Profiting From Your Invention

Although patents are necessary to prevent others from copying and stealing your invention, profiting from your invention requires bringing the product to market. This can be accomplished through licensing the invention or through making and selling the product through your own business.

Patent Licensing

Licensing a patent often appears to be the easiest way to profit from an invention, but finding a licensee can be difficult. Numerous companies take advantage of the enthusiasm and naivety of new inventors, promising to create slick sales packages and providing unrealistic expectations of success. You, however, are the best person to market your invention. You saw the need fulfilled by the invention. You understand how the invention works and why it is important.

Obtaining a patent license will be easiest for someone who is a known expert in his field, and/or has connections to potential licensees. If this is not you, be prepared to research prospective licensees to determine the best people within those entities to approach. Once those people are identified, be prepared to demonstrate the advantages of your invention to them.

Many companies have "idea submission" web pages.  However, by clicking "submit" you agree that unless your idea is the subject of an issued patent, the company is free to use the idea without compensating you.  Obviously you should avoid submitting an idea through such a web page.

Before you present your idea, you may be asked to sign a confidentiality agreement, nondisclosure agreement, or other agreement.  These agreements vary in their level of reasonableness, and should always be reviewed by your patent lawyer before you sign any of them.

Licenses can be exclusive or nonexclusive. A nonexclusive license permits the licensor to grant licenses to other licensees, as well as permitting the licensor to make and sell the patented product. An exclusive license excludes anyone else – usually including the licensor – from making and selling the licensed product. An exclusive license will typically require higher royalty payments due to its increased value to the licensee, as well as some performance requirements to maintain the exclusive license. Because no one other than the exclusive licensee is permitted to make and sell the patented product, the license agreement must include some performance standard, for example, minimum royalty payments which must be made every quarter and which increase with time, and a remedy if that performance standard is not met by the licensee.

I am not an invention promoter and do not assist with finding potential licensees. Again, you are the best person to market your invention. If you do find a licensee, I can help negotiate reasonable, favorable terms for a license.

Bringing Your Product To Market

Making and selling your product yourself is a more difficult path, but in my opinion has a higher likelihood of success.

The patent process should start with a patentability search to determine whether patent protection is available for your invention. If so, then a patent application should be filed before you begin your commercialization efforts - which will require disclosing your idea to numerous individuals. If you commercialize yourself, you will also have trademark issues to consider, as well as a range of other business issues to consider. My intellectual property checklist summarizes some of these issues.

Shortly after the patent application stage, you should begin the process of bringing your product to market. Depending on your level of business experience, I will try to connect you with others who may be able to assist you, including advisors at a local small business development center, various technology accelerators, engineers, prototype development businesses, and others who could potentially help you commercialize your invention. Begin with a formal business plan, taking into account not only the legal costs, but the marketing costs, prototyping costs, manufacturing costs, sales venues, and startup revenue sources.

Many inventors choose to raise funds through traditional investment such as venture capital or angel investors. This approach has risks and benefits. On the one hand, the investor is going to want something of value in return for his investment. It is also possible that the investor brings business savvy which, combined with your technical knowledge of the invention, can help both of you succeed. If you are willing to respect each other's knowledge and work together accordingly, this can be very beneficial.

On the other hand, it is possible that the investor has different goals and/or ethics than you, and you want to make sure that, if whatever deal you make falls apart, you leave with your intellectual property intact and in your possession. If the investor is willing to agree to it, I encourage maintaining ownership of the intellectual property yourself or in another company that you own entirely, and giving the business entity that is taking on an investor an exclusive license to use the intellectual property, with the license terminating upon the failure to meet significant obligations to you (for example, your being pushed out of the company by your investors).

You also need to be careful about how, and how much, equity in the company you give up. Depending on the specific business form you use, it may be possible to separate ownership equity from decision making authority in a mutually agreeable way. The value of your business will start out low. As you progress towards bringing the invention to market, your business will hit certain milestones that will increase your value. If you try to get all the funds you need at once, you will need to give up too much equity in the business. Instead, try to get enough funds to hit the next milestone, and then seek additional funds based on a now increased company value. This will permit you to give up less equity to ultimately gain the same amount of investor funds.

You will need to be very careful with your disclosures to your investors, so that you are not open to being sued for misrepresentation if things do not go as planned. As with any business agreement, your shareholders’ agreement and operating agreement should specify everyone’s responsibilities as well as what happens if those responsibilities are not met. The agreement should also provide a fair way out in case exiting the partnership becomes necessary.

If you raise funds by seeking venture capital or angel investors, I will refer you to a business lawyer, and will work with this lawyer to make sure your interests are protected in the appropriate shareholders’ agreement and operating agreement. Remember that investors are also business partners. Ensure that your investors share your long-term vision and goals. Even if you are seeking traditional investors, you should not ignore the possibility of raising funds through equity crowdfunding or through seeking product preorders.

I encourage using a crowdfunding site such as Kickstarter, Indiegogo, SeedInvest, and others. Crowdfunding is a good way to test market and raise funds simultaneously. If the funds are raised for product preorders rather than for equity, then there is no risk of losing control of your business. An effective campaign requires being able to produce a working prototype as well as a well-prepared video that makes the case for backing your campaign. Use your video not only to demonstrate your prototype and its advantages, but also to help potential backers get to know you. Set a fundraising goal which is sufficiently high to realistically meet your obligations if you meet that goal. Use social media and other advertising to drive people to the campaign.

Regardless of whether you prefer to license your invention or to bring your product to market yourself, I am happy to help protect your invention.