Print   RSS

How to License an Idea

Kaye Marks

December 10, 2008

Maybe you are the creative type that comes up with great ideas, but you do not have a clue on how to run a business. Alternatively, maybe you would just rather think of great ideas than implement them. Either way, licensing your idea is a great method to be paid for your invention ideas.

Licensing is the process of selling your idea to a business that will take your idea and run with it – they will do all the business-related chores that are involved in launching a new product. You are paid for giving your idea to someone who can make it happen and then you share the profits. Licensing is a good idea for those who do not have the money to launch a new invention themselves.

If you are ready to get your idea licensed, here are five steps to follow to ensure the licensing process goes smoothly:

1. Get Your Info Together
Before you even think about going to a company to sell your idea, be sure you know the following:

• Know your market. Get as much information as possible about who would need or want your product. This means research: conduct a focus group or send out email surveys to determine what age group, what local area and what income level would buy your product.

• Know the legalities. Try to determine if your invention is patentable or if there is something similar to it that is already patented. You can search for patents on the government’s Web site: www.uspto.gov. Also, find out if there are any regulatory issues that could be associated with your product (this is especially common with medical products).

• Know your competition. Who else has a similar product to yours? How is yours different? Moreover, how well is the competing product selling?

• Know what it takes to produce your idea. Finding out what is involved in the production process can be helpful when you are trying to sell your idea, especially if your product calls for unique materials or unusual manufacturing techniques.

2. Get Ready to Make a Presentation
Your most effective presentation tool will be your prototype. Get a sample made before you approach any potential licensors. You also need a sell sheet to leave with investors that tell them: the problem that your product solves; the product’s benefits and features; your market; and the legal status of your product (copyright info or patent pending).

3. Narrow Your Targets
Now that you are ready to present your idea, you need to decide whom you want to present it to. Make a list of at least 50 potential targets – the more, the better. Try to research companies that might have a need for your product, or find a company whose catalog is missing your product – you can show them right where your product would fit in.

You can also go to stores where you would expect your product to be sold and write down names of manufacturers who have similar products.

Also, try checking online databases for industry associations. These associations can give you a wealth of information into the industry that will point you in the right direction to potential prospect companies and what these companies are looking for.

4. Prioritize Your Targets
Once you have compiled your list of 50 or more targets, prioritize them based on which will make the best fit with you and your product. Consider their size, their product lines, their reputation and how easy it is to get to a decision maker.

5. Go Get the Sale
Now you are ready to make an awesome presentation – you have your sell sheet, your prototype and you have used a color printing company to create some slick, fancy brochures to leave with the company.

Once you have gotten a “yes” you are not licensed just yet – you need to negotiate some terms first. You can ask for an upfront payment to cover the cost of filing a patent, or an upfront payment that is really an advance against future royalties. Then you need to negotiate the royalties – most inventors get a 2 percent to 5 percent royalty. If you agree upon 2 percent, that means you get 2 percent of the wholesale price of each unit sold. In addition, manufacturers will want exclusive rights to distribute the product around the world.

 Feedback   Submit Article