Selling Your Patent: What You Need To Know

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A patent is an important document which grants ownership to an invention. However, simply owning a patent won't generate a dime for the inventor. To profit from your idea, you must sell the patent, license usage rights, or market the product yourself.

Months—or years—of tinkering and experimenting have turned your idea into a viable product. A successful patent search and patent application fees have resulted in you getting a patent for your invention. Now what?

A patent is an important document which grants ownership to an invention. However, simply owning a patent won't generate a dime for the inventor. To profit from your idea, you must sell the patent, license usage rights, or market the product yourself.

Take the Money and Run

When you sell a patent, you are guaranteed a quick payoff for your idea. Thousands of inventions are patented each year but only a minuscule amount actually generate substantial, if any, profits. Some languish so long that their patent expires. By selling a patent outright, you at least gain some financial reward for your invention.

Selling a patent allows the inventor to generate income that will help pay the bills or finance other promising ideas. Selling a patent outright also eliminates the huge financial outlay required to start up a business based on a new product.

Although a quick, hassle-free payoff sounds enticing, by selling the patent the inventor gives up the right to future profits from his or her creation. In addition, the money earned from selling a patent may not be substantial unless the product has been on the market for a long time. The patent buyer usually won't want to spend a lot for an unproven product that might not generate a big profits. But what if the product does becomes a hit? You sold the patent for $500 but new patent owner rakes in $500,000 in profits!

Deciding on an outright sale of your patent depends on the invention. Is it an innovative idea that will revolutionize an industry? Or are there similar products already on the market?

Licensing Rights

Licensing the right to make, use, or sell your product is usually the most profitable route for inventors. As patent holder, you retain ownership of the invention and earn royalty payments on future sales of the product. You can grant an exclusive license to one company or several companies.

Your invention stands a better chance of generating big bucks if licensed through a well-known company that already has the consumers' confidence. In addition, the licensee assumes liability for any product mishaps.

Like selling a patent, licensing usage rights is no guarantee of financial riches. If the product fizzles in the marketplace, so will your royalty checks. Royalty rates run from 5% to 20%, so the product would have to sell quite a bit for the patent holder to earn big money.

Relationships with a licensee can go bad, thus costing you more legal fees and headaches. Before signing over licensing rights, research the potential licensee and contact inventors' organizations such as United Inventors Association.

Self Help

If you make and market your invention yourself, all the profits will go to your bank account. However, those profits may be eaten up by legal and accounting fees, business start up costs, and headache medicine. Most inventors make lousy business folk. Unless your invention requires scant start up capital and you are well-versed in business bureaucracy, it is probably wiser to sell your patent or license usage rights.

Selling or Licensing Options

Be professional with your marketing efforts. Prepare formal letters and nice looking brochures to showcase your invention. It also helps to have a prototype or at least a good drawing of the product.

1. Direct Contact: Make a list of manufacturers and potential users of your invention. The Thomas Register, available in libraries and online, has contact information for thousands of companies. The Yellow Pages and Internet are also good research tools.

When making contact with a firm, present yourself as a Product Developer, not an inventor. Request a face-to-face meeting with a Sales or Product Manager in the company.

This option is only advisable once you have actually secured a patent. Otherwise, you must ask the company to sign a non-disclosure agreement before discussing your idea. However, most companies will not sign this agreement as their R&D team may already be at work on a similar idea.

2. Trade Shows: Attend trade or invention shows where you will encounter companies or individuals interested in your product.

3. Advertise: Buy space for new product announcements in trade publications and inventors' magazines to generate potential patent buyers. The Patent Trade Office publishes a gazette where inventors can advertise their products for around $25

4. Venture Capital: Finance your invention by soliciting partners to provide capital required to launch the product.

5. Patent Website: Several companies have sites on the Internet where inventors can advertise their patents for sale. Some sites are free while others charge a fee if the patent is sold. Before posting your invention anywhere, check out the United Inventors Association website which has news on unscrupulous invention schemes.

6. Brokers and Submission Companies: A contingent fee broker will market your invention to manufacturers and receive payment for services if the product is sold, typically in the form of a percentage of royalties or cut of the sale. Never pay a broker in advance for his services. Reputable agents will only charge you if they sell your invention.

Beware of invention submission companies. There are lists of inventors who have paid thousands of dollars to these companies and have nothing to show for it but an empty wallet and broken dreams. Many of these companies have been charged with fraud by Attorney General offices in various states and by the federal government.

Before using the services of any broker or company that offers to market your invention, check them out through the Better Business Bureau and United Inventors Association.

With good research and a viable product, you just may be able to turn that patent into a moneymaker.