A patent license is a contract that allows someone else to create, use, and sell your invention commercially for a set period of time. The ‘licensor’ is the person who owns the invention (patent), while the ‘licensee’ is the person who receives the license. Payment for the license is a part of licensing agreements. Depending on the agreement between the licensor and the licensee, the licensor will get a one-time payment or ongoing payments known as a royalty. Generally, a licensing agreement includes some terms and conditions that are agreed upon by both parties. The agreement specifies the product, the method of payment between the parties, the license’s purpose, and other details.
Advantages of licensing patents
Income without overhead Cost
Licensing allows you to earn money without paying additional expense or production costs. Normally, generating income from intellectual property involves a significant investment of time and money. Allowing someone else to utilize it, on the other hand, effectively transfers the risk to them while enabling you to collect royalties.
Potentially better marketing
Another advantage of licensing is that it might benefit in the marketing of your intellectual property. A local business, for example, will likely have a better understanding of how to reach its target market than a big chain. You’ll get more targeted marketing without having to undertake specific market research if you license your IP to smaller businesses.
Able to generate revenue
The licensee will pay you for the opportunity to hold your patent license. This could be a one-time payment, a series of payments known as royalties, based on earnings.
If a patent is licensed to a well-established company with a huge client base, the patent product will have a broader market to grab than other patents, providing it a competitive advantage over others.
Enter foreign markets more easily
Physical products have a harder difficulty crossing national borders than intellectual property, therefore licensing is a wonderful method to break into new markets. You won’t have to worry about tariffs or other hurdles because you won’t be transporting goods internationally. You’re simply allowing foreign entities to utilize your IP.
Because patent licensing is only for a limited time, when the license period ends, the owner regains his exclusive rights to his invention.
A licencing agreement must benefit all parties involved in it to be successful. A licensee who has patent rights can:
- develop new products, services, and markets for themselves.
- lower the cost of acquiring new technologies by avoiding the need to develop their own
- reduce the time takes to bring a new product to market
- acquire a competitive advantage over competitors, particularly if their license is exclusive
Licensing may be lucrative and mutually advantageous for both the patent holder and the licensee if done appropriately. However, licensing can increase possible competition and dangers for both parties, thus possible risks must be considered.
Disadvantages of licensing patents
Difficulty in determining licensee
Finding the perfect licensee might require a lot of time and determination. You should put a lot of research into analyzing potential licensees and creating your licensing agreement to give your product the best chance of success.
Loss of control
The patent owner transfers his rights to the licensee for the duration of the license. As a result, he loses control over his own creation, either partially or completely.
Risk of licensee’s ability
To efficiently commercialize the patent product, the patent owner relies on the licensee’s efficiency and abilities. Poor strategy and quality management have the potential to harm a patent’s reputation and success.
Finally, licensing exposes you to potential issues with your licensees, especially if they attempt to withhold revenue. In these situations, you may be able to pursue legal action, but this might be costly.