Licensing your intellectual property

Are you ready to mass-produce your invention? Do you lack the resources or time to do so? You could sell a license to a manufacturer or distributor who can bring the product to market.

In simplified terms, product licensing is like trading your intellectual property for a percentage of future profits. These profits are called royalties, and you need to research your options and shop around for the best deal. The rate of royalties is only one factor in the decision-making process. You may also want to look at things like whether the licensee actually plans to sell the product; if the manufacturer or distributor is a potential competitor, they might want the licence as a way to keep you from entering the market.

Why give rights to your invention?

Reasons for licensing the rights to your intellectual property include:

  • Leveraging existing manufacturing deals and distribution channels
  • Accessing existing markets and benefitting from established brand names
  • Making a positive return on investment for relatively little time and money
  • Improving sales with the help of experienced business people

As a licensor, you have the potential to make a profit while taking on fewer financial risks.

Finding a licensee

Here are some ways you can try to find a potential licensee:

  • Contact the manufacturers of products similar to your own
  • Visit product-related tradeshows
  • Make enquires through a trade association
  • Hire a licensing agent or consultant

Shopping around for the best licensing deal may be worth your while. Even a small percentage in royalties can make a huge difference in the long term. The size of the licensee's market and the strength of their distribution channel can also influence returns.

The business meeting

The more prepared you are to present your product, the more appealing you will be to potential licensees. You can strengthen your position by showing:

  • A prototype and demonstration of the product
  • A patent or other proof of ownership of the intellectual property
  • Certificates or other proofs of claim regarding standards, safety or the environment
  • Positive market research results and financial projections

Before revealing any sensitive information, get signatures from those in attendance on a non-disclosure agreement or a confidentiality agreement.

The licensing agreement

You will probably want to obtain legal advice prior to signing any agreements. Consider hiring an experienced lawyer or an intellectual property professional to negotiate on your behalf.

The agreement should cover:

  • Roles and responsibilities of both parties
  • Details about your patent and its filing
  • Percentage of royalties
  • Amount of upfront payment if applicable
  • Duration of the agreement
  • Territorial limitations

Royalties generally range from 3–7%. The rate depends on things like product readiness and the importance of the patent.

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