So you came up with a great idea and want to make some money with it but don’t have too much money or don’t want to start manufacturing or quit your day job… how about licensing
Licensing is an alternative way to bring your idea or invention to market with limited risk using someone else’s resources and collecting a royalty payment.
Invention Licensing means partnering with a manufacturer with an existing distribution chain who will “rent” your invention and take the product to market. The manufacturer with distribution is called the Licensee and the person presenting their invention is called the Licensor. You are looking to give this licensee the rights to your intellectual property or idea for them to rent or buy and bring to retail for you with little risk for you.
The Licensee can have their own manufacturing facility or outsource their manufacturing, but ultimately they control what products they are producing.
The Licensee can have a built in distribution team that presents the products to their current retail accounts or pitches new accounts for distribution. If they choose not to have an in-house sales platform, they can hire Sales Reps or Sales Agents that have established accounts in specific categories and industries.
Before you approach a manufacturer, you should have a few things in place, including:
- Intellectual property. You should have done a patent search and you should have a provisional patent application or non-provision (Utility or Design) patent filed so your idea has a Patent-Pending status. If you want to skip all these steps and just start with a confidentiality or non-disclosure agreement, that is at your own risk, but know that not every company wants to look at non-protected ideas.
- Functional Prototype. Make a prototype you can use to demonstrate how your invention works.
- Marketing Materials. Make a short (about 1 minute long), a one-page sell sheet, and some photos of your invention.
So how do you find a potential Licensee? While researching manufacturers, think about the type of stores you imagine your product in. Take a tour and try to find products similar to yours. Flip over the packages, write down the company names and get ready to start making some calls to ask if they look at outside ideas. If they say yes, ask if you could present yours. You can also find manufacturers at industry trade shows and in industry magazines. You can also ask distributors and manufacturers, and network with other inventors at inventor clubs in your area, etc. There are licensing agents within industries that can also help you make a match.
If a manufacturer is interested in your idea, they will enter into a Licensing Agreement with you and offer you what is called a royalty, which is a percentage of sales that most likely you will receive quarterly.
There are other provisions that are included in a licensing agreement, including territory, guarantees, advances, etc. Most of the time the licensee, your new partner, will involve you with certain steps of the design modifications, packaging designs, activity of production, placement into retailers, etc.
If they are not interested, try to get feedback to see what they thought of your idea and keep the door open for opportunities to present your next idea to them. Keep looking for the right partner to license your invention to.
About the Author: Brian Fried, Executive Director of the UIA, is a prolific inventor. This article is shared from his book Inventing Secrets Revealed.