Business Management Blog

Licensing is often preferable for those inventors who want to make money but care primarily about innovating and spending time in their lab. A license is simply an agreement in which you let someone else commercially use or develop your invention for a period of time. In return, you receive money—either a one-time payment or continuing payments called royalties.

Your power to make this kind of agreement is based on the premise that you control the patent (or other legal rights) to your invention. Think of a license as giving a company permission to use your patent. As owner of the invention, you will always be the “licensor,” and the party receiving the license for your invention is called the “licensee.” What makes a license appealing—assuming it is the “right” license—is that the licensee assumes all of the business risks, from manufacturing to marketing to stopping those who infringe on the product’s patents.

The licensing inventor sits by the mail- box and waits for the quarterly royalty checks. Unlike a license, an assignment is a permanent transfer of ownership rights. When you assign your invention, you are the assignor and whoever purchases the rights is the assignee. An assignment is like the sale of a house, after which the seller no longer has any rights over the property. As the assignor, you may receive a lump sum payment or periodic royalty payments. Even though they have different legal meanings, the terms assignment and license are sometimes used interchangeably.

Indeed, these two types of agreements sometimes seem to have the exact same effect. This is true in the case of an unlimited exclusive license, in which a licensee obtains the sole right to market the invention for an unlimited period of time. For this reason, you or your attorney must examine the specific conditions and obligations of each agreement rather than simply to rely on terms such as assignment and license.

You should also know the odds before you proceed into licensing. A study by Ed Zimmer and Ron Westrum revealed that about 13 percent of inventors who attempted to license their invention were successful. That’s about one in eight. No doubt the other seven inventors were convinced that their invention would make money. This data is based on the persons who responded, which probably skews the percentage positively. Those who were unsuccessful were probably less likely to respond at all.