Now that you have a patented invention and are ready to license it, you still have to contend with the thorniest obstacle of all: the patent license negotiation. This is when you and the prospective licensee hash out what you believe a fair license agreement to be. However, this is not something you should rush into. In this article we’ll offer tips and suggestions for making sure the negotiation goes smoothly – and hopefully in your favor!

1) Determine your objectives

Why are you trying to license your patent? What are you hoping to get out of it? The obvious answer is “Because I want money”, but it has to go deeper than just that. Do you want to wash your hands of the patent altogether? Do you still want some day to day interaction and a say on how it gets marketed? If so, these are things you need to specify and take into account during the negotiation, and it helps greatly if you go into it with your priorities fresh in mind.

2) Assemble a team with the right players

According to a very detailed scholarly article called “Best Practices in Patent Negotiations”, you must enter into negotiations with the right “team” behind you.

“Whatever the reason, your team should include a business development executive, a scientific-technical expert, a decision maker and a licensing attorney. The business development executive (sometimes the CEO at smaller firms, or a technology transfer professional at a university) usually finds the deal, brings the parties together and keeps the process moving. The scientific-technical expert provides scientific and technological expertise and conducts due diligence research relating to the technology at issue. And the decision maker must have authority to commit your party to particular deal terms. In our opinion, document drafting is often easier when an attorney has the benefit of participating in negotiations and understands the positions of both sides. Once the team is in place, it’s important to meet and reach an understanding of the motivation for the deal and to go over each member’s responsibilities.”

SRC: http://www.nature.com/bioent/2007/071001/full/bioe.2007.5.html;jsessionid=2C5E5863252650524BC5F8A37F92A815

We should note that it is not always necessary to have a separate person handle each task. For example, in your situation, you might be the businessman and the technology/scientific expert. If so, you don’t need to go out and bring in a separate businessperson. However, the point remains that all of these considerations must be accounted for by someone, and you should know exactly who is responsible for each one before negotiating to license your patent.

3) Determine the value the licensee will add to the patent

Typically, the reason you are licensing the patent include not having the resources to market and capitalize on it yourself, or not wanting to. It is important, therefore, to assess how qualified the potential licensee is to capitalize on the patent. What assets, strengths, and abilities do they bring to bear that increase the value of the patent, over and beyond what it would be if you just held onto it? The article elaborates:

“Your team should evaluate and determine your own marketing, technical, sales and services strengths as well as the strengths of the other party in the field of the patented technology—all are relevant to licensing fee amounts and royalties to be paid back to the patent holder. These and other contract provisions will help the parties define the scope of the licensed technology and their competitiveness as potential licensing partners.”

Another step you should take leading up to negotiation time is exchanging a term sheet with the potential licensee. This helps establish a starting point so that both parties can get straight to business when the actual negotiation begins. Here are some of the things you might want to include or look for in a term sheet:

“The term sheet typically outlines the major issues in a potential deal. These include the following: the licensed product or process; licensed territory; preliminary thoughts on fees and royalties; technical information and training required to develop and manufacture, sell and service the licensed product (and who will be responsible for the same); sales and service support; degree of exclusivity; and duration of the license.”

As for the negotiation itself, the primary sticking point will how broad the licensee’s rights are (ie, how much it can do with the patent) and how much they will have to pay you. While this is inherently a somewhat speculative process, you can and must aim to create a license agreement both parties can live with. Here is one approach, using specific numbers, recommended by “Best Practices in Patent License Negotiations”

“A rational approach is to develop a win-win scenario by looking at the actual investment return of each party. If the licensor has spent $10 million to develop the compound, and the licensee will spend an additional $100 million to commercialize it, negotiating a deal in which the licensor receives 10% of the return may be realistic, although the licensee may want a greater return based on assuming a greater risk (greater investment). Alternatively, where a licensed compound is ready for commercialization or is on the market, more standard accounting techniques may be used because the risk/return ratio can be more directly calculated.”

As the licensor, you will want to grant as narrow exploitation rights as you possibly can. While the licensee will want as much leeway to capitalize on the patent as possible, it is in your best interest to be able to license it out to others if you see fit. One way to provide for this is to only license the patent out for specific uses, leaving you free to license it to other people for other uses.

Here are some other ways to get your licensee to accept narrower exploitation rights:

“There are compromises: you may grant a broad field of use with the right to retract fields if you present a use to your partner and your partner elects not to pursue it, or you may grant a narrow field of use and give your licensee the right of first refusal on other uses. Alternatively, your licensee could convince you to restrict any future licensees from particular uses that fall within the licensee’s specialty or area of expertise.”

As you can see, being focused before the negotiation and creative during it lets you grant a patent license that puts money in your pocket and leaves you free to pursue other options.

While it’s usually preferable to have an attorney draft your licensing agreement, it’s not always necessary. Legal-minded inventors can certainly draft their own patent license agreements with appropriate study and preparation. This article is about books and articles you should read – and precautions you should take – should you choose to do this.

One excellent free article on the subject comes from IPWatchdog.com, and is entitled “Drafting a License Agreement.” Patent attorney Eugene Quinn begins the article by cautioning that while it is okay to draft your own agreement, you should probably have an attorney review it before you use it. The key, Quinn writes, is finding an attorney who will agree to review an agreement that he did not personally create:

“There are some attorneys who will, no doubt, not want to review your work, but there are a number of attorneys that routinely work with independent inventors and understand the need to keep costs down by offering review services, such as reviewing patent applications or reviewing licensing agreements.”

SRC: http://www.ipwatchdog.com/inventing/licensing-agreement/

The next thing Quinn encourages do-it-yourself license writers to do is forget about the “template” mentality. There is a myth among intellectual property laymen that there are “standard” contracts for patent licenses that everyone uses. According to Quinn, this is wrong, and attorneys actually roll their eyes when clients ask for standardized or “template” license agreements. While there are standard elements of every agreement, the exact manifestation of those elements is virtually never the same for any two patent licenses. So don’t approach the task by trying to emulate what you believe to be a standard form.

Instead, the far smarter thing to do is focus on the specific clauses – things like performance obligations and royalty requirements – that will go into your unique patent license. IdeaBuyer has a comprehensive article on precisely this subject called “Writing Good Performance Obligations Into Patent Licenses.” Consider that required reading for any do-it-yourself patent licensing.

That said, you do want to at least look over a few sample patent licenses to get an idea of the structural elements they all share. Sample patent licenses can be found in abundance on the Internet, such as this one:

SRC: http://contracts.onecle.com/occulogix/brunner.lic.2004.10.25.shtml

However, Quinn recommends using an encyclopedia of legal forms, such as this one, which he describes in detail in his article:

West has an encyclopedia set called West’s Legal Forms. In the Second Edition it is Volume 25 that relates to patents (I know this because I own that volume myself). There are a number of good sample licenses in the West book. If you find a library that has a good intellectual property section (which is becoming easier given the growth of this field of practice) there will be several smaller encyclopedias dedicated to patent licensing, such as Milgram on Licensing. In most libraries the form books will be in one location and the IP books in another location, so be sure to check both locations.

Many will read this and think “yeah, that’s all well and good but I can probably get the same information from a local bookstore with less fuss.” However, this is often not the case. Many bookstore books on intellectual property are what John T. Read calls “dictionaries not in alphabetical order”. That is, they simply define some basic terminology of the field without laying out a concise sequence of steps for achieving the goal, which, in your case, is writing a patent license on your own. For this reason, you should stick to encyclopedias such as the one referenced by Quinn.

If you cannot or will not use such an encyclopedia, sample forms from universities are the most reliable alternatives. In any event, once you have a sample form to work with, you should adopt a “buffet” mentality. Rather than copying the structure of the patent license verbatim, simply take clauses that seem to match what you are hoping to convey in your agreement.

Using the sample patent license referenced earlier, let’s say you wanted to use this clause in your own license agreement.

Advance Royalty Payments. Licensee agrees to pay Brunner Fifty Thousand

Dollars ($50,000 USD) annually as an advance and credited against any and all Royalty Payments paid in accordance with this Agreement. Such Advance

Royalty Payments shall be non-refundable and be paid to Brunner and in

equal payments of Twelve Thousand Five-hundred Dollars ($12,500 USD), made

quarterly, on or before the expiration of Forty-five (45) days after the

reporting close of each prior calendar quarter.

According to Quinn, royalty requirements are one of the things do-it-yourself patent license writers should focus on most. So in the case of this clause, you would simply modify it to suit your needs. If your quarterly royalty payments are $50,000, you would just erase the $12,500 currently in that clause and replace it with $50,000. Repeat this process of taking clauses from other agreements and modifying them until you have a complete agreement that covers everything you want it to.

At this point, you are ready to show your agreement to an attorney and have him iron out any of the kinks that might be left. Good luck!

Eric Corl is the President of Idea Buyer LLC, a new product development company that owns and operates IdeaBuyer.com- The Online Marketplace for Intellectual Property. The site gives inventors the opportunity to showcase their intellectual property to consumer product companies, entrepreneurs, retailers, and manufacturers. You can email him at EricCorl@IdeaBuyer.com.

Once you have created your invention, the next thought is obviously “How can I capitalize on it?” One time-tested way of doing this is licensing your invention to a retailer who will bring it to paying customers. Retailers can be anyone with the ability to reach your market, whether it’s Wal-Mart, Target, Home Depot, or even an Internet website. The idea is that you will be cutting them in on the profits from the sales they make possible. However, there are a few things you should know about this approach before you dive into it. In this article, we will touch upon the most important considerations.

The first think to keep in mind is the notion of “inventory available.” Generally, successful retailers will want to know that you can supply them with enough inventory to handle a large volume of sales. This is simply part of the planning process that retailers engage in, especially catalogs. Therefore, you should have some type of strategy for addressing this before you go trying to license your invention to a retailer. Do you have the facilities and equipment to mass-produce your invention? Do you need to hire staff? If you are not sure what your capabilities are, ask the retailer in question what their inventory available requirements are. This will give you an indication of what you will need to do to produce enough inventory.

Another term you should get familiar with is the purchase order. About.com defines a purchase order as such:

“A written sales contract between buyer and seller detailing the exact merchandise or services to be rendered from a single vendor. It will specify payment terms, delivery dates, item identification, quantities, shipping terms and all other obligations and conditions.

Purchase orders are generally preprinted, numbered documents generated by the retailer’s financial management system which shows that purchase details have been recorded and payment will be made.”

The basic idea is that the retailer you license your invention to will be sending you purchase orders which say how much product they are buying from you at that time. It will be crucial for you to store and file these records in an efficient way, as they will over time contain almost all of your financial history with that retailer.

Another all too important aspect of licensing an invention to a retailer is the terms of payment. There are four main terms that are common today: net 30, net 60, net 90, and net 120. However, many retailers are known for using other, more creative terms of payment. Wikipedia offers some helpful hints that will help you clear up the confusion.

“Net 30 is a trade credit which specifies payment is expected to be received in full 30 days after the goods are delivered. Net 30 terms are often coupled with a credit for early payment; e.g. the notation “2% 10, net 30″ indicates that a 2% discount is provided if payment is received within 10 days of the delivery of goods, and that full payment is expected within 30 days.

For example, if “$1000 2/10 net 30″ is written on a bill, the buyer can take a 2% discount ($1000 x .02 = $20) and make a payment of $980 within 10 days, …

If credit terms of “2/10, net 30″ are offered, the approximate cost of not taking the discount and paying at the end of the credit period would be as follow:

[2/(100-2)]*[365/(30-10)]=0.3724 in percentage = 37.24%”

Obviously, you as the licensor will want to secure the timeliest payment terms possible; most likely, this means Net 30. However, you should be warned that not every retailer will go along with this. The bigger the retailer is, the more clout they have in compelling you to accept their terms. One way around this is to start by licensing your invention to smaller retailers, building a successful track record that you can use as leverage when it comes time to negotiate payment terms with larger retailers. Either way, you want to try and negotiate as hard as possible for payment terms that benefit you.

Another way to license your invention to a retailer is to go through what are known as “reps.” Although reps are somewhat less commonly used today than in the past, they still have a large role to play. Reps are people who are on good terms with the buyers at various retailers and who convince those buyers to stock certain products. If the buyer’s store does stock those products, the rep gets a kickback from the product manufacturer for getting them into the store. While you might balk at the idea of paying someone to get you in the door, it may be worth investigating. Sometimes all it takes is an introduction to get the deal done.

Keep these tips in mind and you should find that licensing your invention to a retailer makes more sense than it did before.

Eric Corl is the President of Idea Buyer LLC, a new product development company that owns and operates IdeaBuyer.com- The Online Marketplace for Intellectual Property. The site gives inventors the opportunity to showcase their intellectual property to consumer product companies, entrepreneurs, retailers, and manufacturers. You can email him at EricCorl@IdeaBuyer.com.

If you do not want to go through all the time and hassle of bringing an idea to market yourself, there is an alternative: license your idea to a manufacturer. In doing this, you are granting someone else the right to create your idea and bring it to buyers via the marketplace. However, there are some important steps and considerations that you should keep in mind if you choose to do this. In this article, we will make you aware of them.

First, a few words about what it means to license an idea. Licensing an idea actually means licensing a patent, which protects your idea. If your idea is not patented already, you will want to apply for one. Luckily, there is a quicker way to do this than you probably think. That way is known as the “provisional patent.” It is when you file an application with the USPTO and get full patent rights for 12 months. During those 12 months, smart inventors will try to license their idea, sell it, or in some way see what the interest is. After those 12 months you will be required to forfeit patent rights or apply for a full patent. However, we will assume that you do have a patent or will have one soon. So what about licensing it?

Legally speaking, you have licensed your patent when you (the licensor) grant exploitation rights over your patent to a licensee (the person you are licensing it to.) In this case, the licensee is whichever manufacturer you have licensed your patent to. “Exploitation rights” simply means the right to create, market, and/or sell something based on what that patent protects. A patent license is also a legal contract, and that contract is what will spell out terms precisely which exploitation rights are being granted. These include any performance obligations the licensor might demand of the licensee. This means that if any performance obligations are included in the contract (ie, “You must produce X number of sales by the year X.”), and they are not met, this could lead to the license being terminated in its entirety.

If this sounds complicated, it can be, but it is actually quite simple. The biggest consideration is finding the right manufacturer to license your patent to. To do this, you should check resources like the Thomas Register to find manufacturers related to your idea. These are the people most likely to want to license it from you. There are other easy ways of finding manufacturers to license your idea to, as well. See our article “Researching Your Market Online” for more details. Once you have narrowed down a list of 10-20 relevant manufacturers, the next step is deciding on the terms of your license agreement.

As mentioned earlier, most license agreements include one or more performance obligations. These are simply requirements that the manufacturer (licensee) must fulfill in order to keep the license. If you have certain expectations that you want to enforce, such as X number of sales in the second year or a 4% profit margin, performance obligations is the way to enforce them. Of course, both parties will have to agree on the obligations before they become final. There is also the issue of royalty requirements, where you can specify that you must receive X dollars in royalties monthly, annually, or semi-annually to keep the license agreement alive. These are ways of ensuring that your own financial needs are met from licensing your idea to the manufacturer.

Making sure those needs are met is probably the biggest consideration of all. How much are you going to ask for in royalties? You cannot get greedy, but you must ensure that your costs are paid back and the money you get is worth your while. Tally up the money you have spent so far and keep the total in mind when setting royalty requirements.

Another consideration is the term of the agreement. Do you want a longer or shorter agreement? Well, that depends on your circumstances. Do you want to someday capitalize on this patent yourself? If so, you might opt for an agreement of 5 years or less. However, if you’re the kind of person who just wants to collect the royalty checks and move on to something else, a longer agreement might suit you best. The key is to choose the length consciously, based on your true needs and goals.

Of course, you should also use a patent attorney for the duration of this process. Licensing a patent is not something you should “wing it” with, as there are complex laws involved and severe penalties for breaking them. Additionally, a good patent attorney can also warn you if you are about to license your idea in a way that harms you. What if the manufacturer tries to get away with paying you a pathetically small sum in royalties? Situations like these are when it pays to have an attorney on your side, so don’t feel shy about spending the money to get one.

If you can keep these considerations in mind and the timing is right for your product in the market place, you will have a much better probability of profitably licensing your idea to a manufacturer.

Eric Corl is the President of Idea Buyer LLC, a new product development company that owns and operates IdeaBuyer.com- The Online Marketplace for Intellectual Property. The site gives inventors the opportunity to showcase their intellectual property to consumer product companies, entrepreneurs, retailers, and manufacturers. You can email him at EricCorl@IdeaBuyer.com.

With the energy crisis and the worldwide push to “go green”, innovation in the automotive sector is at an all time high. This puts automotive patent holders in a prime position to sell or license their patent. However, it would behoove you to do some research on how automotive patents are typically capitalized on, as well as who would be most likely to buy or license said patents.

Most of the action in the automotive industry takes place in Michigan, specifically Detroit, or “Motown.” A recent article called “Auto Industry Fueling Growth in Michigan’s Patent Applications” describes the recent surge in auto innovation there:

“The auto industry may be bleeding money throughout Michigan, but it is fueling a rise in innovation in the state, federal data on patent activity shows.

The state saw a 20 percent rise in the numbers of patents granted between 2000 and 2006, the years for which the most recent data is available, compared with the seven-year 1993-1999 period, according to the U.S. Patent and Trademark Office.”

SRC: http://www.mlive.com/business/index.ssf/2008/03/auto_industry_fueling_growth_i.html

However, a number of auto leaders do business internationally as well. Wikipedia offers a handy chart that breaks down, by volume, the largest auto makers and their divisions and subsidiary companies. The table is based on the most recent OICA data.

SRC: http://en.wikipedia.org/wiki/Automotive_industry#World.27s_largest_vehicle_manufacturing_groups_.28by_volume.29

General Motors, Ford, and Chrysler are the largest players in the United States market, in that order. Under the GM flag are brands like Buick, Cadillac, Hummer, Pontiac, Saturn, and Saab. Ford encompasses Lincoln, Mercury, and Volvo, while Chrysler markets the Dodge and Jeep line of trucks and SUVs. The divisions of each auto maker should inform your decision on who to contact about selling your patent.

If your patent pertains to low-mid range sedans or gigantic SUVs, you might look to score a meeting with someone from GM. If your patent applies to luxury models like the Lincoln Towncar, a call to Ford might be best. And if your invention would be best utilized in a heavy-lifting work vehicle like a Dodge Ram or Jeep Cherokee, Chrysler is probably the ideal networking target. Of course, there are several other auto makers worth considering who operate outside of the U.S., but it often helps to start closer to home.

It is also worth noting that many automakers own stock in and have business partnerships with other automakers. This means that even if you fail to sell or license your patent to one automaker, they might be able to put you in touch with one that would be more amenable to your proposal. Here is a quick reference of ownership overlap within the automotive industry.

• Porsche holds a 20% stake in the Volkswagen Group (30.97% voting rights), as of 2006-12-31.
• The Renault-Nissan alliance involves two global companies linked by cross-shareholding, with Renault holding 44.3% of Nissan shares, and Nissan holding 15% of Renault shares.
• Ford holds an 33.9% stake in Mazda. and an 8.3% share in Aston Martin.
• Hyundai Motor Co. holds a 38.67% stake in Kia Motors.
• Daimler AG holds an 19.9% stake in Chrysler Holding LLC.
• General Motors still holds a 3% stake in Suzuki. Suzuki is also partner with GM in GMDAT and CAMI.
• Toyota holds 51% stake Daihatsu hence having a controlling interest in the company.

However, not every automotive patent holder should necessarily target auto makers. Instead, some patents are probably more attractive to auto dealers, of which there are tens of thousands across the United States. If you are unsure of which auto dealer to contact or how to get in touch with them, the National Automobile Dealer Association is a good place to start. They are an automotive industry trade group that represents some 20,000 dealerships across the U.S. and boasts some 43,000 worldwide franchises. They also develop comprehensive research data on the auto industry, which might be of use to you in putting your pitch together.

You can contact the NADA by phone, e-mail, or snail mail.

National Automobile Dealers Association
8400 Westpark Drive
McLean, Virginia 22102
(703) 821-7000 or (800) 252-6232
nadainfo@nada.org

Of course, you will want to consult a patent attorney before diving headlong into negotiations. Furthermore, this attorney should be one with experience and success in the auto sector. One proven winner in this field is Quinn Law Group, PLLC. “Auto Industry Fueling Growth…” discusses the track record and auto industry connections Quinn has at its disposal:

Principal Christopher Quinn said patent applications in areas such as hybrid technology, vehicle safety and electronics are helping drive annual revenue increases of 20 percent or more. The 19-member firm works with customers including General Motors Corp. and suppliers, as well as with out-of-state companies, many with Michigan offices, whose patents wouldn’t necessarily show up in USPTO data, he said.

Quinn can be contacted at the following web URL:

http://www.quinnlawgroup.com/contact.htm

All in all, your quest to sell or license an auto patent should begin with a careful matching of your patent to the right auto maker, and end with the assistance of a proven attorney in the field.

Eric Corl is the President of Idea Buyer LLC, a new product development company that owns and operates IdeaBuyer.com- The Online Marketplace for Intellectual Property.  The site gives inventors the opportunity to showcase their intellectual property to consumer product companies, entrepreneurs, retailers, and manufacturers. You can email him at EricCorl@IdeaBuyer.com.

While selling a patent is not necessarily easy, it is quite simple compared to licensing. Selling a patent is basically giving up all future rights to it for a set price. Licensing, on the other hand, can take on many other, different forms depending on what you and the licensee want to get out of the arrangement. Therefore, it pays to be “in the know” about what your options are before diving headlong into the process. In this article, we will offer 10 tips on how to license a patent in a way that meets your needs.

1) Realize what a license is and demands of you
There is no doubting the lucrative potential of patent licensing, but you should be aware that it is a different animal than selling your patent. Licensing is not always the “set it and forget it” deal that many licensors hoped it would be. Typically, you will need to exercise diligence in making sure that your licensee(s) are performing the way they agreed to. If they are not, you will need to take action and revoke the license. This should not scare you away. Rather, it is only being mentioned so that you approach the process with realistic expectations.

2) Avoid general “best efforts” clauses
One benefit of licensing a patent is being able to stipulate things a licensee must do to retain his license. However, there is one type of stipulation that you should avoid: a vague “best efforts” clause. As an article called “Patent Licensing” explains, courts tend to interpret these clauses in problematic ways:
“Both parties should avoid this clause in favor of more objective standards. The courts may interpret such a clause to require the dedication of all of the licensee’s resources towards exploitation of the licensed patents, when realistically most licensees will have a number of other significant business endeavors to support.”
The way around this dilemma leads us to tip 3.

3) Use specific milestones and obligations
What you want to do is set specific, numeric goals and milestones that the licensing agreement will be contingent upon. As the aforementioned article states, the key is to be objective in setting these requirements.
“The milestones can be anything definitive that the licensee feels it can realistically meet in the stated time frame. For example, the licensee may be required to obtain an approved New Drug Application with the Food and Drug Administration by a certain date. Licensees should be aware that there is an implied obligation to exploit the licensed patent on the part of an exclusive licensee.”

4) Set those milestones for a reason
While it is important to have specific milestones, they must also not be arbitrary. It may sound nice to tell a licensee “You can only keep your license if you do a million in sales the first year”, but this is probably not realistic. Instead, do some market research on what it would be reasonable to expect. You want to make sure both you and the licensee feel comfortable with the performance obligations being written into the agreement. After all, the goal is to capitalize on the patent, not one-up each other.

5) Set royalty requirements
One alternative to, or supplement of, performance obligations is to use royalty requirements. Simply put, these are stipulations that say “I can revoke this license unless you pay me X dollars in royalties.” The royalties can be paid monthly, annually, or semi-annually, but the idea is that unless you get the dollar amount stated, you can revoke the patent license. This can be useful if you want further assurance that your financial needs will be taken care of. It is a way of ensuring that no matter how the patent licensee performs, he is responsible for paying you a certain amount.

6) Clearly spell out how and when those royalties will be paid
Just as important as specific and non-arbitrary obligations is ensuring that you both know how and when they are to be fulfilled. Few patent licensing issues are thornier than when there are misunderstandings about payment schedules. Therefore, you should take special steps to avoid these hassles. The earlier quoted article continues:
“The agreement should clearly specify when reports are required to be made and when royalty payments are due. Payment needs to be made in conjunction with a quarterly or semi-annual accounting report on the royalties received by licensee. Licensors usually reserve the right to annually audit the records, at their expense, to be sure they are receiving the proper amount of royalties. Licensors are advised to also include a provision to audit for a period of time after termination of the license to be sure they have received all the royalties that are due and owing to them.”

7) Get legal advice for your agreement
As you can see, all of these performance obligations, milestones, and royalty requirements can seem a bit overwhelming if you are new to the field. A patent attorney is the best person to consult when this happens. They can ensure that your contract is on the up and up, that it can be enforced down the road if necessary. While you may balk at paying their high fees, consider it a worthwhile investment. You need to know that you can enforce your agreement if you have to and only a patent attorney can provide this assurance. They can warn you if the terms in your deal are heavily favorable to the licensee.

8) Don’t get greedy
This rule applies to both patent sales and licensing. If you are in a position to get some nice, life-supporting residual income from a licensing deal, don’t kill it by being excessively greedy. The idea is to score some nice income from your patent, not suck the other party dry. Remember: pigs get fat, but hogs get slaughtered.

9) Specify a length that you are comfortable with
Patent licensing agreements can be as long or as short as you and your licensee want them to be. Therefore, you should take the time to think of a length that suits you. If you want to someday take the reins and capitalize on your patent, an agreement length of 5 years or less might be what you want. On the other hand, if you want to just sit back and cash the royalty checks, you might want to go for as long a term as the other party will agree to. The key is to set this length consciously based on your true goals.

10) Decide on an exclusive or non-exclusive license
There are two different types of patent licenses: exclusive and non-exclusive. An exclusive license is what most licensees will prefer, since it grants them “exclusive” rights to capitalize on the patent. It ensures them some protection against competition and also allows them to enforce violations of the patent. Non-exclusive licenses, then, let you, the licensor, keep the right to license the patent to someone else. Decide which of these two licenses you are most comfortable with and try to get the licensee to go along with it.

Eric Corl is the President of Idea Buyer LLC, a new product development company that owns and operates IdeaBuyer.com- The Online Marketplace for Intellectual Property.  The site gives inventors the opportunity to showcase their intellectual property to consumer product companies, entrepreneurs, retailers, and manufacturers. You can email him at EricCorl@IdeaBuyer.com.

License a Patent

 Licensing a patent is considered one of the most viable means of commercializing it. In short, a patent holder seeking to license his patent will not exploit it himself. That is, he will not try to create, market, and sell anything based on the patent. Instead, he will market the patent itself to those who do wish to take those steps. Any variation of this is known as “licensing a patent.” However, it is best to know some facts about licensing patents before one rushes to do so, or assumes that licensing is a “set it and forget it” means of cashing in on their intellectual property.

 Legally speaking, you have licensed your patent when you (the licensor) grant exploitation rights over your patent to a licensee (the person you are licensing it to.) “Exploitation rights” simply means the right to create, market, and/or sell something based on what that patent protects. A license of this nature is also a legal contract, and that contract is what will spell out in concrete terms precisely which exploitation rights are being granted. These include any performance obligations the licensor might demand of the licensee. This means that if any performance obligations are included in the contract (ie, “You must produce X number of sales by the year X.”), and they are not met, this could lead to the license being terminated in its entirety.

 In this context, a license is also revocable – ie, cancellable – if certain terms and conditions are not met. This is a common characteristic of legal contracts in general, with special ramifications for patent licenses.

 The only way to grant someone irrevocable exploitation rights, it should be added, is to assign them the patent. Assignments, however, are permanent. They entail the sale or outright transfer of the patent by the assignor to the assignee. An in-depth exploration of patent assignments is beyond the scope of this article, but just know that they are an option if irrevocable exploitation rights are something you seek.)

 Now that you know what a patent license is and what they involve, we can move on to a discussion of how to capitalize on them financially. The primary means of doing this is to seek royalties from the licensee in exchange for using your patent. Royalties, typically, are paid over the life of the patent. The amount and frequency with which royalties are paid from licensee to licensor must also be spelled out in the license agreement. In this way, the licensor is protected. If the licensee fails to pay the royalties that were agreed to, the licensor can revoke the patent license and retain sole exploitation rights over it.

 Here is an example of how this might work in practice. Let us say you licensed your patent to someone in exchange for royalties amounting to 20% of all sales resulting from your patent on a yearly basis. If your licensee creates something from the patent that results in a profit of $100,000, you would be entitled, by the terms of your license agreement, to $20,000 of that profit. If the licensee failed to disburse those funds to you, he/she would be in violation of the agreement and you could then proceed to revoke the license.

 (Again, the danger with using patent assignments over patent licenses is that failure to pay royalties will not revoke the rights you have already assigned. You will be free to litigate for the lost royalties, but this is often an expensive and lengthy process. With a patent license, the matter is more or less open and shut. Failure to pay royalties means revocation of the license.)

Now, some more elaboration on performance options is in order as well. Performance options are a form of protection for the licensor. They are a way to ensure that the licensee does not “sit on” the patent, ie, do nothing with it and thereby starve the licensor of the ability to capitalize on it elsewhere. There are two basic types of performance options that can be written into a patent license agreement.

 The first kind is pre-market entry milestones. In short, these are obligations that the licensee is expected to achieve or meet. They could include things like bringing the invention under a trial or validation process, creating a working prototype, satisfying pertinent regulations, progressing through any clinical trials that exist, and so forth. These performance obligations ensure that things move along at a steady pace without any income-killing lag in activity. It prevents the licensee from become inactive as a rights holder.

 The second kind of performance obligations are post-market entry sales targets. These take effect once the invention is out of the development stage and available for sale on the market. Very simply, such obligations include sales targets, profit margins, or any other measurable goal tied to the performance of the idea in the free marketplace. These obligations give the licensee concrete goals that he must attain and give the licensor a bare minimum of royalties that he can expect to reap.

 In closing, licensing a patent is one of the most reliable ways to capitalize off of one’s intellectual property. By working with a patent lawyer to draft a rock-solid license agreement and choosing your licensee(s) carefully, you will greatly increase your chances of success.

Creating and licensing an invention is a quest that many inventors embark upon, but few actually succeed at. In large part, this is due to the amount of misinformation and general ignorance to the crucial steps involved. Luckily, this is not a fate that inventors are doomed to. With some research and diligence, you can create and license a patent in 10 relatively straight forward steps. This article will lay them out for you in order.

1)      Think of an idea

The first step to creating and licensing an invention is to think of an idea for something you will get a patent for. The goal is to think of something that solves a pressing problem in a way you can commercialize. A new kind of accounting software, bicycle tires, or alternative energy devices are all examples of new ideas that could, potentially, be patented.

2)      Flesh out your idea

Before you go through the steps of patenting your idea, you want to flesh it out a bit further. Is there really a demand for it? Who will your target market be? Are there any similar or competing products you have to worry about? What will your costs be like? If you find yourself stumbling over these questions instead of being able to answer them, go back to the drawing board. Once you have an idea you can realistically see yourself bringing to life, you’ll want to….

3)      Create a prototype

Now you are ready to create a proof of concept, or a prototype of your idea. This is simply an early stage model of your idea as you see it functioning down the road. It makes sense to do this because you will learn from it, and because your patent application will benefit from having a working model to include in the claims.

4)      File for a provisional patent

Ever see “Patent Pending” on a commercial or product package? That product was covered by a provisional patent, which is, in layman’s terms, a way to obtain patent protection inexpensively for 12 months. This allows you to see if there is any interest in your product before investing hundreds of dollars and waiting years for an actual patent to be approved. In the meantime, you have the status of patent pending for those 12 months.

5)      Survey the market for people who might want to license your patent

With a provisional patent in hand, you will want to begin looking around for a bigger or wealthier company who might want to license your patent from you. Think in terms of companies who do something similar to what you have patented. Then, narrow down a list of 5-10 companies that you will focus the bulk of your efforts on.

6)      Get an appointment with these companies

Once you know which companies you want to target, you want to get appointments to talk with them. The key here is to introduce yourself as a Product Developer, not a mere inventor. This will exude an air of professionalism that established companies like to see, and it will boost your chances of scoring that critical interview.  If this isn’t your strong suit, you may choose to have someone represent you.

7)      Seek legal advice on patent licensing

Once you have a meeting secured, you will want to seek the help of a competent patent attorney. While this could be expensive, it is well worth the money you will spend. Patent licensing laws are complex, and it is not something you should just rush into without doing any homework on the subject. A good patent lawyer will explain the options for licensing your patent in layman’s terms so you can see the pros and cons and evaluate them against your own needs.

8)      Prepare a presentation for the companies you meet with

Once you have decided on how you would, ideally, like to license your patent, you should prepare a presentation in anticipation for your meetings. This presentation should emphasize the benefits of owning your patent. What is the size of the market? Is the market growing? Are you the first to market? (Or will you be?) How long will it take to bring this idea to life? Appealing yet honest answers to these questions will entice companies to license your patent from you. Again, if this isn’t your strong suit – you may wish to have someone represent you.

9)      Follow up after the meeting

Few meetings will result in a company instantly deciding to license your patent. More likely, they will take a few days to consult amongst themselves about how to proceed. The key as far as you are concerned is to stay on them and follow up in the days after the meeting. Be respectful, but certainly call back and ask them where they are in the decision making process. This keeps the onus on them to make a decision and tell you what it is.

10)  Close the deal

You may need to give a little last minute “push” to get the deal done. This could take the form of a second meeting, conference call, or last-minute questioning by the company or individual in question. The key here is to keep your cool. Emphasize why this is a good deal for all parties involved and respond to their questions or concerns in a direct way.

Follow these 10 steps, and you will be well on your way to creating and licensing an invention.

 Eric Corl is the President of Idea Buyer LLC, a new product development company that owns and operates IdeaBuyer.com- The Online Marketplace for Intellectual Property.  The site gives inventors the opportunity to showcase their intellectual property to consumer product companies, entrepreneurs, retailers, and manufacturers. You can email him at EricCorl@IdeaBuyer.com.

Intellectual property rights are plainly assets. They have value, and they can be bought or sold. There are some differences, however, when comparing IPR to other types of assets. If you are a solicitor that does not regularly deal with IPR, you will usually try to find precedents or earlier files that give you some guidance. Often, these precedents deal with hard assets; a reliance on these can be dangerous for a few reasons.

First, intellectual property rights do not have to be sold. Indeed, a purchase and sale of IPR is somewhat uncommon, because licenses are often used. The hard asset mind set becomes dangerous when you look at the deal only as a sale or potential sale. If your client asks you to transfer rights, you must not lose sight of the fact that a sale/assignment is the only option. It would be like someone coming to you looking for office space. In that case, you would not only discuss the possibility of buying a building, but you would probably also consider leasing.

Licensing IPR can be analogous to leasing, except that more than one person can license the same property.

Secondly, you will never get the same level of comfort when buying IPR as you will when purchasing hard assets. In a hard asset sale, the mere fact that the vendor has possession of the goods gives you some comfort. With abstract property like IPR, it is much easier to pass on (fraudulently or otherwise) a non-existent title. The problem is exacerbated because of the abstract nature of the property; there is no registry you can search to be 100% sure the vendor can properly sell the asset.

Further, think about what happens when there is a sale of know-how. To say that you are buying the asset is based on “old” property law and is not truly accurate. In fact you are buying a copy of the asset. The vendor will informally retain most of the information and there is nothing that can be done about it (short of extricating the brains of all people who have pertinent knowledge). In order to prevent unwanted competition in the future, you have to include special contractual terms and restrictions that are unheard of in hard asset transactions.