royalty rates can go from 1/2 of 1% - up to 30% of what the manufacturer sells the product for (royalty is not based on retail sales price). 

If you demand too much money, you will lose the deal!


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