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Once you obtain a patent, you might discover--through market research--that licensing your patent may be a better business move than trying to sell and distribute your product alone. Some people cringe at the thought of allowing someone else to make as much as 95 percent of the profit on their hard earned invention.
But, licensing deals have proven to be wise in many cases. They allow you to avoid spending countless dollars on marketing research, obtaining selling agreements, distribution and many other administrative burdens. Depending on the business model you choose, licensing may allow you to move on to inventing still more new products utilizing the profits you earn from your first invention. If you decide to do business with a licensee, here are some important clauses that should be in your license agreement:
*A section of definitions that describe significant words used throughout the agreement.
*Royalty rates based on net sales; this is the invoice price of the product minus any discounts or rebates offered by the stellar.
*A specific royalty rate in terms of a percentage. This can range up to 10 percent but about half that is more likely. This is usually the toughest item to negotiate in a license agreement.
*Territory: This outlines the definition of the license in terms of geographic location. This is where the licensee can operate. Make sure you get details on potential world-wide sales clearly stated for the benefit of both parties.
*Sublicensing: If you give right for a licensee to sublicense make sure you must be notified of such a move. Also, make sure these sublicensors are bound by the same terms as the original licensee.
*Term of the license: This should be spelled out clearly. If, for some reason, your patent is no longer in force, the licensee will want to end the terms as the reason they obtain a license in the first place is to avoid any patent infringement.
This is not a complete list of licensing terms so you should contact your patent lawyer to make sure your license is airtight. You may be able to find sample license agreements in books at the library or online. But, make sure they are updated forms as patent laws may change from year to year. Most patent experts would not recommend renegotiating a patent license without professional help from those who know the field inside and out.