Consider licensing your invention or product if the following sounds like you:

You have come up with this great concept, and you love the process of developing your idea, but not neccessarily the prospect of running your own business. Or maybe you don't have the financial resources to get a business off of the ground. The option for you may be licensing your invention or product.

What Is Licensing, Anyway?

A licensing agreement is a contract between an inventor and another person or company, usually a manufacturer, who will develop and sell your product. In this agreement, the inventor licenses the rights to his or her idea or patents, copyrights, or trademarks to a manufacturer. Typically in return for the idea, the inventor will get a percentage of the sales revenue.

Why Should You License?

You may wonder "If I will only end up with a small percentage of the profits, why should I license my product in the first place?"

Here are some of the benefits:

  • The manufacturer assumes all the costs in producing, marketing, and distributing the product; thus taking the financial burden off of you.
  • The manufacturer assumes all of the risk associated with the product. This applies to a number of areas, including possible market rejection of the product, product liability issues, and other unforseen market conditions.
  • By licensing to a manufacturer with established distribution channels, an inventor's product can quickly be integrated into the product mix and get rapid market penetration. This likely achieves a much broader distribution than a new, sole inventor can achieve.
  • You receive a royalty payment, usually based on a percentage of product net sales, as compensation for assigning rights to the manufacturer.

Why Do Manufacturers Want To License?

For manufacturers, licensing inventions from outside inventors is a great way to save money on in-house research and development. It is basically a way to outsource product development. In fact, many companies have reduced their in-house product development budgets with the hope of taking advantage of the availability of outside intelligence. Also, outside inventors are not hemmed down by the internal rules and restrictions that tend to develop in large companies. They are more likely to offer products and ideas that fall "outside the box" of existing thought at the company. This is a great way to bring fresh ideas into the company without incurring the expense of new personnel, mind-expanding consulting approaches, or off-site group exercises.

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