Patent to License?

April 26th is World Intellectual Property Day.   To celebrate let’s talk about getting your idea to market!  Sounds great, BUT you feel you may not have the experience or the means to get your product to market and you don’t have the required finances, operations or human resources to do so.  Your option?  How about licensing?  Licensing is a great idea if you need to minimize costs yet maximize market protection.

The Edmonton Business Link provided a wonderful article on licensing and in the article they outline five steps to guide you through the licensing process – Here’s the excerpt:

1.            Protect your intellectual property –  Before licensing your product, you must protect your intellectual property rights with a patent (or patent-pending). A patent gives you the right to exclude others from making, using or selling your invention in Canada.  For more information, visit the Canadian Intellectual Property Office at www.cipo.ic.gc.ca

2.            Prepare a product portfolio – The product portfolio is your opportunity to showcase your product to potential licensees.  It should clearly detail your idea or invention, how it works and why its market potential is so strong.  The packages should contain a letter of introduction, along with the following: product pictures or drawings,  detailed description, product variations, benefits, manufacturing information, market research findings, and pricing.

3.            Get the word out about your product – Let others know you have a product to license.  Cast your net as widely as possible by tapping into your professional networks and the following resources:  licensing consultants, publications, websites and events; Canadian Trade Commissioners in Canada and abroad ( see www.tradecommissioner.gc.ca); provincial trade offices and agencies; trade directories of domestic and global manufacturers; universities with research facilities; Chambers of Commerce in Canada and internationally; banks with international operations; and trade associations and publications.

4.            Seek legal advice and support – As the licensor, you are expected to provide a legal agreement that sets out the conditions, rights and responsibilities for both parties.  A lawyer will work with you to draw up the agreement and negotiate a range of issues, including: what is being licensed, exclusive rights, territories covered, payment for patents, liability and provisions for termination of the agreement.

5.            Determine a royalty rate for your product – There is no standard approach for determining your royalty rate.  In fact, the rate you manage to negotiate will depend on a number of factors, such as whether the product is already patented, its level of market-readiness, and your own track record with producing successful products.  Typically royalty rates range from 3% to 8% of net sales.  Each licensing agreement is unique and what you get is entirely dependent on your ability to negotiate a deal that benefits both you and the licensee.

Keep in mind, there are the ups and downs to every decision.  Two things to consider:

1.Once you have licensed your product, unless your contract specifies restrictions and conditions related to marketing and advertising you have very little or perhaps no control over how the second party sells your product.

2.You may become dissatisfied with the licensee’s positioning of your product, object to details of their marketing campaign or feel the company has put inadequate energy into sales.  A bad relationship between the licensor and licensee, can do damage in terms of time,  money and energy and often times can end in a lawsuit.

Do your homework, take the time to research and weigh the pros and cons.  Hopefully these tips will help you move forward and get you well on your way to entrepreneurial success.  Good Luck, and as always, keep innovating!

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