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Patent Licensing 101

There are many ways an inventor can bring their product to market. Some choose to create a company around their product and sell it directly, some sell it to a company to take over the production process for them, and others license their patent. In this blog post, we will discuss what licensing is and what an inventor needs to know about licensing benefits, contracts, and financial opportunity.

Patent Licensing and Its Benefits

Patent licensing is where you license your patented product to a company to produce it for you in exchange for royalties. Licensing deals give inventors access to a larger market and allows them to earn money from their idea. One of the biggest benefits to licensing your patent is that you get to keep your patent instead of selling it to a company and relinquishing ownership.

Stephen Key is an inventor who has capitalized on the power of licensing. Among the many things Key has licensed, one of his most notable is HotPicksUSA. With HotPicksUSA, Key reimagined the shape of a guitar pick from the traditional ‘alien head’ shape, opening a world of design possibilities. The idea was simple, but the product sold like wildfire and he parlayed it into multiple licensing deals to reach a bigger audience, including an endorsement with Taylor Swift and Disney. Without the help of licensing, Key wouldn’t have been able to retain ownership of his many patents and simultaneously expand quickly or parlay the HotPick into multiple lucrative deals.

Licensing Contracts and Finances

Inventors certainly have a passion for their patents, but they also naturally have something else on their minds: money. After all, inventors create their products with the hope of gaining from them financially. We assure you that this is on the licensor’s mind as well. So how do contracts and finances work in a licensing deal?

A licensing deal is always bound with a contract and includes financial negotiations. Licensing contracts are not universal across industries and require individual negotiation with the licensing company you’re working with in order to be effective and clear. There are a few things to be on the lookout for when you’re negotiating a licensing contract with a company. First, you want to be clear about what the terms of the agreement are. Some contracts financially hinge strictly on providing royalties, which allows the company to protect itself in case the product doesn’t make money. It may also seem logical to ask for a monetary advance beforehand, to protect yourself in case the product doesn’t make money, but can be tough to negotiate with some companies. Other aspects of a contract that you want to negotiate are the length of the deal, since products typically don’t have an everlasting shelf life, and the royalty rate.

If you’re looking to one day license your patent idea, first see if there is already prior art in existence for it. Global Patent Solutions’ prior art search can assist you on the path to potentially making your idea come to life. Contact us today to get started.