When you have a great idea for a new product, it’s natural to want to bring it to market yourself and reap all the rewards. There are traditionally two routes to market: self-manufacturing or licensing. Today, we look at the licensing option; it can be a smart alternative strategy that requires less upfront investment and reduces your risk.
What is Licensing?
Licensing is an agreement in which you (the licensor) grant certain rights to your invention to another party (the licensee) to commercialise it. The licensee typically pays you royalties based on sales. You can grant an exclusive license to one company or non-exclusive licenses to multiple companies.
Benefits of Licensing Your Invention
There are several compelling reasons to consider licensing your invention:
- Reduced risk – the licensee bears the costs of manufacturing, marketing, and distributing the product.
- Less startup capital required – licensing lets you avoid the substantial costs of bringing a product to market yourself, such as manufacturing, warehousing, distribution, sales and marketing.
- Faster market entry – an established company already has manufacturing, distribution and sales channels in place to bring your product to market quickly.
- Industry expertise – the right licensing partner will have deep knowledge of the target market and can optimally position and sell your product.
Designing and Visualising Your Concept
Before approaching a potential licensee, you need to design and visualise your concept, presenting some of the key components and materials and how it can be made. Create detailed sketches or renderings that clearly communicate your invention’s appearance and functionality.
If possible, develop a prototype or 3D model to demonstrate proof of concept. A tangible representation of your idea makes it easier for potential licensees to understand and evaluate.
Finding the Right Licensing Partner
- Look for companies that sell to your target market, have a strong reputation, and can demonstrate the capacity to manufacture and market your invention.
- Attend industry trade shows to identify and meet with potential licensees. Search industry publications and websites. Ask your network for introductions and referrals.
- Protecting Your Intellectual Property
Before approaching potential licensees, take steps to protect your invention. File a patent application to establish “patent pending” status.
Have prospective licensees sign a non-disclosure agreement (NDA) before sharing details about your invention. An NDA legally obligates the receiving party to keep your information confidential.
Negotiating the Licensing Agreement
The licensing agreement is a critically important document that defines the rights and responsibilities of the licensor and licensee. Key terms to negotiate include:
- Exclusivity
- Field of use
- Geographic territory
- Royalty rates and minimum payments
- Duration of the agreement
- Milestones and diligence terms to ensure the licensee performs
Royalty rates vary considerably based on the industry and type of product.
Licensing Your Way to Market
Licensing can be a great strategy to bring your invention to market with less risk and upfront investment. By finding the right licensing partner and negotiating a favourable agreement, you can turn your idea into a profitable reality.
Keep in mind that it’s possible to start with licensing and later transition to manufacturing the product yourself, or vice versa, depending on your changing circumstances and goals. While not right for every situation, licensing is an option worth considering for many inventors.
