Via KeelyNet Whatsnew: by Jack Lander/ Forbes.com 10.24.06,
12:15 PM ETMost inventors follow a typical pattern: They perfect their
invention, determine its marketability and take steps to protect it
under patent laws. But then comes a difficult decision. How will the
inventor make money from it? Should he license the invention to a third
party, or should he manufacture and market the invention himself? This
decision will affect not only how an inventor earns money, but also how
much financing will be needed to proceed.
If you are a typical
inventor, you will probably want to license your invention and collect
royalties, or even sell it outright--we'll call this typical person the
"inventor-for-royalties." But if you are more motivated and have a
competitive business streak--we'll call this type of person the
"entrepreneurial inventor"--you may wish to start a small business to
produce your invention and market it. In that case, you will need
substantially more financing to develop, produce and distribute your
product.
The Inventor-for-RoyaltiesLicensing or assigning
rights to your invention for cash is a simpler, less-expensive route
than manufacturing and selling your invention. Licensing or assigning
your invention is often preferable for those inventors who want to make
money but care primarily about innovating and spending time in their
lab.
LicensingA license is simply an agreement
in which you let someone else commercially use or develop your
invention for a period of time. In return, you receive money--either a
one-time payment or continuing payments called royalties. As the owner
of the invention, you will be the "licensor," and the party receiving
the license for your invention is the "licensee." What makes a license
appealing is that the licensee assumes all of the business risks, from
manufacturing to marketing to stopping those who infringe on the
product's patents. The inventor/licensor sits by the mailbox and waits
for the quarterly royalty checks.
Before you proceed into
licensing, you should know the odds of success. A study by Ed Zimmer
and Ron Westrum revealed that only about 13% of inventors who attempted
to license their invention were successful. That's about one in eight.
(Note: This data is based on the persons who responded to the study,
which probably skews the percentage positively. Those who were
unsuccessful were probably less likely to respond at all.)
When
you seek a license, you'll need to take the following steps: Find the
right people to review your great idea, get the money necessary to
develop and protect your invention, and present your invention to a
licensee in a marketable fashion.
AssigningAn inventor-for-royalties can also permanently assign
all rights to the invention for cash. An assignment is a permanent
transfer of ownership rights. When you assign your invention, you are
the "assignor," and whoever purchases the rights is the "assignee." An
assignment is like the sale of a house, after which the seller no
longer has any rights over the property. As the assignor, you may
receive a lump sum payment or periodic royalty payments.
Even
though they have different legal meanings, the terms assignment and
license are sometimes used interchangeably. Sometimes these two types
of agreements seem to have the exact same effect, as in the case of an
unlimited exclusive license, in which a licensee obtains the sole right
to market the invention for an unlimited period of time. For this
reason, you or your attorney must examine the specific conditions and
obligations of each agreement to determine whether it is an assignment
or license rather than simply relying on terms such as assignment and
license...
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