These two options should be investigated and researched if both are being considered. The advantage of self-marketing is in the fact that an inventor has potential to a make a higher profit margin through direct sales of an invention. The advantage in licensing an invention is in the fact that despite a lower profit being made, the expense and labor in the marketing effort is that of the manufacturer obtaining the rights.
Self-Marketing an Invention
With the self-marketing option, an inventor will be responsible for every aspect of the marketing process, from top to bottom. This would include getting the following items completed.
- obtaining a patent pending and/or trademark registration
- getting packaging designed and printed for merchandising through retail outlets
- setting up a manufacturing facility or obtaining the services of a manufacturer
- securing product liability insurance required by retail outlets
In order to have a finished, packaged product ready to ship to merchandisers, retail outlets and distributors, these requirements must be met. There are many other responsibilities that must be completed as well, in order to have a product ready for launching on the market. These are the things to consider when looking into the self-marketing option.
The License Agreement Option
The other option would be for the inventor to offer the product-invention for licensing, to a manufacturer, who can take care of these issues and simply pay a "royalty" percentage from sales of the finished product. The name for a contract of this type that would be entered into is a "License Agreement."
The product owner/inventor would be the "licensor," simply meaning the party granting the rights and the manufacturer entering into the agreement, to market the product-invention, would be the "licensee," simply meaning the party who is being granted these rights.
The Advantages of Licensing
What are the other advantages in licensing a product-invention, when compared to self-marketing? One major advantage is that all of the previously mentioned items, needing completed in order to get the product ready for marketing, would be at the licensee's time and expense. This usually excludes the expense for the first stages of patenting, since most inventors choose to get at least a "patent pending" status (pending approval for a full-term patent) before public exposure of their invention.
There are some inventors who actually license their inventions with the condition included that the licensee/manufacturer pay for the securing of a patent pending. In cases like these however, it is important that an inventor proceed cautiously and with use of "Non-Disclosure - Non-Use Agreements," signed prior to allowing review of the invention. This type of agreement states that the reviewing party agrees not to use the invention, in any way or to disclose it, to third parties, without prior written consent of the inventor.
The problem with proceeding without a patent however is that manufacturers will have reason to question an invention's potential. They may feel that if the inventor is not willing to first apply for a patent pending, before offering it for licensing, that they may lack real confidence in the invention. If the inventor doesn’t believe in it enough to apply for a patent, why should they?
The USPTO (U.S. Patent & Trademark Office) offers a 1-year patent pending under the “Provisional Patent Program” at a low cost of $110.00 for small entities (small companies and individuals). With this and the effort of first conducting a patent search or having one completed, the expense of a patent pending can be held down to a minimum, prior to offering an invention for licensing.
The Licensee’s Responsibilities
In addition to the advantage of expenses being the manufacturer’s under a License Agreement, with the possible exception of a patent pending, another advantage is that all other responsibilities are also the licensee's. They are responsible for designing attractive packaging for the invention, getting product liability insurance secured for it and promoting the product-invention, through ongoing advertising.
The responsibilities in marketing a product are many but the advantage in licensing a product-invention, over self-marketing, is also in the fact that an existing manufacturer is already set up to accomplish these things. An inventor is simply granting the rights through a Licensing Agreement and is being paid a royalty percentage on any resulting sales.
Composing a License Agreement
It is important that proceeding with a prospective Licensing Agreement is done so with caution. An inventor must carefully consider every condition and term they wish to include in the agreement. Things to consider include the royalty percentage willing to be settled for and the initial term of agreement, meaning the length of time the initial term of the contract is to be for, in months or years. An inventor will also want to include clauses/articles that protect them from law suits of any kind that might arise, as a result of the marketing practices of the manufacturing company.
The inventor would also need to be able to terminate the agreement in writing, in the event the manufacturer does not honor the agreement. Non-compliance can be due to non-payment of royalties or by not fulfilling a minimum sales requirement, in order for the agreement to remain in force, should this be included. Terms would however need to be reasonable and workable and not so strict as to cause disinterest by potential manufacturers in entering into a contract to market an invention.
An inventor can study license agreements through search online and/or consult with an attorney who is experienced in composing and executing marketing contracts.
Sources:
USPTO - Provisional Application for Patent
License Agreements - Lawyers.com
Jim Lowrance - James M. (Jim) Lowrance has authored over 100 book and ebook publications since year 2004.
