Ultimately, after securing a patent (or patent-pending) every inventor reaches a crossroads where they need to decide how to proceed with commercializing their invention. Do they develop, manufacture and market the product on their own? Or do they explore partnering/licensing with a company who will then bear much of the financial risks of proceeding? Whatever the case, after the idea has been protected with a patent, the inventor must weigh these options and decide which one is the right choice for his or her specific situation.
If you are new to the business of inventing or are not really sure how an inventor actually makes money from an invention, consider the following options.
Licensing the invention for royalties:
A license agreement is when the inventor [licensor] agrees to let a third party [licensee] commercially use his invention for a period of time. Typically, the inventor would receive either an ongoing payment called a “royalty”, (calculated as a percentage of sales of the invention) or a one-time lump-sum payment. The company/licensee normally proceeds with developing, manufacturing and marketing the invention, which allows the inventor to shift these cost and risks to the licensee. Also with licensing, the inventor can rely on the company’s experience and established business to boost the product’s chance of success.
Assigning or Selling the Invention:
When the inventor assigns his rights, he is permanently transferring or selling ownership in the invention/patent. The inventor may receive a lump sum payment or a series of payments. The difference between a “license” and “assignment” is in the transfer of rights. With a license, the inventor can retain patent rights (like “renting” the patent), and with an assignment they transfer their rights (i.e., sell it).
Developing & Manufacturing the Invention:
Typically, entrepreneurs with aspirations of turning their inventions into a business where they would sell their product would be the best candidates for manufacturing. Manufacturing and marketing an invention can be an exciting and rewarding approach for some inventors but the process should be looked at more as a business venture, as it requires the inventor to have substantial capital and a well thought out plan on how to develop, manufacture and market their idea. Manufacturing is very different than finding a company to license the invention, and should not be jumped into without examining the risks and carefully planning the best route for success.
If you choose the path of developing and manufacturing your invention on your own, you maintain far more control of your invention. But you also assume the various risks and costs associated, such as: research, engineering, tooling, molds, inventory, warehousing, freight expense, distribution, etc. You also assume the investment of your own time, which for many inventors who hold full-time jobs, is difficult.
For some inventions, little development and setup is required, which can simplify the manufacturing process. Other, more complex inventions may require far more investment. Minimum order requirements can also present inventors with a challenge, both financially and in terms of storage space. For the inventor who finds these aspects of manufacturing to be too costly, too difficult or too much of a hassle, seeking a licensing agreement could be a more suitable solution.
Now that you have a better understanding of the options for commercializing your invention, it is easier to see why it’s important to think through the options and determine what makes sense for your situation. It doesn’t make sense to select one approach such as manufacturing your invention when licensing may have been a better solution for your situation.
It is important to remember that while neither licensing nor manufacturing is a guaranteed success, taking the time to understand the options for taking your invention to market and thinking through what your goals are prior to leaping into either option will help you take the path that’s right for you and your invention as you continue along the road of inventing.
Post time: 06-12-2017