A License to Make Money
If you are an innovator who loves the process of developing new product ideas but isn’t as excited about the process of manufacturing and marketing that product, then one of the best ways to make money from your invention is to license your idea to a company who will take over the responsibilities for bringing that product to market. Licensing means that you grant rights to another company (or companies) to sell your invention in return for them paying you a royalty for every product sold.
A licensing deal can be set up in a number of different ways. There is an exclusive license, which grants only one company the rights to produce and sell your invention. There is a sole license, which means that you grant only one company the rights to produce and sell your invention, but you retain the rights to also produce the invention yourself. And there is a non-exclusive license, which means any number of companies are granted the rights to produce and sell your invention.
Royalties are typically based on product sales and paid to you either monthly or quarterly. You may be able to negotiate a higher royalty or perhaps even an upfront advance on future sales in return for the exclusive rights to your idea. But if your idea has application in different vertical markets it may be better to grant non-exclusive licenses to several companies in different industries or with different customer focuses.
One pitfall is if your licensee doesn’t do a good job promoting your product and sales are sluggish, or they decide not to produce or market the product after all, you won’t see any royalty payments. You can consider including a time limit in the terms of the license so that after a certain period, if things are not going as planned, you have the right to end the agreement and take back the rights to the product.
All in all, license agreements can be a win-win proposition for both you as the licensor and your potential licensee. You get paid for coming up with a great idea and they get paid for offering a great new product. If you’d like to learn more about how you can make money on your inventions, email us at firstname.lastname@example.org.
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