Patent Licensing – The Ultimate Guide

Patent Licensing Info Guide

Patent licensing is considered one of the most viable means of commercializing a patent. 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.

What is Patent Licensing?

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 patent licensing 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.)

Patent Licensing: How to Capitalize

Now that you know what patent licensing is and what it involves, 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.

Patent Licensing Structures

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.

Patent Licensing Performance Options

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.

Other Recommended Patent Licensing Articles:

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 patent license agreement and choosing your licensee(s) carefully, you will greatly increase your chances of successfully licensing your patent. If you have any questions, feel free to email me at ericcorl@ideabuyer.com.

20 Responses to “Patent Licensing – The Ultimate Guide”

  1. Lavonda Says:

    I am currently researching information and reading about licensing my product (Gro-aut Hair Growth Oil). I found this article very helpful however this is the first place where I have read with an example of 20% royalties. Everywhere else have stated receiving royalties of 3-7% with an average of 5%.

  2. Mark Says:

    Hello,

    I have several ideas for patents or improved patents, but I’m not interested in promoting, selling, developing prototypes. I’m just the IDEA GUY interested in compensation. Any suggestion?

    Thanks,
    Mark

  3. Product Scout Says:

    Hi Mark,
    Unfortunately – there are a lot of “idea guys” and without proper traction, you will have little credibility. Licensing or selling a patent requires a lot of time and effort. You may choose to get your idea to the prototype and provisional patent stage where you can potentially find an entrepreneur willing to partner with you. However, it is often the inventors that believe in their product and have skin in the game that attract others to do the same and have a better chance of success. You can improve your chances of success by diligently researching your market and ensuring your product is unique and would have market value. I hope that helps.

  4. steve Says:

    i have received a patent for a baseball pitchers pitch location training target, i would like nolan ryan or his sons to take a serious look at our design. our target represents the four courners of the strike zone, and we have incorporated the breakable clay targets used in skeet shooting. these targets are inexpensive and bright orange, creating a specific focous for the pitcher. when a corner of the strike zone is hit it results in a broken skeet. we have proto types and have successfully tested our product. we set this up on opening day at the little league park, we had 30 boys throwing at this target for 8 hours straight they LOVED IT. you tell a boy he can break something , and he will practice all day. repetition is the greatest teacher.

  5. steve Says:

    i have received a patent for a baseball pitchers pitch location training target, i would like nolan ryan or his sons to take a serious look at our design. our target represents the four courners of the strike zone, and we have incorporated the breakable clay targets used in skeet shooting. these targets are inexpensive and bright orange, creating a specific focous for the pitcher. when a corner of the strike zone is hit it results in a broken skeet. this design has a bearing system in a hub,allowing a swivel motion to swing the target,then returns to face the pitcher. we have proto types and have successfully tested our product. we set this up on opening day at the little league park, we had 30 boys in line, throwing at this target for 8 hours straight, they LOVED IT. you tell a boy he can break something , and he will practice all day.We all know repetition is the greatest teacher. we need good advice and a little luck please reply.

  6. Inventor Says:

    Great article!! You guys have the best newsletters. Thanks.

  7. Billy Gryner Jr. Says:

    I have an innovative pet product that has never been seen in the field or in the market. It is fully protected in the USA.

  8. margaret Says:

    Yes,I am looking for a company to licensing my provisional patent on a improved household item, a non-disclosure form will be available ! Thanks

  9. Kim Weisser Says:

    I have a utility patent on an idea that I would like to go to a manufacturer or an APP developer. Anyone out there interested. I already have interested businesses that will use it.

  10. andy Says:

    hi i have a us paten and im looking for a licensing agreement any help woul be good thanks andy

  11. Ms. Scovers Says:

    I have an amazing Therapeutic, Learning, Therapy & Rehabilitation game, which I have my Patent Pending Status & I am looking to license my Patent to a Lincensee. This game would benefit, everyone who comes into cntact with game. This amazing game can be made into different lanuages to accommodate, everyone.

  12. Richard Teague Says:

    I have a patent currently at the USPTO due to be co.mpleted in 6to8 months.It is an accessory for marine applications. An art search has been done with virtually nothings similar to this device.I named it the GENREST. It is a devise the carries a portable generator outside of a powerboat or houseboat and patio boat therefore. Reducing the risk of asphyxiation a real danger in boating industry it also reduces the noised level significantly, no spark danger or burns from exhaust, eliminates the risk of fuel spillages .I have built a few prototypes and tested its durability and dependability with great success. I am looking to sell the licence to a manufacturer. Interested parties please e-mail

  13. Marie Says:

    Thank you for these informative articles. Like others, I have a patent on an interactive belt for children and early teens. It can be used as a fun accessory or made to be used in behavioral treatment programs. Initial surveys of children and parents found a high interest in the belt.

    It is at the stage where a prototype is needed, and I am looking to license it out or partner with someone to develop it. I can be reached by email at ac24102(at) gmail.com.

  14. Product Scout Says:

    Hi Marie, You can submit your idea here and we will let you know if it is something we would be interested in within 48-72 hours. http://www.ideabuyer.com/submit.php

  15. Kent Allen Says:

    Cannot get my new “TOOLS” listed to LICENSE.

  16. Product Scout Says:

    Hi Kent, Thank you for contacting us. What seems to be the problem?

  17. Lilly Clement Says:

    I am so Grateful for finding this site. I would like to find a partner with NFL License to bring my product to the market. I call it Nannies Mosquito Garage Netting. This design was made in North Carolina First for my Children, (2 car Garage)May 6, 2009. I recently submitted for Patent Application date (09/18/2015) with NFL Logo and Prototype (Redskins) Very Pleasing to the eye
    NO TOOLS NEEDED to install or removes in Minutes.
    Current Non- Provisional Patent date was (04/06/2015) Basic Black
    Application # 14/680,009
    Thanks Again for your Site which is Very Helpful.
    Lilly Clement

  18. Sal Banda Says:

    Hello my name is Sal Banda, product developer of the “ihear”. Here is my Online Product Profile for the “ihear”. A Non Disclosure Agreement will have to be signed to see details. Patent pending. Once you see the detils. You will believe that we can give the deaf and hard of hearing a life changing experience. Thank you for your time and consideration. Sal Banda

  19. Bob p. Says:

    How do I go about getting a patent for an invention I have….can someone steer me in the right direction? ?? Thanks much appreciated

  20. Jeanette Everett Says:

    I have a patent on a kitchen gadget, just got it (Aug 2016), I need help to license it. PLUS I have an EXCELLENT idea (toiletry gadget), I need quick help on getting a PPA on it.

Leave a Reply