Patents are central to business development and success. You have an idea that addresses key problems your audience faces, and then you go through the patent process. When it’s done, you’re the only person authorized to produce whatever the idea might be.
However, that doesn’t mean you have to be the person (or business) to do that. As the patent owner, you can grant others the right to produce, market, and sell your idea in exchange for royalties.
What we’re talking about is licensing, and it’s much more flexible than many entrepreneurs understand.
Understanding Licensing
A license is a contractual right to use a patent. Because it’s a contract, you can frame the scope to be geography-based or industry-based. However, it’s not necessary to license a business partner to use the entire patent.
You can decide how much of the patent someone can use.
Ultimately, you could build an entire business around licensing in different geographic areas and industries. Even if you’re a small business or a brand-new startup, you can leverage this to your advantage.
It could be well worth the time, effort, and financial cost to protect your intellectual property with a patent and then get out there and start licensing it to businesses in different industries and geographic areas. Your small business can quickly grow to a nationwide program, and not just on your own efforts.
This also creates a passive stream of income – what some call “mailbox money” – that keeps flowing year after year.
Beyond Your Own Patents
Most business owners build their success on patents they own. But it doesn’t have to work that way. One out-of-the-box idea is to use someone else’s patent. That means you don’t have to invent a single thing or go through the laborious process of patenting your idea.
In this example, you buy someone else’s idea. You can raise funds for that in many ways, including through convertible notes. Once you have the funds, you buy the patent from the inventor and then license it to other businesses, enjoying an ongoing stream of income from your efforts.
How does this type of arrangement work? Below, you’ll find a brief example.
- Inventor A has a great idea and decides to patent it.
- Inventor A obtains the patent but lacks the funds, business connections, or other underpinning to take the patent from idea to physical reality.
- You identify the need that Inventor A’s patented idea addresses and verify that it’s worth your time and money.
- You buy the patent from Inventor A and then use your funding and business connections to bring the idea to fruition.
The number of patented ideas that never see reality is quite surprising. This can happen for several different reasons, including:
- The inventor lacks the money to build a business around the idea.
- The inventor lacks business connections to bring the invention to market.
- The market is not quite ready for the invention.
This situation means you’ll discover inventors out there holding patents to inventions that have massive opportunities, but who aren’t doing anything with them. You can buy those quite affordably in many cases. The inventors are happy to make money on an idea they thought was a lost cause and you get an invention that can be licensed to multiple businesses depending on industry application and geographic area.
In other cases, you may ultimately partner with the inventor in some fashion. This could be a 50/50 split, a 60/40 split, or some other arrangement that you and the inventor both deem equitable and fair. You then create two streams of income from the patent, supporting both yourself and the inventor.
Putting Licensing to Work
Licensing patents is a flexible path to profitability. There’s an option to fit most needs and goals. For instance, you can license your own patent, as we discussed previously. You can license patents you’ve purchased or those of inventors you’ve partnered with.
You can also build a portfolio of related patents. For instance, you find a patent for a particular technology and realize that it’s got a lot of potential. Then you discover another one that’s very similar but slightly different. Finally, you purchase a third that deals with the same issue, but from yet another angle.
This gives you a trifecta that allows you to do battle against major firms. Big firms will take notice when you can limit their product or service development plans through patent infringement. In essence, you become the owner of the only path forward and can then license that to the businesses in question. Your portfolio becomes greater than the sum of its parts in this instance.
Licensing Others’ Patents: Reducing Time, Cost, and Effort
Why should you consider licensing others’ patents? Consider the fact that it takes roughly two years for most patents to come to fruition. That time includes a lot of costs and legwork to make sure that the idea is not just viable but hasn’t already been patented by someone else. It’s all about identifying the opportunity, verifying that it’s feasible, and then running the government’s patent gauntlet.
By partnering with inventors or purchasing their patents outright, you avoid all of that. It’s a good solution for entrepreneurs who want to get their businesses off the ground with minimal costs and hassle. It’s not right for everyone, of course, but it does present a viable path forward for some.
Conclusion
Licensing patents offers multiple paths to creating a viable business. Yes, you can license your own patents and build a successful company. However, you can also license other inventors’ patents and create multiple streams of passive income without having to go through the invention and patenting process yourself.
Both methods require funding – whether you’re creating an invention or buying patents from other people. At Crowdfunding Lawyers, we have the expertise you need to raise funds for those efforts. Not sure how or where to get started? Contact us to schedule an initial consultation.