How Do You License a Patent and Commercialise Your Idea?

Summarise with: ChatGPT Claude Perplexity Microsoft Copilot

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Table of Contents

• Commercialising Your Patent
• Patent Valuation
• Key Takeaways

If you are an inventor of a product and have acquired a patent, it is up to you to decide how to use these intellectual property (IP) rights to propel your business’s success. This article will explain how you can license a patent as well as other options for commercialising your intellectual property.

Commercialising Your Patent

Inventions and ideas can be wasted if not appropriately commercialised. You have probably filed for your patent to not only protect your invention but to generate revenue by commercialising that invention.

Three effective ways to monetise your patent include:

1. licensing;
2. assignment (sale of the patent); and
3. self-commercialisation.

Key questions to ask yourself when considering these commercialisation methods are:

• what need does your invention fill?
• what will the monetary benefit be as you sell this product?
• who are the key competitors in the market?

When discussing your invention with potential buyers or licensees, you should use a non-disclosure agreement (NDA).  By entering into an NDA, you ensure your negotiations will stay confidential and that competitors and other industry players will not get wind of your deal or idea. If the other party breaches an NDA, you can take the appropriate legal recourse.

Licensing

As an inventor, patent licensing can be a profitable practice. A licence on a patent-protected technology consists of a contract. The legal owner of the patent gives another party (the licensee) the right to exploit the technology in exchange for an upfront fixed fee or royalties.

Licensing your IP is often a good approach to successfully monetise your IP because you do not have to spend your own money to bring the product to market.

Often the price and method of payment for the licence are determined by the bargaining power of the parties and their extent of private knowledge.  When the patent holder has complete information about the bargaining power, they may prefer to take an upfront fixed fee.  However, once there is private information about the relative bargaining power of the parties, the patent holder may prefer to license by way of per-unit royalties.

There are usually three kinds of licence arrangements:

• exclusive licence – where only the licensee can utilise the IP;
• sole licence – when the licensor or licensee each have the right to utilise the IP; or
• non-exclusive – the licensor can grant multiple licences.

Choosing which type of licence is best for your patent can be important for successful commercial exploitation.  A non-exclusive licence may mean you can also commercialise your IP nationally or internationally, maximising your profits. You may even consider expanding your brand to new markets.

Assignment

If you decide not license your patent, you may decide to sell it.  The sale or assignment of your patent will generally involve an upfront, lump sum payment for the rights to your patent. The assignment process can be quick and simple and means eliminating any ongoing costs for your patent.

The key disadvantage to selling your patent is losing your IP rights. Once you sell your patent, you know longer own it. This is one of the main reasons you may want to license a patent instead.

Self-Commercialisation

You may consider marketing your patent yourself instead of allowing third parties to pay for the rights.  In this case, you will need to use your patent to prevent competitors from creating infringing products.

Taking on the challenge of commercialising your IP can see you reap the benefits of the entire profit. Conversely, if you license a patent, you will usually only receive a small amount of the overall profits in royalties. In some cases, as little as 6% of the total profit.

However, the disadvantages of taking on the challenge of selling your product can be the startup business costs. It is also a difficult task if you lack the appropriate networks to get started with manufacturers and distributors.

Patent Valuation

It is important to distinguish between the value of the invention itself and the value of the patent protection. Understanding this will help you to monetise your patent.

The value of an invention is defined by the flow of profits you generate throughout the invention’s economic life. In contrast, the value of patent protection is defined as the economic return over and above that which could have been generated without the patent protection. This is known as the ‘patent premium’.

The value of patent protection varies, depending on the innovator and market characteristics surrounding the invention. These are considerations to make when companies invest in your invention.

Key Takeaways

It is important to consider what method of commercialisation will lead to the most profits for your business. Deciding whether to license a patent is part of this process. Alternatively, you may wish to self-commercialise, which is a bigger challenge but means you increase your potential profits.