So you've developed a brilliant new product. Now what? Sometimes, the best option is to hand over the reins to a bigger company. By teaming up with large firms that have a lot of marketing muscle and can wrangle discounts from manufacturers and distributors, you can see your product's sales skyrocket.
With a licensing deal, you profit from this arrangement by collecting royalties of approximately five to ten percent of the retail price. Consider licensing your product to bigger companies if you:
- Lack the capital to mass produce your product.
- Lack the time to devote to producing and marketing your product.
- Lack the know-how to develop your product.
- Are willing to give up control of your product.
Perform a patent searchThe first step to licensing a product is performing a patent search to determine if someone else already owns the rights to your product.
United States Patent and Trademark Office (USPTO) Web site.
Obtain a patentYou can't license a product for which you don't own the intellectual property rights. Most licensing firms won't even schedule a meeting with you if you don't have a patent in hand.
USPTO Web site. In order to file electronically, you'll have to apply for a customer number first.
Locate potential licenseesTurn to professionals who can find the right licensee to fit your product.
Use confidentiality agreementsMost licensing firms will ask you to sign their confidentiality agreement, but won't sign a confidentiality agreement that you bring to the table.
Submit a proposalInclude data on your proposed target market and an analysis of your competition. Be prepared to reveal product specifications, drawings and your prototype, if you have one.
Sign a licensing agreementKey components to are royalties (what they'll be based on and how often they'll be paid), exclusivity for the licensee, territory rights granted and market rights granted. Always have an intellectual property attorney review the document before signing.
- Submit proposals simultaneously to a number of licensing firms. Potential licensees may bid against each other for the contract, thereby increasing your profits.
- Never try to license a product for which you don't hold a patent. It can leave you vulnerable to lawsuits. If you're in the process of patenting your product, it can expose the idea to others who may try to steal it before your patent is final.