How to license a patent for royalties
Article – April 2020 | RoyaltyRange
How to license a patent for royalties: If you’ve invented a new product, you can either bring it to market yourself or license the rights to your intellectual property to a third party. If you decide to enter into a patent licensing agreement, you’ll receive royalty payments in exchange for permission to make, use or sell your invention. You and the licensee will need to negotiate a fair royalty rate.
Why license a patent to a company?
The main reason inventors license their patents for royalties is that it allows them to focus on creating, rather than having to manufacture, commercialize and sell each of their products. With a patent license agreement, inventors can create the intellectual property and then transfer the rights to another company who can bring the product to market. This makes commercial sense for a lot of inventors, who perhaps don’t have the capabilities to bring the product to market themselves.
Licensing inventions for royalties can also be about reaching new markets and extending the invention’s reach. An inventor may decide to license their patent if they want to expand into a market within which they have little experience, such as a new geography or industry, or if they identify a licensee that manufactures and sells products that their invention could be used in.
How to license a patent for royalties
Licensing a patent for royalties can be a complex process, so many inventors choose to use a patent licensing professional. Here’s an overview of how to license a patent for royalties.
- Find a licensee: One of the first steps in licensing a patent for royalties is to find the right licensee for your requirements. During this process, it is a good idea to get potential licensees to sign an NDA or confidentiality agreement, in order to protect your patent.
- Clarify the scope of the license: Before you can enter into negotiations, you will need to clarify exactly what it is you want to license. Do you want to license your patent rights as a whole, or will the licensee only be allowed to use the patent for a specific task, like sales or manufacturing? How long will they have the rights to your patent for? Are they only allowed to use your intellectual property rights in a certain market or geographical area?
- Work out the market rate for your invention: You need to go into the royalty rates negotiations with an accurate idea of what the market rate is for your invention. Not only will this make sure you receive a fair royalty rate, but it also strengthens your negotiating position by providing evidence of your invention’s potential market value. In order to do this, you need to have access to recent market royalty rates from comparable transactions, which you can use as a starting point for your royalty calculation. Use the RoyaltyRange database to find comparable royalty rates data from real license agreements.
- Negotiate the royalty rates: Once you know what royalty rates you want to charge, you can enter negotiations with the licensee. A lot of inventors seek professional help for this. At this stage, you will be negotiating the terms of the license as well as the remuneration.
- Draw up the license agreement: If everything has been agreed between you and the licensee, you can finalize the license agreement. We have examples of intellectual property license agreements (including patent licensing agreements) that you can download.
Find market royalty rates for your patent today
The RoyaltyRange database provides you with recent data from comparable license agreements, giving you the market data you need to determine reasonable royalty rates for your patent.
To use our One Search service, add your details and search criteria to the box on the right. Based on your search criteria, our team will analyze the most relevant license agreements and royalty rates in our database and send you a full report of our findings in a clear, easy-to-read format.