Taking Your Invention to Market with a Licensing Agreement
If you’ve invented something and want to take it to market, one of the best ways to do so is through a licensing agreement. A licensing agreement allows another company to take on the responsibility of manufacturing, marketing, and selling your product in exchange for a share of the profits. Essentially, you’re “renting out” your intellectual property (IP) to a company that’s better equipped to bring your invention to life.
For first-time inventors, this approach often reduces risk and increases the likelihood of success. Let’s break down the key steps and strategies for securing a licensing agreement.
The Benefits of Licensing
By partnering with a licensee, you’re handing off much of the heavy lifting to a company that already has the infrastructure and expertise to succeed. Here’s how this benefits you:
- Market Knowledge: A licensee understands the market and knows what customers want. They can tailor the product to fit consumer needs.
- Retail Access: They already have access to retail outlets and established distribution channels.
- Sales and Marketing: The company invests its time, money, and resources into promoting your product.
- Manufacturing Setup: They handle tooling, manufacturing, and production costs.
- Operational Management: Inventory, supply chain, warehousing, and logistics are all managed by them.
- Reduced Risk: As the inventor, you avoid the financial and operational risks associated with production and sales.
While the trade-off is that they’ll take the majority of the profits (usually 95-97%), your earning potential can still be significant. For example, if the company generates $1,000,000 in annual sales and you earn a 5% royalty, that’s $50,000 per year for minimal ongoing effort on your part.
What’s the Deal?
Before you start looking for a licensee, it’s important to understand what you’re offering. A licensing agreement grants a company the right to use your intellectual property—essentially “renting” it—in exchange for royalty payments. These agreements define the terms, including:
- The Scope of Rights: What the company can do with your invention.
- Their obligations: What the company must do to ensure you get what need.
- Duration: How long the agreement lasts.
- Territory: The countries or regions where the company has rights to sell the product.
To license your invention, you typically need to own the intellectual property. This often requires at least a provisional patent application, and although a full patent is preferred it is often not even required. Always consult with a qualified attorney to ensure your patent and licensing agreement are properly drafted.
Finding the Right Licensee
Identifying the right company to license your invention is a critical step. Here’s how to approach it:
Create a List of Potential Companies
Not all companies are open to licensing agreements, so you’ll need to research and identify those that might be interested. Focus on:
- Companies that actively seek new innovations.
- Businesses looking to grow their product lines or compete with larger brands.
- Medium-sized companies that are more open to risk and quicker to make decisions compared to large corporations.
Aim to create a list of 20-50 companies. This will give you enough options, knowing that most will reject your offer. Remember, you only need one “yes.”
Prioritize Your List
Organize the companies into tiers:
- Top-Tier: Ideal candidates that perfectly align with your product.
- Mid-Tier: Solid companies that might work well.
- Lower-Tier: Backup options if the first two categories don’t pan out.
Start by reaching out to the lower-tier companies first. This gives you a chance to refine your pitch and learn from early rejections before approaching your top choices.
Making Contact
When reaching out to potential licensees, your goal is to persuade them that your product is a great business opportunity. Here’s how to do it:
- Find the Right Contact: Look for sales managers, innovation managers, or CEOs of smaller companies. These are the people most likely to be interested in new ideas.
- Be Professional but Humble: Avoid grand claims like “This will revolutionize the industry.” Instead, focus on presenting your product as a well-designed, tested idea with clear potential.
- Ask for Permission: Always ask if they’d like more information before sending materials. Never send unsolicited samples, videos, or marketing content.
Persuading with Marketing Materials
Your marketing materials need to be concise, compelling, and focused on benefits rather than features. Some key tools include:
- Visuals: Pictures or videos of the product in use. A short video (30-60 seconds) can be particularly effective.
- Sell Sheet: A one-page flyer highlighting the main benefits of the product in a way that’s easy to grasp within a few seconds. Focus on how the product solves problems or benefits the end user.
If the company is interested, they’ll ask for more details. Keep your initial pitch simple and leave room to follow up with additional information later.
Some companies receive many invention submissions, so it is important to stand out, but also be clear, professional and compelling.
Checklist for Licensing Success
Here’s a step-by-step guide to help you stay on track:
- Secure Your IP: File at least a provisional patent application.
- Create a Company List: Research and categorize potential licensees.
- Prepare Marketing Materials: Develop a sell sheet and a short video.
- Practice Your Pitch: Start with lower-tier companies to refine your approach.
- Make Contact: Find the right person, be professional, and ask for permission to share more details.
- Negotiate the Agreement: Work with an attorney to draft a licensing agreement that protects your rights.
Final Thoughts
Securing a licensing agreement takes time, patience, and persistence. Rejections are part of the process, but each one brings you closer to success. By partnering with the right company, you can bring your invention to market, reduce your risks, and earn royalties while focusing on what you do best: creating new ideas.