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How to Cash In on Company Patents
You have just created a new product or methodology that can finally put your company on the map. Nevertheless, it will not necessarily put money in your pocket, even after you have patented your invention. If you are not in the business of selling, producing or marketing products-and you are not an entrepreneurial sort of person-how can you profit from your ingenuity?
The United States Patent Office reports that fewer than 3% of patents ever make any money for the inventor. The success rate cited by the Federal Trade Commission is even lower: less than 1%. As you can see, obtaining a patent is no guarantee of riches.
Practical advice: Do not be discouraged by the numbers. If you have created a truly valuable invention, there are several ways you can make money on the deal outside of going into business for yourself. Typically, it involves a license or an assignment.
With a license for a patented invention, the company benefits commercially in exchange for paying the inventor royalties. The royalties may represent a percentage of net revenue or payments for total products sold. The license may be either exclusive-in effect, only the specified company can develop the invention-or nonexclusive. It may last for the duration of the patent or a specified period of time. The territory is usually limited to the geographic extent of the patent protection.
In turn, a licensee may then arrange for other companies to market or distribute the invention. These sublicenses are generally covered under the terms of the original agreement between the inventor and the licensee. In some cases, an inventor or a company may even trade licenses with other companies so they can each benefit from the other's technology.
Any cross-licensing arrangements should be addressed in the original license.Reversionary rights are common in most license agreements. They are often indicated by terms such as termination, term, reversion, grant of rights, exploitation or commercialization. However, the terms by themselves can be misleading-the actual language of the contract will control.
Alternatively, the patent holder may agree to sell the rights to the invention for a lump sum or royalties through an assignment. Assignments are often used when the inventor already works for the company. The contract usually includes confidentiality provisions preventing the employee from using his or her knowledge for personal gain. If it is properly designed, an assignment protects both parties to the agreement.
Although assignments are presumed to be permanent transfers of ownership, a company may include provisions for reversion rights in their agreements. This is a different kind of reversion than a license because you have to reacquire ownership-usually, with a fee attached.
Caution: Do not try to do these arrangements on your own. This is a task that is best left to the experts in the field.