Selling Patents to Companies
Patented products in the U.S. as well as international markets have a rich history of being sold or licensed to companies. Thousands of patents are bought, sold, or evaluated for purchase every day around the world. Once you have a patent, what can you learn from others who have been through the process? What is the best strategy – should you sell your patent to one company or should you offer a license to use the patent to several companies? Simply owning the patent won’t generate any money for you, and in fact if you’ve been through the patent application process you know it usually costs you money rather than generates money.
To profit from your new patent (or existing one if you’ve held a patent for a while), you must sell the patent, license usage rights, or market the product yourself. When you sell a patent, you are guaranteed a quick payoff for your idea. Thousands of inventions are patented each year and many are in some stage of a sales or licensing process within a short time. By selling a patent outright, you do gain some immediate financial reward for your invention.
On the other hand, licensing a patent to more than one company may generate more revenue for you than selling your patent to one company, but it’s usually a long-term proposition. It takes time for each company that licenses your patent to make and sell the patented product or idea. Most companies have processes in place for building new products, creating advertising and marketing programs, as well as supporting sales of new products through their existing organizations. These steps take time and if you license to patent to more than one company, you will have to wait for each company to produce and sell your product.
Finally, if you decide to make and market your new product by yourself, then you will need to find a way to make the product or service, get the new product in front of potential customers and buyers, as well as have an organization ready to handle all the purchasing and customer service requirements for selling the product. Marketing your product yourself can be rewarding but it can also be time consuming and expensive.
If you decide to sell or license your patent, you have several choices and options in how you approach the process. You can sell your patent yourself through direct contact with potential company buyers. You can engage the services of attorneys to help you sell your patent. Or, you can use a patent marketplace to offer your patent to interested buyers, helping you make initial contact with interested buyers or companies that want your new idea. In all three scenarios, the advice and services provided by patent attorneys is usually helpful. They have experience in the field of selling patents and can help you with the paperwork needed to finalize the transaction. Patent attorneys will also be on your side during any negotiations and be looking out for your best interests.
No matter which option you choose, there are several things to consider during the sales and negotiation process. First, you need to make sure your expectations are realistic. Given today’s economic climate, many companies are pulling back on acquisitions, research and development, or new investments. Nonetheless, you need to have the facts straight about your market and potential customers or end users. Do not depend on the buyer or your attorney for fact-based consumer or marketing research. With today’s internet, it’s easy enough to do your own research and you need to have a concrete idea of what the true market size is for your new idea.
Next, be sure to stay focused on what’s best for you, the inventor. It’s sometimes hard to balance, but an ideal outcome is to get as cash up-front in the deal as possible, a high royalty payment and a high annual minimum. Most patent sales and deals include all three elements. Companies buying your patented product should be willing to pay you a lump sum amount of cash up-front in order to ask you to give up or sell your rights to future use of the patent or new products. In addition, you can ask for royalty payments or a percentage of each sale the company makes based on your patented idea or product. Finally, most patent sales agreements will have a minimum annual dollar amount that the company promises to pay you for the patent rights. The purpose of this minimum guarantee is to protect you from being in a situation where you’ve sold the patent, but the purchasing company is not taking action on producing and selling the product. Without a minimum annual payment guarantee – whether the buyer actually produces and sells the product or not – you could be left without royalty or future payments of any amount.
It’s important to recognize that these areas are all interrelated. If you get more cash up-front, that usually means your royalty payments will be less. With an exclusive arrangement to sell your patent to one company (and most companies will ask for exclusivity), you will need to be able to negotiate effectively. And, as you would expect, the manufacturer or company buying your patent will be the most interested in minimizing these three factors for their own benefit. That’s why it’s important for you to do your homework, know the market and sales potential of your idea independently, and secure the advice and counsel of a patent attorney. If you are prepared, you can sell your patent with the best possible results.