7 Steps to License or Sell Your Invention
What is licensing as it relates to inventions?
Licensing is giving a company permission to manufacture, distribute, and sell a product based on your idea. In exchange, you'll receive payments known as royalties. You are the licensor and the company is the licensee.
What does it mean to sell inventions?
Selling an invention is legally defined as an "assignment." You assign your intellectual property to a company in exchange for compensation. The compensation can be a lump sum payment or a series of payments (monthly or quarterly over a fixed number of years).
Before approaching a company to license or sell your idea, you'll need to do some homework.
Think about your invention from the company's point of view. They get flooded with requests to take on inventions and don't have time to perform initial assessments on every product idea. They want to understand the marketability of your product idea, manufacturing costs, and profit projections. Do this market research for them and you'll have a better chance to get a deal. In many cases, your product idea should be patented or patent pending before a company will talk with you.
Use the following steps to sell or license.
Keep in mind, you often only have one chance to make a good first impression. The important first 3 steps help you fine tune your idea before introducing your invention to a company.
- Market Evaluation - Start the process by evaluating the marketability of your invention. With a quick evaluation of the market need and competition, you screen out bad ideas before wasting your time and money.
- Concept Evaluation - The second step is to determine if people like the concept of your invention. A concept evaluation is an easy-to-use survey method you can create yourself for free.
- Prototype Evaluation - The third step is to create a prototype and then get feedback. A prototype can be a physical model, detailed drawing, or animation. With a prototype, you obtain opinions to make sure you're on the right track.
- Protection - You need some form of idea protection. Start with a Provisional Patent Application for a year of "Patent-Pending" protection while you test the market to get a deal.
- Product Proposal - Companies need to understand your invention from a business perspective. If you leave it up to the company to figure out your invention, you're much more likely to be rejected. Before approaching a company, summarize the market need, invention benefits, competitive advantages, and profit potential into a Product Proposal document.
- Company Search - Search for companies who make, market, and sell products that are comparable with your invention. Then find a prime contact in the marketing department to pitch your invention. If there's a fit, send a cover letter and your Product Proposal for consideration.
- Negotiate Deal - When the company likes your invention, discuss the terms such as royalties, guaranteed minimum annual royalties, field of use, territory, etc. When you and the company reach a mutual understanding of the business terms, create an agreement. Make sure the business terms and legal provisions are reviewed. Sign the agreement and begin to earn royalties or a lump sum payout.
More details of these 7 steps can be found in the Invention Success Kit.