How To License Your Invention

A License Agreement is a contract that an inventor enters into with a marketing company that can manufacture and sell (market) his invention. What's in it for the inventor is that the manufacturer agrees to pay the inventor a small percent on sales they achieve. The steps below help an inventor know how to proceed with obtaining a License Agreement for his invention. An inventor should first follow the steps for protecting his invention in How to Patent an Invention.

1. Make a prototype of your invention or have one manufactured. When manufacturing/marketing companies are approached with a new product idea by an inventor, they prefer to have a working model or sample design of a new invention submitted to them. This is called a "prototype" and you can make the sample yourself or if it is somewhat complicated, you can have a manufacturing company or machine shop, sewing factory, etc. put one together for you. If you do have to use an outside source to get a sample made, you should have them sign a Non-Disclosure Non-Use Agreement with you, which is an agreement that simply states that upon your disclosure of the invention to them, for the purpose of producing a sample, they agree not to publicly disclose your invention to third parties or to make any further samples of the product for their own use. You have them sign such an agreement so that they do not expose your invention to the public sooner than you are ready to have it launched onto the market. It is better if you are able to produce a prototype yourself because this reduces the chances of early exposure and will save you the expense of having one made by a manufacturer.
2. Research companies that market products that are in the same industry your invention is in, to locate potential licensees. The manufacturing/marketing company you eventually license your invention to is called the "licensee" and you are referred to as the "licensor." If your invention is in an industry such as pet supplies, fishing tackle, health & beauty aids, etc., you simply gather information on companies that are in your invention's industry, so that you can contact them about reviewing your invention. You can find companies that are potential licensees by looking in magazines or catalogs that feature products by companies that are in your invention's industry or you can get on the Internet and search using search terms that describe your invention and find companies that way. When these methods yield you a list of companies that look to be high quality and reputable, you can then contact them to request an opportunity to submit your invention to their new product buyer. You can either follow up your letters with a phone call or you can request that they reply to the letter you send. In my opinion, it is more effective to state in your letter that you will be following up with a phone call. When you do get responses from manufacturers interested in reviewing your invention, you can either send your sample and written details about your invention by mail, or request an appointment to present your invention in person at their buying office.
3. Design a letter of request to submit your invention and submission materials to help you present your invention. It is important to look as professional in your efforts to secure a licensee/manufacturer as possible. You need to have a professional looking letter of request that you send out to get companies interested in seeing a presentation, with a letterhead at the top of it that includes your contact information. You also need to put together the best submission materials possible, such as a brochure that describes your invention, a demonstration video, a chart you can point to and refer to, etc. In other words, anything that presents your invention to a reviewing company in the best possible light is a good thing to have with you when making a presentation for your invention. Your presentation should be practiced before you actually make one in person, so that you are well prepared to present your invention but also so that you do not exceed a reasonable time in presenting it. I feel a presentation should not exceed 20 minutes in length because executive buyers with manufacturing companies are usually extremely busy and a shorter power-presentation is usually the best approach.
4. Compose a License Agreement (with terms left blank) that you can use as a proposal when following up with interested manufacturers. Most manufacturers that express interest in an invention want the inventor to set their desired terms so that they can make a final consideration before entering into a License Agreement with the inventor. Manufacturers like to see inventors who know what they want out of their invention rather than having an inventor say, "Whatever you guys think." They like to have a more detailed proposal put in front of them so that they can negotiate from there. You can do this by putting together a sample license agreement that shows all of the terms and conditions you want included, but you can leave certain terms blank, such as the amount/percent of royalty you will receive and the length/term of the contract in years that the initial term is in force. An inventor may wish to set the term the contract is in force with a manufacturer for only one or two years, with an option for renewal at the end of the term. This way, renewal depends upon the initial performance. An inventor might also wish to include the condition of minimum sales that are accomplished per contract year by the manufacturer/licensee.

   It might also be a good idea to include a clause in the contract that gives you the inventor and licensor the right to terminate the license agreement should the licensee fail to pay royalties at the set contractual time periods. The payment conditions can be to require royalties, calculated and paid, each quarter of a year or monthly, etc., and should the licensee be more than a set amount of time late in paying (10, 20 or 30 days, etc.), the licensor has the option to terminate the contract in writing. You can find a local attorney to help you compose a License Agreement Proposal or you can find one on the Internet using a search term such as "sample license agreements," etc. Once you have a contract in hand, you can customize it to your liking. The most likely term/condition that you will have to spend some time negotiating with a licensee is the amount of royalty they will be required to pay you. Royalties paid on inventions can vary but according to some sources, a majority of inventions that are licensed receive a royalty between 2% and 10%.

These steps will help an inventor know how to pursue a License Agreement but one factor that is also of great importance is an inventor's ambition. A positive attitude and confidence while pursuing a License Agreement for your invention is a key factor. Not only does it drive you through to accomplishment but those you are presenting to also perceive it. Inventors who remain confident, ambitious and who don't give up are the ones who succeed in getting their inventions marketed.