how to make money from your patent

You had a great idea for an invention, and after spending months brainstorming, filing, (waiting) and discussing the details with your patent attorney, your patent is granted.

Filing for a patent isn’t cheap, so it makes sense that if you went to the trouble of protecting your idea, the next step is to figure out how to profit from it.

According to Forbes, in 2014, 95 percent of the 2.1 million active patents weren’t licensed or commercialized: they didn’t generate any money.

The value of your invention is completely in your hands. Here are six ways to make money from your patents.

1. Start a business: Product conversion

One of the best ways to make money from your patent is to create and sell the product you invented. If you’re thinking about manufacturing and retail opportunities, start by yourself the following questions:

  • Does your invention solve a real-world problem?
  • Does it do its job better than existing products in the market?
  • Have you done an assessment to find if your consumers are going to like it?
  • Do you have funds for manufacturing and promoting the product?
  • Can you sell it at a competitive price?

Keep in mind that developing and selling a product—starting a business—requires different skills than creating a product idea and going through the patenting process.   

There are plenty of independent inventors that have chosen to travel the path of entrepreneurship. Dan Brown, the inventor of Bionic Wrench and founder of Logger Head Tools, is a prime example.

You can read the bright side of Dan’s story here. Dan did face some challenges, though, so make sure you think it through so you’ve accounted for potential risks before you get in too deep.  

Start by writing a business plan—they’re required by bank lenders and investors. But even if you don’t need outside funding to get started, business planning will help you make sure you’ve considered every aspect of your business.

2. License your patent

If starting your own business isn’t the best approach for you, you can still earn a handsome amount by licensing your patent.

Patent licensing is a practice that lets you transfer your patent rights to a party that can use it for making or selling a product or service.

There are two types of patent licensing:

  • Exclusive Licensing: The patent owner transfers all the ownership rights to the licensee.
  • Non- Exclusive Licensing: The patent owner/licensor can also produce the invention along with the licensee.

The benefits of licensing your patent rights

  • Your brainchild, your invention, sees the light of a day in form of a product.
  • Lack of resources or funding won’t stop your invention from going to market.
  • The trust and brand value of the licensee could help you build a legacy.  
  • Your licensee may sell your product worldwide faster than you would have been able.

Patent licensing as a number of complexities and intricacies. I recommend reading this article—it’s a guide to patent licensing. It will help you start developing solid understanding of what it entails, including scenarios where licensing may become less profitable than your initial expectations.

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3. Use a patent licensing company

If you’re not interested in doing all the licensing legwork yourself, there are patent licensing companies, (some of them are publicly traded) like Acacia Research Corporation, that help individual inventors monetize their patent assets. Often these companies serve as a middleman, connecting an inventor with a company that could help them with expertise or capital.

Acacia Research Corporation, based in Newport Beach, has been one of the biggest supporters of individual inventors and small companies. They work with patent-holders to help them unlock the financial potential of their patent. It partners with many companies/inventors and splits the licensing revenue 50-50.

 Intellectual Ventures is another such company. It is one of the top five owners of US patents.  It acquires patents from almost every domain. It has more than 40,000 patents in its portfolio.

“The set of incentives that go around patents, that’s part of how the system works. Inventors should get rich. We should have more inventors. It’s good for everybody.”

― Nathan Myhrvold, former CTO of Microsoft and co-founder of Intellectual Ventures

It’s worth mentioning that companies like Acacia Research and Intellectual Venture are considered Non-Practising Entities (NPEs). NPEs are entities that own patent(s) but don’t use them to develop a product/process. Some of the NPEs have earned the moniker of “patent troll” because they use their patent(s) for filing frivolous lawsuits against renowned companies and startups.

4. Use it as collateral for a bank loan

Did you know that sometimes you can use your patent as collateral when seeking a bank loan? You might be surprised that this is a fairly common practice and something even major players like General Motors, Alcatel Lucent, and Kodak have done. Between 2011 and 2016, leading banks like JP Morgan, Morgan Stanley, Bank of America made 947,907 transactions for patent loans.

It has another benefit. If you mortgage your patent, there’s a fairly high chance that it could be acquired by a big company that wants to avoid litigation or to maintain its competitive edge. Often when patent owners mortgage patents, they’re more interested in leveraging the value of their resource, than licensing it or spinning up a business with it.

So, if a bank agrees that you can use a patent as collateral, they essentially agree that it has significant value, based on their due diligence. This can actually be a positive signal for companies looking to acquire patents.

5. Sell off your patent rights

What if you aren’t interested in licensing your patent? Maybe the market for your intellectual property is diminishing or the technology is becoming less relevant. It might be time to sell the patent.

Before you sell, ask yourself the following questions:

  • Is there any way to further develop your invention that might your intellectual property worth more down the road?  
  • Is patent pooling possible?
  • Are you running out of ways to make licensing profitable?

The next big question is—where will you sell it? Check out this list of 22 patent marketplaces to get started.  

6. Sell to a business that’s expanding to your country

Some patent owners make a point to research and keep tabs on overseas companies that are expanding their operations internationally.

Patents are location-based, meaning that you’ll need a patent in each country where you want to protect your idea. So when a company expands its operations to new countries, it will often try to acquire patents in the new country to help mitigate their risk of being sued for patent infringement.

Often, the expanding companies are openly looking for individual patent owners who are willing to sell. Xiaomi is one example of a company that acquired a lot of patent assets through its global expansion process.

Conclusion

Getting a patent isn’t a walk in the park. It is a complex, expensive, and slow process. Make sure your patent results in financial reward, whether you use it to launch a product, license it to someone else, or sell it. Don’t let your patent sit around!

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Kanika Sharma

Kanika Sharma is a patent research analyst at GreyB Services. GreyB is a technology research and consultancy firm that helps Fortune 500 companies and top law firms across the world with its technological insights.