How can I monetize an invention by obtaining a patent?

A question I frequently get from prospective clients and inventors is “Why should I patent my invention?”

Essentially a patent gives a patent owner the right to exclude others from making, using, selling, offering to sell, import or export there patented product throughout the United States.  If you disclose your invention and it becomes in the public domain without patent protection, others may copy your invention. Further, larger companies may be able to copy your product for cheaper, have better advertisement avenues, and/or better product distribution systems. Therefore, if you have spent a lot of time, money, and energy on researching and developing your idea you may not be able to recoup your investments because other companies will be able to make your product better and cheaper.

That being said, at this point if you obtain a patent on your invention how can you recoup your investments. More particularly, how can you as an inventor monetize your patent? There are several ways inventors can market their product to create a revenue stream based on their product:

1)      License their product to others. Licensing can happen in many different forms. There are exclusive licenses (licenses to only one person), geographic licenses (license to others to make/sell/use in specific geographic regions), etc. The main fees associated with licenses include an initial lump sum fee and a per-product sold royalty. For example, in this case TAS Distributing Company had licensed their patent product to Cummings for 1Million upfront plus 50-125 per unit sold. If you have a great idea, larger companies may wish to include your invention in their products, and therefore license your patented product. As such, your invention doesn’t need to be a full on new system, maybe just an add-on that others can see the benefit in using.

2)      Selling the patent. A patent is a property asset and can be sold. This is similar to an exclusive license for the term of the patent, except for the company that buys the patent can do whatever they want with it (i.e. license to others, etc.). Typically, if a patent is bought it will be bought for a much higher price than a licensing fee. A company may desire to purchase a patent for many different reasons, one of them is similar to the benefits of licensing the product. Another is that the company may be able to sue other companies based on their newly found intellectual property rights. A company may also wish to purchase a patent for defensive reasons. For example, if company A knows that they are going to be sued by company B, company A may want to acquire patents to counter-sue company B. Therefore, if they have to negotiate a settlement they can negotiate from a position of strength.

3)      You can make and sell the product on your own. If you have a decent distribution system you may be able to create your product cheaply (i.e. if its software based), and distribute it via internet channels, amazon/app store, etc., with little needed for capital investment. There are also many companies in China that manufacturer products cheaply, allowing US based companies to have a higher profit margin.

4)      Patents can be used as collateral on loans. Many companies with larger patent portfolios can do this. If an inventor only has a couple of patents, it will be harder to evaluate the value of the patent portfolio.

5)      Patents are a great way for startups to raise capital for their company. Patents are viewed by venture capitalist as a sign that a start-up is a serious company with a strong foundation. Venture capitalists can study and analyze a start-ups patent portfolio and determine how much they think an idea is worth before making an investment in the company. Venture capitalists may also use the patent portfolio as collateral on their investment in case the start-up doesn’t work. But investors like to determine what a company’s intellectual property rights are before they seriously invest in a company.


By | 2012-12-12T21:53:48+00:00 December 12th, 2012|Patent Basics|Comments Off on How can I monetize an invention by obtaining a patent?