Innovation is experiencing a remarkable surge, with global patent filings tripling in the last decade.1 This explosion of intellectual property is a testament to the pursuit of groundbreaking ideas and technological advancements that continue to shape communities around the world. Over 17% of businesses in Canada currently own at least one type of intellectual property,2 while patent applications in Europe reached a new record when they increased by 2.5% in 2022.3
To earn money from a patent, inventors have three options: manufacture and commercialize the invention independently, sell the patent, or license it. In this blog, we'll discuss patent licensing and how to start earning income from your invention through licensing royalties.
What Is Patent Licensing?
Patent licensing is an agreement between the inventor (licensor) and another entity (licensee). The licensee pays the licensor for the rights to manufacture and commercialize the patented invention for a specific period.
5 Essential Steps to License a Patent
Licensing a patent for your invention requires careful planning to strengthen your position against competitors and in front of licensees. Here’s a quick guide to getting started with patent licensing:
1. Assess Licensing Interest
Before pursuing patent applications and licenses, you need to research and identify market opportunities to determine if your invention will interest licensees.
To start, consider whether your invention:
- Can deliver valuable results
- Has the potential for commercial success
- Can be considered a novelty or new idea.
If your answer is "Yes" to all three, you have a solid basis for filing a patent application.
2. Own or Apply for a Patent
To achieve a licensing agreement, you must first own your patent or have a pending patent application. Owning a patent ensures you have a legal right to make, use, and sell your invention. If you’ve only applied for a patent and don’t own it yet, this still indicates to potential licensees that you are serious about your invention.
Note that, to qualify your invention as a patent in most countries, you must keep it confidential. In general, non-disclosure agreements are vital throughout the licensing cycle to protect both the licensor and the licensee.
Once you've settled your patent ownership or application, you need to consider which type of patent license works best for you.
3. Choose Patent Licensing Type
The most common types of patent licensing are:
- Exclusive Licenses - With an exclusive license, a single licensee holds full ownership rights of the patent and can monopolize the product price in the market. All patent owners must agree to the exclusive license, and the licensor will remain the sole owner of the patent. Generally, you can ask for a higher price because you take a bigger risk on your royalty earnings by granting patent rights to a single entity.
- Non-Exclusive Licenses - With a non-exclusive license, multiple entities, including the licensor, are allowed to produce the invention. This standard licensing scheme doesn’t require significant investments and can be profitable even when manufactured and marketed by various licensees. It also offers inventors the potential to receive profits from multiple entities.
No matter which patent licensing type you pursue, you first need to find the proper licensee(s) for your invention to start receiving patent licensing fees and royalties.
4. Find Potential Licensees
Once you have your patent application ready, you can then start looking for licensees willing to commercialize your invention under a "win-win" arrangement. There are several ways to search for potential licensees, depending on the nature of your patent. You can:
- Research the competition to discover organizations that manufacture similar products and competitors looking to enter this section of the market.
- Analyze your patent portfolio to see which companies are actively citing your patent for reference on a country level.
- Participate in trade shows and talk to company representatives from your target industry.
- Advertise on patent websites. Make sure to check their credibility with your local Inventor Association to avoid scams.
- Work with a patent broker who can match you with the ideal buyer and help you determine the licensing value and potential of your patent.
After narrowing down your list of potential licensees, it’s time to get in touch and pitch your invention.
5. Pitch Your Invention
Before signing a patent licensing agreement, potential licensees typically want to see how they can make money out of your invention. Pitch your invention to them by:
- Planning A Presentation - Demonstrate the value of your invention in a strategic presentation. Conduct thorough research to ensure you can explain in detail how your patent can help increase or expand your target's market share. Make sure to include the pain points your product solves, its unique attributes, a risk and investment analysis, and your license status.
- Negotiating Agreement Terms - Patent licensing contracts include, among other things, the duration of the agreement and the payment scheme. Licensors typically receive a certain amount as an advance payment on top of licensing royalties, which unusually range between 2% and 5%. If you’re not sure where to start with term negotiations, it’s always to your benefit to get in touch with a patent or IP attorney for professional legal support.
Confidently License Your Patents With Ontologics
Patent licensing presents a lucrative opportunity for inventors to capitalize on their innovations and generate substantial revenue streams. By granting rights to manufacture and commercialize patented inventions, licensors can earn royalties and licensing fees without shouldering the risks and costs associated with bringing the product to market themselves.
However, after signing the desired agreement, you can’t just sit around and wait for the royalties to come in. As a patent owner, you have to maintain your license’s status by promptly handling maintenance fees, monitoring for infringements, and resolving issues as they arise.
A comprehensive IP portfolio management system like Ontologics' AI-driven platform can help you keep track of new patent filings and identify instances where you need to file objections to competing applications. Whether you're just starting on your patent licensing journey or you're ready to scale your patent portfolio, contact our sales team today.
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