Tips for Inventor No: 48/52

Tips:-

To commercialize your new invention the 2nd option you have is to license-out your idea to an interested industrialist. In this arrangement, you’ll earn royalty every time the product is sold in the market.

Essence:-

Licensing method is one of the most favourable business model used in the industry. It is an easy entry for the investor to go into market with your invention. It makes the business arrangement between you (the inventor) and the company (investor) a lot easier to take place.

LICENSING

Among the 5 options that I'll discuss about the way you can possibly commercialize your inventions, Licensing is my favourite. I've done deals using this model for my own inventions. And I've also seen many successful deals concluded successful using this model. In fact, most invention that was able to reach the market successfully is done through this licensing model

One of the reasons why most inventors chose this Licensing route is because it's easy for both parties. It's a lot easier for the Licensee (investor) to take up your invention and turn it into a successful business investment because it is rather cheap for them to enter into business with your invention. Firstly through Licensing, they Licensee (investor) are not forced to fork out millions of Ringgit to pay you (inventor) up-front. They are only required to pay you royalty after the product has been sold in the market. And on the other hand, though the royalty comes to you in a smaller amount, but you are assured of getting a stream of income. And over a long period of time that accumulated royalty can be substantial.

That means, if the sales of your product are good, the Licensee (investor) make a lot of money. And if they (investor) make money they are happy. And on the other hand, if the business failed, their loss is limited to whatever they have invested so far. Therefore this amount of investment is small and manageable. Hence, it’s a smaller risk for them (investor) to take.

Now perhaps we should also discuss what actually constitutes in a Licensing agreement. And how does it work?  Here's a definition I found from the World Intellectual Property Organization (WIPO). It described Licensing as:-

Technology Licensing only occurs when one of the parties owns valuable intangible assets, knows as Intellectual Property (IP), and because of that ownership has the legal right to prevent the other party from using it. A license is a type of legal consent by the owner to use the IP in exchange for money (royalty) or something else of value. Technology licensing does not occur when there is no IP.

Again, a reminder to you that you should register your idea and turn it into an intellectual property first, otherwise it won't work. Please read my previous articles Tips no 38 to 41 on step no. 5 - Protecting your idea to know more

In a License agreement, you have the freedom to slice the business any which way you like. Please allow me to explain further. Let's say you have invented a method of running the car using green leaves. And the patent is in your name. Then the way to maximize your IP is to issue a License agreement with limited usage and limited territory.

Let me give you some examples on how you can do that. Let's say Licensee A (investor) is from Malaysia and he is interested to commercialize your invention. Here, you can issue to him a License with condition that you only allowed him to use the said technology to manufacture and market the product but limited to vehicles on roads and also limit him to the territory of Malaysia only.

This gives you the freedom to issue another license to other Licensee (investor) for other types of usage and for other territories. Let's say Mr. B (investor) is also from Malaysia and he is interested to commercialize this technology for aircraft and he likes to sell this product to ASEAN countries. There you go. You can issue a License to him that gives him the rights with these mutual terms and conditions

Besides the types of industry and territory, other parameters you can look at when cutting out a License are the number of years for each License. You also have the options to decide whether the Licence issued to them is exclusive or not. As you can see, you have a big pie and you can cut whichever way you want to fully exploit the patent. You should be a rich inventor within the next few years if things are running smoothly

If the technology being licensed is capable of being used commercially without heavy expenditure and a large start-up capital and if the future of the technology can be predicted with some predictable forecast, then a constant royalty is an appropriate mechanism for compensating to the licensor (inventor) like you. A constant royalty also has the advantage of simplicity for accounting and auditing purposes.

Depending on the type of product your invention can turn out to be, the quantum of royalty payment to you (inventor) can be quantified in a percentage of the finished product sold or percentage over gross profits, or whatever formula the both of you (inventor and investor) can agree upon.

In different industry, the percentage of royalty differs. Let me give you a snapshot. Here's are some examples of the percentage of royalty paid to an inventor:-

 (Pls PM me to view the Chart)

I wish you all the best in your business. I really hope you make the money you deserves. See you next week for another clever option to make money with your invention. In the next article we shall discuss about how you can throw-in your IP and make a deal to co-own a business with an established company who will help you to make your dreams come true.  

Be cre8tive selalu

Bugs Tan Ph.D

Inventor