Licensing Your Product to Bigger Companies

Collect royalties without the production and marketing headaches

By Jenni Simcoe, Writer

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 search

The first step to licensing a product is performing a patent search to determine if someone else already owns the rights to your product.
Try: Search issued patents and published applications at the United States Patent and Trademark Office (USPTO) Web site.

Obtain a patent

You 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.
Try: File a patent application electronically at the USPTO Web site. In order to file electronically, you'll have to apply for a customer number first.

Locate potential licensees

Turn to professionals who can find the right licensee to fit your product.
Try: Fill out a simple online form to request information from Davison Integration, which prepares and presents products to corporations for licensing. IMC Licensing negotiates licensing agreements in dozens of consumer product categories. Or consider attending an industry tradeshow where licensing company representatives will be present.

Use confidentiality agreements

Most licensing firms will ask you to sign their confidentiality agreement, but won't sign a confidentiality agreement that you bring to the table.
Try: Have an intellectual property lawyer review the agreement or purchase a template from the Internet Legal Research Group to get an idea of what's commonly included in these agreements.

Submit a proposal

Include 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.
Try: Create a professional-looking presentation using Microsoft PowerPoint, available from Amazon.com as a stand-alone program or as part of Microsoft Office.

Sign a licensing agreement

Key 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.
Try: Find a sample patent licensing agreement at FindLegalForms.com and search for an intellectual property attorney in your area at LawInfo.com.

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.