How can I make money with my patent?

Answer

Patents grant the right to exclude others form making, using, selling, offering for sale and importing into the United States anything that infringes your patented subject matter. These exclusionary rights create the opportunity to monetize your invention. The four main paths to monetization are: commercialization; licensing; enforcement; and sale. When planning your patent strategy, it is important to think about your goals and the realistic paths towards monetization.

Commercialization

Many clients pursue patent protection expressly for the purposes of protecting their products from being copied by competitors. The patent creates a competitive advantage by deterring knockoffs. More conservative competitors may be cautious in their product development and commercialization efforts to avoid the threat of litigation. While difficult to quantify, the deterrent effect can be a real value to your business.

Licensing

Patent licenses are agreements in which the patent owner grants certain rights to a licensee who, in return, pays royalties to the patent owner. A patent owner can license any scope of the patent rights to others, which choosing whether or not to retain rights itself.

Exclusivity

An exclusive license is used to grant the licensee the sole right to make, use, sell, offer to sell, and import the patented technology. A non-exclusive license ensures the licensee will not be sued for patent infringement, but does not guarantee that other parties won’t have rights in the invention.

Fields of Use

A given patent may cover technology that spans different sectors of commerce. Accordingly, patent licenses can be granted for various fields of use. For example, a patent covering next generation battery technology may be exclusively licensed to a single licensee in the field of automobiles, while non-exclusively licensed to a number of licensees in non-automible contexts.

Payments and Royalties

Patent license payments can take any form agreed upon by the patent owner and the licensee. A creative IP attorney can help you tailor a license to fit your specific needs. That said, typical patent licenses include terms that account for fixed payments and/or royalties defined as a percentage of sales.

Fixed payments may be made as an upfront payment or scheduled over the duration of the patent license. For example, it is common that the licensee pays the patent owner some fixed payment at the inception of a patent license.

Royalties are typically defined as a percentage of net sales (gross sales minus adjustments). In an exclusive license, it is common to have minimum annual royalties the licensee must meet either through calculated royalties or in make-up payments. Failure to make the annual minimum royalties typically results in the expiration of the license or a reversion from exclusive rights to non-exclusivity.

Enforcement

A patent license can further define which party has the rights to enforce a patent through litigation. Accordingly, a patent license may be an opportunity for parties to share the risks and rewards of enforcing a patent or patent portfolio through litigation.

Enforcement

Speaking of enforcement, litigation (or the threat of litigation through a cease and desist letter) is another path to monetizing your patent rights. It is important to understand the relationship between licensing and litigation to best leverage each. It is common to resolve patent litigation, or the threat of patent litigation, with a license. In many instances, the only way to secure a license is in the context of a credible litigation risk—the licensee thinks, “why would I pay to license a patent unless it is to be avoid being sued?”

Sale

In my experience, it is not terribly common for a patent owner to plainly sell a patent to another party; licenses are far more common. However, patents are often involved in the sale of the assets of a business. When there is a sale of a technology or products company, the key assets commonly include the patent portfolio. While the value of the monetization of the patent portfolio may be indirect, it is no less real or important to the business.

Related Questions

Browse All