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Patent Licensing
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Services > Patent Licensing
Licensing could very well be the
most lucrative way to make a living today. At its basics, licensing is the
selling of intellectual property to a person or business that wishes to produce
it for a profit. The intellectual property could be a patent, copyright,
or an idea.
Actually, licensing got much of its start with Disney’s
creation of Mickey Mouse some 80 years ago. As the character took off in
popularity a businessman who wanted to put the character on 10,000 wooden pencil
boxes paid for permission to do so. Thus, licensing was born. Since then, there
has been all sorts of products with the Disney characters on them, from shirts
to lunch boxes. In all of these items Disney receives a percent of the wholesale price
of anything depicting its characters. They don’t need to manage all sorts of
factories, worry about payroll to all of its employees, find distributors,
nothing. After the manufacturer does all the work to make and sell the
product, Disney receives
a lion's share of sales. If this is not an argument for licensing, I don't
know what is!
"But wouldn't I
make more money if I manufactured it myself?"
The short answer is “yes”.
But then reality hits. Handling the manufacturing either domestically or
overseas requires a large investment of time and money. First you will
need a rock-solid business plan, inventory financing and product liability
insurance. You must work with engineers, industrial designers, sourcing
agents and establish a sales and marketing team for distribution. Tooling can cost
10s of thousands of dollars and commonly exceeds $100,000 - and that is before you
have manufactured or sold a single unit. Becoming a vendor to the large
retail stores is extremely difficult especially if you only offer a single
product, and if you do, you often don't get paid until
90 days later.
It is a
tough road and very few ever become successful. But if you are willing to risk
your home, car, and financial security and have the needed skills to manage a
factory and make your product sell, I hope the best for you. It is an option and
some people do succeed. Yet the main question for any investment ought to be,
"How can I limit my risk as much as possible and maintain the greatest reward
possible?" And I would suggest the best answer to this question is found in
licensing.
"Will companies
actually pay me for my invention?"
Not only will they pay you,
but if your invention sells, they will pay you handsomely. There is a reason
why these businessmen are where they are. They did not get to the top of a
company through a lack of business sense. Rather, they understand that
good business transactions reward those who make you money and increase the
value of your stock.
So, if you make them a
profit they are more than willing to compensate you. They have good reason
to treat you well. Their sole business is to manufacture and distribute products that
will sell, and since the market is changing so often, they are always in need of
new ideas.
"Which company should I license my
invention to?"
Picking the right company to
license your invention is crucial in the first stages. Without
knowing where to go you are destined to endlessly search in the wrong places.
It is important to research the specific industry and markets to understand
where your invention would sell and which company has a strong brand and the
distribution channels to fully exploit your invention.
Be sure to avoid companies that manufacture a a
product on a job basis. They have no distribution channels and are quite
expensive. To get your product on the shelves you still have to do all of
the work of packaging, marketing, and distribution. There is a great
financial risk in the beginning when working with these manufacturers since they
require upfront money to produce your product on a per unit basis.
"What aspects of the licensing agreement should I be
aware of?"
A s we have always
said, we seek to establish fair and lucrative deals for
the inventors that we represent. But to do this there must be certain
elements
present in the licensing agreement. The following is a short list of some
of these elements
that you should be aware of.
1. Advance in royalty fees:
For exclusive license agreements, it is very common that the licensee would pay
an advance toward the first year's royalty.
2. Yearly minimum royalty
or performance requirements:
This is either a yearly minimum payment or a yearly unit volume that the
licensee must hit to retain exclusivity. The amount usually gets larger every year to allow for
the licensee to ramp-up and distribute your product. Also, it provides the
inventor with assurance that the licensee will seek to develop your invention
and not just let it sit dormant.
3. Insurance covering the inventor:
This is an agreement that the
licensee will, at their cost, buy an insurance policy covering the inventor for
$1,000,000 in damages and send the inventor a certificate which shows that they
are on the policy. Such a clause in the agreement provides protection for the
inventor in the event that the invention causes harm or injury to those who use
it.
4. Right to
an audit: If the numbers do not seem accurate, we can arrange for an
audit to be done by an accounting firm in order to determine if the royalty checks received were fairly
distributed.
There is a great deal more information regarding the strategies and particular
aspects of the licensing agreement that differs with each new innovation.
Hopefully the above information has given you a good start.
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