Patents don’t make money just by sitting in a frame on your living room wall. A patent can only do you good if someone is making full use of it, and that demands a certain level of capital investment, marketing, and distribution.
If you have a nose for business and either a few reliable investors or a fair amount of life savings lined up, then it’s possible to build a new business on the back of a single good invention. Or, if you’ve already done that, you can expand your business with a new product. But if you’re not the entrepreneurial type, or if you don’t have the time or the resources to create a startup, there are still ways for you to cash in on a good idea.
The Licensing Arrangement
If you license out your patent, you will enter into a contract called a license agreement. By signing this agreement, both parties agree to all the terms laid out within it.
A license agreement usually works like this: you remain the owner of the patent, but you’re giving the other entity the exclusive right to use, manufacture, and/or sell your product either for a standard license fee or for royalties, a small percentage of the profit of every unit sold.
The Fine Print
Although the most important part of a license agreement is who claims ownership and how the licensee pays for the license, there are other details in these contracts which you should definitely watch out for before you put your name on anything. The license may last until the patent completely runs out, or else it might give the licensee an option to buy the patent after a certain point, and this may be good or bad for you depending on when you’d have to pay expensive maintenance fees.
Most patent license agents prevent the licensor from licensing out to a third party since that would make it far less valuable to the first licensee, and they will spell out penalties for breaking the terms of the contract without the other party’s consent.
In short, then, to license a patent means to let someone else use it in exchange for giving you money. But you should make certain you know every word in the agreement before you sign it, because contract law in the United States can be very serious business.