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How To Profit From Your Patent

After spending so much time developing a unique invention, you are ready to profit from it. You can make money from your invention in two ways. Some inventors start a new business to make, market, and sell their inventions. Most inventors get a patent and then license or assign the rights to the invention to another entity.

While you may want to hurry and start the commercialization of your invention, there are steps to take before you begin. This article will help give you an overview of what you can patent and how you can profit from it.

Intellectual Property Law Overview

The first step is establishing and protecting your intellectual property rights (IP rights). A small-business owner, a startup venture, a nonprofit, or an entrepreneur can protect original ideas. Intellectual property protections safeguard your invention from others copying or exploiting your work.

There are four different types of intellectual property:

  • Trade secrets protect valuable and confidential information that gives companies a competitive advantage.
  • Trademarks protect unique and distinctive symbols, logos, names, and signs. Trademarks distinguish goods or services from other businesses. The United States Patent and Trademark Office handles federal trademark registration.
  • Copyrights protect original works of authorship in a fixed medium. These can be literary works, musical works, or artistic works. You also can copyright sound recordings and architectural works. Copyright protection provides artists the exclusive rights to their work. The U.S. Copyright Office handles copyright registration.
  • Patents protect inventions. Patents provide exclusive rights to the inventor. This prevents others from making, using, or selling inventions without permission.

There are three types of patents: utility, design, and plant. The United States Patent and Trademark Office (USPTO) handles patent law and registration.

Secure a Patent

Before commercializing your invention, you must secure a patent from the USPTO. The fees for a patent application are nonrefundable. That's why an inventor must do their homework before applying.

  1. Conduct a patent search. Make sure your invention meets the eligibility requirements for patent protection. You can do this yourself, but it would benefit you to hire a patent attorney to do this for you.
  2. File a patent application. If there are no patent registrations that would stop you from moving forward, submit your patent filing. Once you are sure your invention is not already patented, file a patent application with the relevant Intellectual Property Office. In the U.S., that is, the USPTO.

Once you have a patent, you can move forward, monetizing your patent rights.

Assign Your Invention to Another Entity

In some situations, you may assign your rights in the patent to another party. This gives them your overall rights to the invention for a lump sum payment.

Another company or individual may also assign a patent application. Once it receives full patent protection, this gives the assignment recipient full control of the invention. An invention not filed with the U.S. Patent and Trademark Office (USPTO) may also be assigned.

 

Licensing: The Most Common Way to Profit From Your Patent

license is a type of contract. It is between the inventor or person with the patent rights (licensor) and the person who wants to use the right (licensee). It gives the licensee the right to make, use, and sell the invention.

The licensee has to pay the inventor. This includes a license fee and royalty payments. Royalty payments are calculation based. These payments are a percentage of the net revenue from the invention. They can also be payments for each unit sold.

Technology transfers involve granting permission to another party to use your patented technology. The transfers are in exchange for licensing fees or royalties. The precise terms of the license are in language such as "Inventor X gives Company Y a license to make, use, and sell invention Z in exchange for royalty payments set out below."

Types of Patent Licenses

There are many different types of licenses. Make sure you pick the one that is best for you. These are typically distinguished by length of time and breadth of use. A license may carve out a specific use for the patent or be for a limited time.

The main types and terms for patent licenses are:

  • Exclusive license: The inventor agrees that they will license the invention to only one party. These licenses limit the inventor's profits, so the licensee may have to pay a much larger sum of money for this right.
  • Nonexclusive license: The inventor retains the right to license the invention to multiple parties.
  • Sublicenses: A licensee may be able to issue more licenses on the invention to other companies. How much the inventor can enjoy these "sublicenses" depends on the license agreement with the first licensee and licensor. There may be requirements that the original licensor must grant permission for each sub-license.

No matter what the type of license is, there are considerations for an inventor to think about.

  • Time considerations: The license agreement can be for a set period, often the patent's life or shorter. The license agreement can also be for an indefinite period, like month to month.
  • Geographical considerations: The agreement typically states the geographical limitations of the license. For licenses on patents issued by the USPTO, the license often will limit the licensee's rights to the invention within the United States.

Cross-Licensing

A company or inventor can "trade" licenses with other companies and inventors. This is "cross-licensing." It occurs when a new product requires several patented inventions to be functional.

Let's say one company has a patent for a new bicycle frame, and another company has a patent for a new bicycle wheel. If people want a bike with the new frame and wheels, the two companies can make a cross-license agreement. This lets them use each other's patents and make the most money possible.

Joint Ventures and Partnerships

Sometimes collaborating with an established company through joint ventures and partnerships can bring your patented invention to market more effectively. Collaborating with established companies allows you to have access to their expertise, resources, and distribution channels.

If you plan to work with international partners or market your invention globally, consider pursuing international patent protection. You can do this through the World Intellectual Property Organization.

When discussing your invention with potential partners, protect your invention by having them sign a nondisclosure agreement (NDA). Taking necessary precautions when it comes to IP protection is crucial when discussing your invention.

Inventions Made for Hire

The employment contract usually determines whether an inventor can profit from something created during work hours. If the agreement requires it, the inventor must give the employer all rights to the invention. Many companies encourage inventors by providing bonuses and rewards for new patents.

Even if the employment contract doesn't say so, the employer might still own an invention because of the "employed to invent" rule. This is similar to a work made for hire. This applies when an employee is hired to work on specific tasks or goals, including inventing. In such cases, the employer owns any resulting inventions.

Sometimes, an employer may only have a "shop right" to an invention under the "employed to invent" doctrine. This means the employee still owns the invention, but the employer can use it without paying the employee. Shop rights happen when an employee uses the employer's resources to create an invention. For example, using their workshops, materials, or time.

For instance, let's say Ryan doesn't have a work contract but makes a new invention at the machine shop where he works. Ryan will own the patent and can decide how to sell or share it. But, under a shop right, his employer can use Ryan's invention without paying him.

Seeking Profits for Your Patent? Get Legal Advice

Finding a way to monetize your invention can be stressful. You must be cautious, especially when offers that seem like a good deal tempt you. Call a patent law attorney if you need help with the legal protection of your invention and reviewing a patent licensing agreement.

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Next Steps

Contact a qualified business attorney to help you identify how to best protect your business' intellectual property.

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