How to License Your Patent

Many – perhaps most -- inventors don’t make the things they invent. Instead, they try to earn money from their inventions by licensing their patents to others.

Some companies make money from licensing patents without inventing anything at all. They buy up patents from inventors and seek to license them or, if necessary, sue for infringement. These companies are called “patent assertion entities” (PAEs) and some are derogatively referred to as “patent trolls.”

If you hope to license your patents, here are some things to keep in mind:

1. Finding appropriate licensees usually requires a serious investment of time and effort for research and marketing.

2. Scammers often try to take advantage of new inventors. “Invention promotion” companies tell inventors that they have a “million-dollar idea” – then charge hundreds or even tens of thousands of dollars for dubious marketing services. A company asking you to pay up front – rather than share in the licensing proceeds – may not be legitimate.

3. A patent doesn’t give you the right to DO anything. It only gives you the right to exclude others from practicing the invention described in the patent without your permission (i.e., your license).

4. A patent grants the patent holder the exclusive right to exclude others from making, using, importing, and selling the patented innovation for a limited period of time. Each of those rights can be licensed separately, in separate geographic markets, and in separate industries.

In other words, a patent license isn’t “all or nothing.” For example, you might license one company to use your patent in the biomedical field in the US, and another company to use it in the agricultural field in Brazil. A single patent can thus be the subject of multiple licenses and multiple royalty revenue streams.

5. Because a patent license can involve a bundle of rights, it’s important to spell out in the license exactly what rights are being licensed and for what markets. Language like “ACME hereby licenses Patent 123 to BETA” may be overbroad.

6. Patents may be licensed on a stand-alone basis, but they’re also often licensed in conjunction with trade secrets, know-how, documentation, and unpatented technology. It’s also common for the patent owner to provide services to help the licensee make use of the patented technology -- for which services patent owners usually charge extra.

7. When royalties are based on sales of licensed products, as they usually are, it’s important to have the ability to “pull the plug” on the license if the licensee doesn’t bring the products to market in a timely fashion or if sales fail to meet expectation.

It’s common for a license agreement to include a deadline for a product to be sold, and to set sales (and thus royalty) targets. If the licensee fails to meet those deadlines and targets, then the licensor has the option to terminate the license and try to find another licensee who will do a better job of commercializing the invention.

8. Patent licensing isn’t for amateurs. It’s important to work with an experienced patent licensing attorney to avoid expensive mistakes that can reduce the value of a patent.