How to Sell a Patent: Everything You Need to Know
Securing a patent is an important part of becoming an inventor or an entrepreneur. It grants you ownership to an invention and excludes others from using that.4 min read
How Do I Sell a Patent?
Securing a patent is an important part of becoming an inventor or an entrepreneur. It grants you ownership to an invention and excludes others from using the invention. However, a patent alone won't turn to profits. To generate income, you must license the rights, manufacture and sell the product, or sell the patent. When you sell a patent outright, you trade your ownership rights for a certain amount of money. If you have the right patent, many companies will vie for the rights, providing a quick payoff and eliminating startup costs.
The Pros and Cons of Selling Your Patent
Selling the rights to a patent has two main benefits:
- A quick influx of capital, which can be used to recoup initial costs or finance a new invention.
- Eliminating the production and startup costs if you were to manufacture the item yourself.
However, it also has some drawbacks. If a patent hasn't been proven to help sales, most companies aren't willing to spend much on a conceptual idea, even if it's useful to consumers. Selling too early also may also prevent the inventor from making larger profits in the future, as he or she gives up the rights to such ventures. For these reasons, it's important to analyze the market for your specific invention and compare your product to learn its potential profitability.
How to Put a Value on Your Patent
One of the most difficult aspects of selling your patent is putting a valuation on it. The prospective buyer typically does this in three steps:
- Determining the quality of the patent and the practical application and profitability of the invention.
- Evaluating if the patent is well-constructed.
- Determining how to extract a monetary value from the patent.
As a seller, you should immediately analyze a company's existing patents to help determine the value of your own. This information is readily available online at the United States Patent and Trademark Office (USPTO) website.
If you're a manager seeking to acquire another company for its IP, or if you're wondering how to value your own company's patent portfolio, you must first take a look at the company's patents. From here you can formulate questions to find out your patent's worth:
- How many patents does the company own?
- Are these patents better than the competitors?
- Are the patents well-positioned for profitability in the market?
- How well does management build a portfolio of patents and apply them?
- Is my invention groundbreaking or just a fad?
- Does the patent protect the invention from infringement?
- How will the company get value from my patent?
Once you've figured out the answers to these questions, you can put a dollar value on your patent. The more answers you have, the better you can position yourself for a huge payday.
How to Negotiate Your Patent Assignment
If you decide it's in your best interest to sell a patent, it's important to know the legal and financial aspects of the deal. The United States Patent and Trademark Office, or USPTO, refers to the sale of a patent as an assignment. This is because you assign your patent ownership rights to another party. Once you've picked a buyer for your patent, it's time to start negotiating the assignment agreement.
While most assignments transfer 100-percent ownership interest to the buyer, remember that it's also possible to transfer just a small portion of ownership. This is particularly true when two or more inventors are on the patent application. You can also assign a percentage of your ownership to the buyer, especially if he or she wants to work with you to manufacture the item. This could mean you only give up half, one-third, or one-quarter of patent ownership. The amount given during each assignment is entirely up to the patent holder.
Drafting the Assignment Agreement
After finding a buyer, it's time to draft the assignment agreement. UpCounsel has an assignment agreement form that's beneficial. However, you should also consider enlisting the help of a patent attorney to assure adherence to federal and state guidelines and laws.
To start, draft the initial agreement terms and provide a copy to the buyer for analysis and approval. Any written documents related to your patent should also be given to the third party. These documents should contain your name, the title of the invention, the patent number, and the date of patent issue. Without these details, it could void the assignment. If everything is agreeable to both parties, make sure to hire a notary to preside over the signing of any legal documents.
How to Record the Assignment With the USPTO
For your assignment to become legal, you must take it the USPTO. Recording this event is crucial to the sale, as if you don't record the assignment within three months of the effective date, you lose the right to sell it to any other party, even if you still have an interest or partial ownership of the patent.
You may record the assignment in two ways. By recording with the USPTO, you give legal public notice of the transaction. You should also record the assignment in the patent file, which gives the new owner the right to legal recourse in patent proceedings. This includes filing a patent infringement suit.
According to USPTO protocol, all recorded assignments must be written in English. If written in a foreign language, a translator must sign an English translation. You must also submit an official cover sheet that's required by the USPTO. Once completed, send the assignment, cover sheets, and all pertinent documents to:
Mail Stop Assignment Recording Services
Director of the United States Patent and Trademark Office
P.O. Box 1450
Alexandria, VA 22313-1450
Make sure to only send copies and not the originals, as any originals sent will not be returned.
If you need help with selling a patent, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard and Yale Law and average 14 years of legal experience, including work with or for companies like Google, Stripe, and Twilio.