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How to Profit From Your Patent

After spending so much time and mental energy coming up with a novel invention, you will want to figure out how to monetize it. There are generally two ways you can make a profit from your invention. In rare circumstances, entrepreneurial inventors may start a new business to make, market, and sell the invention. But this is pretty rare as there are more inventors that would rather invent than run a business. What happens more often is that an inventor, after getting a patent, will license or assign the rights to the invention to another entity.

This article provides an overview how inventors can profit from their inventions. See FindLaw's Patents section for additional articles and resources.

Assigning Your Invention to Another Entity

In some situations, you may choose to "assign" your rights in the patent to another party -- giving over all rights to the invention -- for a lump sum payment. A patent application also may be assigned to another company or individual, giving the recipient full control of the invention once it receives full patent protection. In fact, even an invention that has not been filed with the U.S. Patent and Trademark Office (USPTO) may be assigned.

Licensing: The Most Common Way to Profit From Your Patent

The license is most often in the form of a contract that gives the licensee the right to make, use, and sell the invention in exchange for giving the inventor a license fee and royalty payments. Royalty payments are normally calculated as a percentage of the net revenues from the invention, or they can be payments for each unit sold.

When an inventor licenses his invention to another party, he generally gives the other party the authorization to utilize and exploit the invention. The precise terms of the license are contained in language such as "Inventor X gives Company Y a license to make, use and sell invention Z in exchange for royalty payments set out below."

Types of Patent Licenses

There are many different types of licenses, typically distinguished by length of time and breadth of use. For instance, a license may carve out a very specific use for the patent or for just a limited time. The main types and terms for patent licenses are briefly summarized below:

  • Exclusive License: The inventor agrees that he/she will license the invention to only one party
  • Non-Exclusive License: The inventor retains the right to license the invention to more than one party.
  • Time Considerations: The license agreement can be for a set period of time (often the life of the patent or shorter), or it can be for an indefinite period of time, perhaps renewing month to month.
  • Geographical Considerations: The agreement normally states the geographical limitations of the license. For licenses on patents issued by the USPTO, the license will often only allow the licensee to practice the invention within the United States.
  • Sub-Licenses: A licensee may be able to issue more licenses on the invention to other companies. How much the inventor can benefit from these "sub-licenses" really depends on the license agreement with the first licensee.

Cross-Licensing

There are other situations in which a company or inventor can "trade" licenses with other companies and inventors. This is called "cross-licensing" and often occurs when a new product requires several patented inventions to be functional.

For example, suppose that one company holds a patent on a new type of bicycle frame, and that another company holds a patent on a new type of bicycle wheel. If a bike consisting of the new frame and the new wheels is very desirable in the marketplace, the two companies could decide to cross-license their patents in order for them to make the most money possible.

Inventions Made for Hire

An inventor's ability to profit off something created on company time (and/or with company resources) will often depend upon the employment contract. In most situations, an inventor that develops an invention in the normal course of his employment may be required by his employment contract to assign all rights to the invention to his employer. However, most companies try to hold onto their inventors by giving out bonuses and other financial rewards for new patents and inventions.

If, by some chance, an employee is not subject to an assignment clause under his employment contract, the employer may still be able to demand an assignment of rights to an invention under the "employed to invent" doctrine. Under this doctrine, if an employee is employed (even without an employment contract) to accomplish a task or set goal, or is hired with the intent to develop a new invention, the employer will still own all rights to the subsequent invention.  

However, even with the "employed to invent" doctrine in place, there are still circumstances where an employer will only receive a "shop right" to an invention. This means the employee-inventor retains ownership rights to the invention itself, but the employer gets the right to use the invention without paying the employee. Shop rights result only when the employee-inventor uses an employer's resources (shops, materials, time) to create an invention.

For example, suppose that Frank is not under any employment contract, but creates a new and patentable invention while in the machine shop at his work. Although Frank will keep ownership rights to his patent (and will be free to license and sell it how he likes), his employer, under its shop right, will be able to use Frank's invention without paying Frank any royalties.

Seeking Profits for Your Patent? Get Professional Legal Help

Finding a way to monetize your invention can be quite stressful, particularly when you are tempted by offers that may seem like a good deal at first. If you need help putting together a strategy for your invention or would like to have a legal professional review a patent licensing agreement, call a patents law attorney in your area.

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