Barry Chapin, a senior level patent attorney and founder of Chapin IP law - a mid-sized patent and intellectual property (IP) law firm that handles patent clients nationwide, gets this question quite frequently. Barry has firsthand experience and success in this area working with clients, and has successfully licensed his own inventions as well. Each week, a good handful of people call the firm as potential clients and ask what to do once they have thought of that great new mousetrap. His thoughts and ramblings on this area are provided below, and while he is an attorney registered in the state of Massachusetts, he stresses you should consult an attorney for legal advice in this area and not rely only on this content.
So you have an idea and want to know how to make money with it. The first thing to consider is has someone else already done this same thing? To check on this, you can search the internet (e.g. Google) for the idea using keywords that relate to or describe the idea. This will give you a sense if others have thought about the same thing. You should also search the patent database online to see if people have patented the same or a similar idea. The patent office (www.uspto.gov) and Google have each indexed the U.S. patent database by keyword. If you find patents or other material that appears to disclose your idea or something close, you might reconsider if the idea is worth pursuing. If you are unclear about the scope of protection a patent provides that appears to be close to your idea, you should consider consulting with a patent attorney who can assist in determining the scope of protection of that patent.
If you do not find any issued patents or online references that seem to be close to your idea, you should next consider how you intend to carry out making the invention a reality by having you or another entity bring the idea to market. In other words, you could "do it yourself" or you could protect and license it to someone else and "have them do it."
Things to consider if you want to do it yourself are: do you have the time, capacity, skills, intellect, drive, money and other things that may be required to protect the product with the proper intellectual property, then design and produce the product, advertise and market it effectively, supply purchasers of the product (e.g. get it into stores or online) and bring it to market? Note that the do it yourself method is typically much more work in terms of time and costs, but if successful, you then get the full financial gain from any profit the product might make.
The "have them do it" strategy is typically much easier, but provides less financial gain. The have them do it strategy typically follows a path of protecting the idea with the proper intellectual property (e.g. file a patent on the idea), then pitch the protected idea to potential licensees (e.g. companies with expertise in the area of making and selling the product) with the hope of having them license the idea and, using their expertise in that market, make the product and take it to market. The bulk of the work is done by the licensee, and you collect a check.
Typical licensing of an idea protected by a patent provides the creator / inventor with a reasonable royalty that typically is in the range of three to seven percent (3% - 7%) of the price that the licensee sells the product for. Note that if the product is a consumer item (e.g. a tool, clothing, toy, etc.); the licensee is typically a manufacturer of goods similar to your idea and is often not the actual retailer or seller of the idea to consumers. In such cases, the licensee might license and make your product, then sell it for a wholesale price to the retailer, who then raises the price and sells it on the consumer market. The retail price that consumers pay from the retailer is often twice the wholesale price that the manufacturer sold the product to the retailer for.
As an example, if your invention is a tool and you license a patent on the tool to a tool manufacturer (e.g. a large tool manufacturing company), the manufacturer might make the tool and then sell the tool for a wholesale price of $20 to retailers (e.g. large hardware stores or home centers). The retailer will then sell the tool to consumers for a retail price of $40. Your expected royalty payment might be 3%-7% of the $20 wholesale price, and not the $40 retail price, since you licensed the idea to the manufacturer. The actual amount or percent of royalty (e.g. 3, 4 5 6, or 7 %) is typically negotiable and depends on many factors.
Unless you are skilled in licensing, there are many aspects and pitfalls to avoid in licensing and you should strongly consider talking to an attorney skilled in this area before negotiating directly with a licensee yourself. As an example, should you license it exclusively to one company, or be allowed to grant a license to many companies. You should expect a lower royalty for a non-exclusive license. What if an exclusive licensee decides to no longer make the licensed item? You might consider a minimum licensing fee or a reversion clause if sales fall below a certain level for a certain amount of time. This way, a licensee cannot sit on your idea to the exclusion of others while not paying you anything.
Note that many licensees will not want to hear a pitch for your product unless you have taken proper legal steps to protect the idea, such as by having filed for patent protection on the idea. This is because they actually want you to have established your rights in the invention before you disclose the idea to them. Imagine if a company was to hear your pitch to them for your idea, and then they decline to take a licensee, send you on your way, and a few months later you see that same company just launched a product that is basically the same as the idea you told them about. You would think they stole the idea from you. But what if they had actually been working on the same or a similar idea on their own (e.g. in their R&D department). By requiring that you have at least filed for patent protection on the idea prior to disclosing the idea to them (i.e. that the idea is “patent pending”), they can be assured that you have defined your legal rights in the idea before the meeting, and they would have filed for any patent protection on their creations as well. The patent system provides mechanisms to determine who is entitled to the rights in an invention when more than one party is seeking protection on the idea. Thus, to get meetings with potential licensees, it is often a requirement that patent protection has been filed.
An earlier blog post here http://barrychapin.blogspot.com/ by Barry Chapin covers the mechanism of a provisional patent application filing that provides a quick and relatively inexpensive way to begin the patent process, claim patent pending on your idea, and opens the door to enticing potential licensees to hear your pitch for them to license your idea.
If you have questions on the above general overview, feel free to contact Barry Chapin at Chapin IP Law in Southborough MA at 508-616-9660. Barry Chapin and other patent attorneys at Chapin IP Law specialize in patent and IP law and can represent clients nationwide in preparing and filing patent applications on inventions in a wide variety of technology areas. Patent attorney Barry Chapin's clients range from large Fortune 500 companies to medium sized companies, startups, major universities, and even independent inventors.
