How to Sell a Patent: What You Need to Know

Can you sell a patent?

Just as with other types of property, a patent is a form of intellectual property that can be legally bought, sold, or licensed. Once you have a patent, you can choose to continue using it exclusively in your own business, sell it, or license it, depending on your professional goals and business needs.

Selling a patent requires an agreement called a "patent assignment," which involves transferring ownership of your patent to another person or company. Once the patent assignment is complete, you will no longer have control or ownership over the patent. 

Alternatively, you can give other parties permission to use, make, or sell your patented invention through a process called “patent licensing.” You’ll still retain ownership of the patent, but others will have a license to it through a contractual agreement, which will specify how long the other party can use your patented invention.

How to patent an invention

Just because you have an idea doesn’t mean that you can patent it. To patent an idea, there needs to be an invention associated with it, something that is useful, non-obvious, novel, and well-documented. 

• Step 1: Document your invention. For a patent application to be considered, it needs to include specifications, drawings, and detailed descriptions of the idea’s application, how it works, and what’s involved. 
• Step 2: Perform a patent search. The U.S. Patent and Trademark Office (USPTO) website provides information on conducting a successful patent search, but to save time, we recommend using LegalZoom’s comprehensive patent search service. 
• Step 4: Consider a provisional patent application. If you’re not quite ready to file a nonprovisional patent, you can apply for a provisional patent (only for utility and plant inventions), which gives you 12 months to conduct more market analysis and draft a stronger nonprovisional patent.
• Step 5: Determine the patent type. There are three main types of patents: utility, design, and plant patents. Learn more about the different patent types and their respective durations.
• Step 4: Work with a patent attorney before filing to streamline the process. While you can save money by preparing and filing a patent application yourself, consulting a patent attorney through LegalZoom who is well-versed in patent law can help ensure that you have substantial information and all the necessary details to avoid a denied application.
• Step 6: File a patent application. Once you have the necessary documentation, apply for a nonprovisional patent with the USPTO. There is a handy feature called Training Mode on its website, where you can test out the application process first. 

How to make money from your patent: 3 ways

To profit from your invention as a new patent owner, you must sell the patent, license the patent rights, or market the product yourself.

Option 1: Sell your patent outright

With the outright sale of a patent (also called a patent assignment), you are guaranteed a quick payoff for your idea invention.

Pros of selling a patent: 

• It generates income to help pay the bills or finance other promising ideas.
• This method eliminates the large amount of time, effort, and financial investment required to start a business based on a new product.

Cons of selling a patent: 

• The inventor gives up the right to future profits from their creation.
• 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 big profits. 
• There’s always a risk that you might sell the patent now for what seems like a good price, only to discover later that the patent value has greatly increased.

Option 2: License the usage rights

Licensing patent rights—or the right to make, use, or sell your product—can be a profitable route for inventors. With patent licensing, the patent holder retains ownership of the invention and earns royalty payments on future sales of the product. 

There are two common types of patent licenses: exclusive and nonexclusive. With an exclusive license, only one company or individual has the right to manufacture, use, or sell your invention. This is often the most lucrative option, but you won’t be able to license your patent to any other parties and generate other revenue streams. A nonexclusive license grants one or more companies or individuals (including the patent holder) access to the patent through multiple licensing agreements.

Pros of licensing a patent: 

• You’ll receive ongoing compensation from royalties. 
• There is an opportunity to generate substantial revenue by licensing to a well-known company that already has consumers’ confidence.

 Cons of licensing a patent: 

• Like selling a patent, licensing patent rights is no guarantee of financial riches. If the product fizzles in the marketplace, so will your royalty checks. And, depending on the royalty rate, which can vary wildly based on the industry and demand, the product may 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.

Option 3: Use the patent yourself

If you have adequate time, resources, and funding, starting a business around your invention is a great option. Using and marketing the invention yourself not only gives you full control over the patent but can also create a bigger opportunity for financial growth. For instance, a patent for a new type of coffee maker may develop more value over time as more and more coffee shops open up.

There is a lot involved with getting a business off the ground, but LegalZoom can help. Kickstart your new company in minutes with our comprehensive business formation services.

How to sell your patent in 6 steps

Set yourself up for success with these guidelines on how to sell a patent.

Step 1: Make sure the patent is market-ready

Confirm that you received a notice of allowance for your patent from the U.S. Patent and Trademark Office, that all maintenance fees have been paid, and that you are listed as the owner on all relevant documents.

Most companies won’t purchase provisional patents because these simply act as a placeholder until the nonprovisional patent is filed and approved (which is what’s needed for exclusive rights to the idea). 

Step 2: Understand the value of your patent

There are several factors involved in the patent valuation process: 

• Market demand: Collect and analyze data on future growth trends of the industry in which the patent could be applied. Showcase how your patented invention, design, etc. fills a gap in the market.
• The cost to develop and file the patent: Also known as the cost-based approach, this method bases the value of the patent on the costs involved with ideation, development, and patent filing. 
• Remaining patent term: More time on the patent term often translates to higher patent value.
• Estimated revenue: Evaluate the potential increase in sales and/or how much in royalties the patent buyer would be able to receive through licensing.  
• Potential applications: Is it an innovative idea that will revolutionize an industry, or are there similar patents for products or designs already on the market?

Determining the fair market value of a patent can be challenging because the patent itself is an intangible asset. To ease the patent selling process and ensure that your patent value is appropriate, consider getting a professional patent valuation or working with a patent attorney.

Step 3: Determine the type of sale

As we’ve discussed above, you can sell or license your patent. Determining which option is best may depend on your financial situation and professional goals as well as the growth potential of your patent. 

Patent holders may choose to conduct a full sale (transferring full ownership of the patent), a partial sale (transferring partial ownership of the patent, which creates joint owners), or a nonexclusive or an exclusive license agreement.

Step 4: Identify and pitch to potential buyers

Many patent holders might be willing to sell to the first bidder, but prudence—and research—are key. Use these tips as a guide to identifying the best buyers for your patent:

• Research businesses in relevant industries. Seek out companies in industries that align with your invention. Additionally, selling or licensing your patent to a reputable company with a solid market share can increase the likelihood of larger future royalties.
• Select companies with patent portfolios. Try to identify companies that have a patent portfolio, meaning that they’ve purchased patents in the past. These businesses will be more likely to listen to your pitch and potentially buy your patent. 
• Hire a patent broker or a licensing agent. These professionals can help you identify the best buyer prospects, as they have well-established relationships with and access to companies across industries. 
• Use a patent marketplace. Websites like IAM Marketplace, PatentAuction.com, and Yet2 serve as a space for buyers and sellers to find, purchase, and license patents.

Curious how to sell a patent to a big company? Once you land meetings with potential buyers, prepare your pitch. Showcase the defining features and benefits of your invention, provide the details of your valuation, acknowledge potential challenges or risks and provide solutions, and highlight precisely how your patented product aligns with and helps the company.

Step 5: Protect your intellectual property during negotiations

When selling or licensing your patent, you’ll have to disclose details about the invention, but this, of course, introduces the risk of a company or individual taking and using that information. Since the patent application itself is all public record, any information around what the patent does, how it works, and how to make it would be public and wouldn't need to be protected with an NDA.

There could be trade secrets or sensitive business information related to the patent that you'd want protected, including how much it costs to make it, whether there are any existing licensing agreements, or how many products related to the patent you've made or sold. Protect your intellectual property by requiring nondisclosure agreements (NDAs) before having conversations or conducting negotiations with potential buyers. 

Step 6: Negotiate and finalize the deal

Patent sale or licensing negotiations will involve setting the terms of the deal. This is where you’ll decide the payment structure, like a lump sum for a sale, a royalty structure, or milestone payments for licensing. Work with a patent attorney to draft the patent assignment or licensing agreement and ensure that you have favorable terms.

If you sell your patent, you’ll need to officially record the assignment using your USPTO account. The USPTO Assignment Center offers guidance and resources for recording a new assignment.

Mistakes to avoid when selling your invention

Don’t make these common mistakes when selling your invention:

• Overvaluing or undervaluing the patent. Proper valuation is crucial in the patent selling process. 
• Pitching to the wrong clients. Don’t spend time researching and pitching clients who don’t have the funds to complete the terms of payment, who haven’t purchased patents before, or whose industry doesn’t align with the invention’s applications.
• Not having a deep understanding of the differences between a sale and a license. There are clear benefits and risks of both selling and licensing a patent. Choose the option that aligns with your business and financial goals.
• Skipping professional help. Hiring experienced professionals can help you avoid all of these pitfalls, including protecting your intellectual property. Patent attorneys, brokers, and valuation experts have the critical insights needed to ensure a successful patent sale.

FAQs

How much can I sell my patent for?

The value of patent transactions can vary wildly: Some patents may sell for hundreds or thousands of dollars, and some may sell for millions. Payment terms depend on the patent valuation.

Where can I sell my patent?

You can sell a patent through a professional patent broker, by using an online patent marketplace, or on your own by cold calling prospective buyers. You can boost your odds of landing the right buyer by consulting a professional who has access to a network of legitimate buyers.

Is selling a patent taxable?

Yes, selling a patent is taxable. This is because a patent is a type of property called intellectual property. Capital gains tax may apply when this intangible asset is sold, but in some cases, the sale may be taxed at the ordinary income tax rate, which is typically higher than the capital gains tax rate. If you license a patent, your royalties will be taxed as ordinary income.