Tips for inventors on licensing their invention.

So you have an invention that has been viewed by several knowledgeable individuals who believe that it will be a significant marketing success. You have applied for a patent. You decide to license the invention in return for royalties but are not sure if you will benefit the most from licensing to one major company (called an exclusive license) or to license to multiple companies (called a non-exclusive license) that would be interested.

To license your product means you grant the right to a manufacturer to make, market and sell your product in exchange for a royalty. The royalty is paid as a percentage of sales, or a per unit dollar amount, or some other arrangement. Whether to grant an exclusive license or multiple non-exclusive licenses really depends on the product.

If your technology can become a standard that is needed by all players in a specific market to perform their business, a non-exclusive, widely held license would be the most advantageous. If your product needs one company to invest heavily to commercialize the product, they will not want to have others be able to get a license (at least for a time) that puts competition in their face too quickly. Also one exclusive license may be more advantageous if the market is very competitive and there are several alternatives to your product.

When you pursue licensing, most companies will insist on an exclusive arrangement. However, this is not an ironclad rule. When you are going through the preliminaries with a company that is interested in licensing your invention, just ask and see what the response is. One option is to offer a company a lower royalty in exchange for a nonexclusive agreement. Another possibility is to offer exclusive licenses in separate, non-competing markets.

Generally speaking, you can grant an exclusive license for more money than a non-exclusive one. But the deal depends on many things including the financial capabilities of the licensee. A market-leading company with an exclusive license may be much more motivated to devote its resources and to push ahead with your product knowing that there is no competition. You can probably negotiate a larger up-front payment and a higher royalty percentage.

If you grant a company an exclusive, be sure to have your license agreement require a substantial minimum annual royalty to ensure that your licensee performs well from the star. In this way you can change licensees if the minimum royalty is not met.

If you have some money, you believe in your invention, and you are having difficulty licensing your invention, consider starting a business based on your invention. If your product proves successful, you can later sell out your interest for more money than you might get by licensing alone. You can also license others after you have established a market, to allow other manufacturers to also invest and capitalize on your invention. They will also pay royalties.

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