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Intellectual Property: Should You Consider A Licensing Business Model?
In our Case Study blog post last week, Transitioning From Idea To Manufacturable Product, we discussed the ways in which we helped a client secure a licensing agreement. For many inventors a licensing agreement is often a great option since it lets them develop a product, but then puts the expenses associated with commercialization on a more experienced manufacturer.
What is a licensing agreement?
With a licensing agreement, an inventor (the licensor) develops an invention and then protects that invention through a patent, copyright, trademark, or trade secret, and thus creates intellectual property (IP). The inventor—the owner of the intellectual property—then licenses the invention to a second party (the licensee) whose responsibility is to commercialize the invention. As compensation for allowing another party to use its intellectual property, the licensor will receive a royalty.
Licensing agreements are becoming more common than in the past and are open to more inventors. This has also increased the number of inventors approaching manufacturers and, thus, increased competition.
What are the benefits of a licensing agreement?
Below is a list of some of the main benefits of licensing your invention/IP.
- The licensor (inventor) does not have to finance the commercialization process.
- The licensor avoids the need to create and operate a company.
- The innovation will most likely get to market faster because a larger, more experienced company is handling the commercialization.
- The innovation may reach more markets if the licensee is a large, well-funded enterprise.
- The licensor retains ownership of the intellectual property.
How do I evaluate a potential licensee?
When evaluating a potential licensee, you should focus on its ability to effectively commercialize your invention/IP. Often times that means considering companies that have a proven track record of marketing and selling products based on inventions similar to yours. Depending on the invention, the best way to commercialize it could also be to license it to a startup, a manufacturer, or a bunch of companies in separate territories.
Suggestions for securing a licensing agreement:
- Assess the complexity of our product. Is there a way to get a working version developed without extensive costs? 3D printing/additive manufacturing is a frequently used method to get a functional prototype ready because of its speed and the reduced costs associated with the technology.
- Identify manufacturers. Find out which manufacturers currently sell product lines to large retailers where you can see that your product would be a good fit.
- Create a functional prototype. Create a functional prototype of your product and pitch retail buyers. The goal is to get a commitment before you actually launch. You can possibly even offer them a few months of launch exclusivity. The mock-up of your packaging is also critically important. Your product must look as retail ready as possible.
- Setup a meeting with an IP attorney. The attorney will be able to go over the legal aspects of the licensing agreement with you and help come up with a plan that best suits your needs.
- Approach the identified manufacturers. If you want to get the attention of a manufacturer, before you even talk about your product, pitch the prospect your new customer, growing sales or the commitment from a major buyer. You’ll get an appointment, and your product has a better chance of moving to the front of the line in the new product development funnel.
Have additional questions about licensing agreements? We would be happy to help answer them, please e-mail firstname.lastname@example.org
- Intellectual Property Licensing Agreements
- Licensing May be the Bes Business Model for You
- A Surefire Way to Get a Licensing Agreement
3D Innovations is a Product Development Company – from the 3D Design to a fully functional 3D Prototype & Product.
Startup Connector is a Manufacturing Accelerator helping companies commercialize—turning ideas into products.