Invention Licensing: The REAL Stuff That You Actually Need To Know
As an inventor, you may want to be the body attached to the feet in this picture.
However, the lack of financial strength to turn your invention idea into a useful product that you can profit from may be a hindrance to that.
If that's the case, licensing your invention idea for royalties could be the most viable option. It may be the easiest way to commercialize your invention and make a profit in the long run.
By licensing your invention, you are formally granting an individual or manufacturing company the sole right to produce, market, or sell your product, invention, or invention idea.
Changing Your Mindset About Your Invention Idea
In order to make cash from your invention, you need to learn what an invention really needs to be in order to get licensed. You need to learn how to get your invention to a certain state with minimal time and monetary investment.
And you'll need to understand the most important thing: When to quit. Knowing when you should just drop your invention idea because it does not have commercial or market potential and you'll never get it licensed is a hard-to-master yet essential skill.
Inventions have the potential to earn inventors a decent living if they venture them. But before getting to that dream state, you need to prove to a potential licensor, e.g. a manufacturer, that there is a viable market for your product as well as an audience - real consumers with a real need that you're going to fill.
When you have an invention idea, you need to think about it at multiple stages and from different angles. You should ask yourself, "Is it practical?", "Is there a target market?", and a number of other questions - but DO NOT forget to think about the manufacturer when you question your invention idea. It can take years to learn how to invent for manufactures, yet these are your customers before the consumer when you plan on licensing your invention. This is a completely different mindset for inventors.
The Key To Successful Invention Licensing
There are ultimately three things that inventors must nail in this recipe for success:
The first two are intuitive, yet not easy. There is a decent amount of research that goes into whether or not something is a problem that needs to be solved, then creating a solution that does not infringe on existing patent.
The third can be very challenging. If you're there, we can aid you in selecting a manufacturer who is trusted and works in your niche.
Invention Licensing Agreements
Licensees (Manufacturers) and Licensors (Inventors) enter a contractual arrangement through a licensing agreement. These agreements can be structured in a number of ways. A typical agreement states that the inventor is entitled to a specified number of upfront payments, as well as licensing royalties over the years, in compensation for a manufacturer or company using/selling the product.
As an inventor, you get paid royalties on a periodic basis as a company takes your invention, transforms it into a consumer product, and sees into the daily management of production and sales. Apart from the reduction in risk, work and investment, by licensing, you also have enough time to focus on bringing other ideas and inventions to fruition.
Licensing your invention is not for everyone, but if you're the kind of person who wants to find a problem, solve it, then get someone to manufacture the solution for you as you wipe your hands clean and collect checks, then its the right move for you,
If you're the kind of person who wants to find a problem, solve it, then get someone to manufacture the solution for you as you wipe your hands clean and collect checks, then [licensing is] the right move for you.
Prerequisites For Licensing An Invention
If your aim is to license your invention and receive fair royalty, you must be prepared to transcend the delivery of a “me too” product.
Prospective companies often demand that your invention or idea eclipse their normal profit goals before paying royalties. Generally, no company or individual will pay for an undeveloped idea. Therefore, to seal a licensing deal, your idea or invention must be fully developed and protected by a patent.
A lot of inventors are of the belief that writing a letter is the way to catch the attention of a company. Their hope is that they will receive an invitation by the company to begin negotiations. However, as many have found out over the years, this seldom happens. In the quest to license your invention, there are a few steps to take. They include:
Following The Key Steps To Getting A Licensing Deal
Research and Identify Your Target Companies
The first paramount step to take, to successfully license your invention, is to engage in an in-depth research into the identification of the right companies to reach a licensing agreement with. When such companies are identified, the next important step to take is to adequately consider the companies which are the best fits for your invention or invention idea in the long run.
Generally, manufacturing companies, as a rule of thumb, will only be tempted by an invention that is in line with their long and short term plans and goals. Hence, as an inventor, you will also have to find and target manufacturing companies that will assign positive value to your invention. Therefore, it is always in the best interest of the inventor to pick a company that would assign the most value to his idea or invention when you conclude you search.
Approach Your Prime Targets
Getting a licensing deal often depends on the quality of your idea or invention, as well as your negotiation and persuasion skills. As an inventor, it is imperative that you successfully persuade the selected target companies that your invention is worth their time and efforts, without revealing delicate details about your invention. You have to be able to keep the important parts of your invention secret, but still reveal enough to pique the interests of these companies. You must be able to seduce the companies and familiarize them with the various reasons why the end users will love your invention, how it will sell itself and increase the companies’ revenues, and how your product will trump the competition.
Reach a Non-Disclosure Agreement
Before beginning negotiations about a licensing agreement, it is imperative to reach a confidentiality agreement with the target companies. This enables you to reveal core details about your invention, plan or prototype, without the fear of losing your rights. Without reaching a strong non-disclosure agreement, you stand a risk of losing your patent rights as an inventor.
Prepare For Negotiations
To seal a licensing agreement deal, an inventor has to be fully prepared. Therefore, to ensure success, the inventor must be fully prepared for negotiations before contacting target companies. As an inventor, you must have a lucid idea of the potential value of your idea or invention. Apart from this, you must also have a firm figure of the deal value (actual money) you want to be paid as royalty periodically. Before you consent to any license agreement, ensure that the company’s offer is greater or equal to the deal value.
Initial Invention Presentation
To reach a licensing agreement with a company, you must be present at the initial invention presentation to explain your prototype and show off its mode of operation. For this presentation, it is imperative to have a working prototype. This makes it easy for you to accurately explain the purpose, functions, and utilitarian needs of the invention. The initial invention presentation is very critical to your chances of reaching a licensing agreement with the company.
Licensing Agreement Negotiation
Before beginning the licensing agreement negotiations, you must fully know and accept the value of your invention, the royalty rate of the invention’s specific industry, and the market value. You must also be sure of what you want and expect from the negotiation. When you have a concise idea of the deal value, you are in a more favorable position to eke out an even better deal with the company. Conversely, you must be firm and confident enough to walk out on any unfavorable negotiation.
Sealing the Marriage
Now that you have agreed a favorable licensing deal, it is very important to maintain a healthy relationship with your licensee. You have to keep in contact even after you have successfully reached a fair deal. It makes it easy to resolve any problem you encounter in the future about payment of your royalties or other hiccups.
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