Key Takeaways

  • Licensing allows an inventor or brand owner to profit from their idea while minimizing manufacturing and marketing risks.
  • Key steps in selling licensed products include identifying potential licensees, negotiating contracts, and protecting intellectual property.
  • Different types of licensing agreements exist, including exclusive and non-exclusive contracts.
  • License agreements should clearly define royalty structures, payment terms, and the scope of the license.
  • Marketing and branding strategies can significantly impact the success of licensed products.
  • Brand consistency and legal protection are critical when selling licensed products.
  • UpCounsel connects business owners with experienced attorneys to assist with licensing agreements.

Several steps are involved in how to sell licensing rights. While you want to find someone who will license your invention, you also want to be sure that your rights to your invention are protected. Fortunately, if you're careful about selling licensing rights, you should be able to make money from your invention.

Background to Licensing

The goal of the majority of inventors is to make a profit from their ideas, and licensing is the best way to achieve this goal. With licensing, you will get paid while someone else takes the effort to manufacture your product and bring it to market. When you allow someone else to produce and sell your invention in exchange for money, you are giving them a license. Basically, a license is a type of contract with two parties, the licensor and the licensee.

The payment that you receive for licensing your invention can take many forms. If you request a royalty, for example, it means you'll receive a percentage of every sale of your invention. In some cases, you will receive a one-time payment known as a buyout.

The biggest drawback to licensing your invention is that you will lose some control of your idea. In addition, while you will get paid for licensing your invention, the money that you receive will likely be a lot less than what you could earn if you manufactured and sold your invention yourself. Licensing, however, does provide several benefits, including:

  • Less work
  • Less investment
  • Lower risk

If you're the type of person who doesn't mind taking risks and has the ability to work very hard, then you may want to try to bring your invention to market yourself instead of selling licensing rights.

Types of Licensing Agreements

Licensing agreements can vary based on the level of exclusivity, rights granted, and compensation models. The most common types include:

  • Exclusive License – Grants the licensee sole rights to use, produce, and sell the product within a defined territory or market.
  • Non-Exclusive License – Allows multiple licensees to manufacture and sell the product, increasing market reach.
  • Sublicensing Agreement – Permits the licensee to grant licenses to third parties, expanding product distribution.
  • Franchise Licensing – Often used in the retail and service industries, where a franchisee gains the right to operate under an established brand name.
  • Brand Licensing – Involves lending a brand name or logo to another company to produce merchandise under the licensor’s established brand.

Choosing the right licensing model depends on market goals, competitive landscape, and brand control preferences.

Steps to Licensing

If you're interested in licensing an invention, you must first make sure that your idea is fully developed. Most companies will not pay for an underdeveloped idea, so if you want to license an invention, you need to be certain that it is fully realized. You should also make sure that you've secured some type of IP protection for your invention. If you have not secured legal protections such as a patent or copyright, companies will be reluctant to license your invention.

When you're ready to license your invention, there are seven basic steps that you need to follow:

  1. Research companies that may be interested in your invention.
  2. Approach the companies most likely to license your invention.
  3. Request a confidentiality agreement.
  4. Get ready to negotiate the license.
  5. Make a proposal to the company.
  6. Negotiate with the prospective licensor.
  7. Sign the licensing agreement.

Key Components of a Licensing Agreement

A well-structured licensing agreement outlines the responsibilities and expectations of both the licensor and licensee. Important elements include:

  • Scope of License – Defines what rights are granted, including territorial and usage limitations.
  • Term Length – Specifies the duration of the agreement and renewal conditions.
  • Royalty and Payment Structure – Determines how the licensor is compensated, whether through upfront fees, royalties, or milestone payments.
  • Performance Obligations – Outlines any production or sales targets that must be met.
  • Marketing and Branding Guidelines – Ensures that the licensed product aligns with the licensor’s brand image.
  • Intellectual Property Protection – Establishes how trademarks, copyrights, or patents are safeguarded.
  • Termination and Breach Clauses – Defines the circumstances under which the agreement can be terminated.

Proper legal documentation is crucial to protecting the interests of both parties and ensuring compliance with intellectual property laws.

Selling a Patent

Once you have invented something, it's important that you obtain a patent to protect your rights to your invention. While patents are certainly valuable, owning a patent doesn't generate any money in and of itself. If you want to make money from your invention, you have several different options. As mentioned, you could license rights to your invention to another person. Some inventors, however, instead choose to sell their patent.

When you sell your patent, you are guaranteed to earn at least some money for your invention. Because turning a patented invention into a profitable product is very rare, selling your patent can be a good idea if you're not sure how to go about bringing your invention to market.

Selling a patent is also beneficial because it means you will not have to take on the huge financial burden that is necessary to start a business for the purposes of selling your invention. While there are several advantages to selling your patent, you should be very cautious before you choose this option. If you sell your patent and it turns out that your invention is very profitable, you will not have any rights to these profits, as you will have given up your rights to your invention.

Also, unless you've already made some money from your invention, it's likely that the money you are offered for your patent will be very limited. Companies will not invest large amounts of money in unproven inventions, so you shouldn't expect a big payday from your patent alone. Licensing a patent is by far the better solution, as you will retain ownership of your invention and will profit if your invention becomes extremely popular.

Marketing Strategies for Selling Licensed Products

Even with a strong licensing agreement in place, the success of licensed products depends on strategic marketing efforts. Consider the following approaches:

  1. Leveraging Brand Recognition – If the product is licensed under an established brand, capitalize on its reputation to boost sales.
  2. Retail Partnerships – Secure distribution channels with major retailers or e-commerce platforms.
  3. Social Media and Influencer Marketing – Utilize digital marketing tactics to increase visibility and consumer engagement.
  4. Product Packaging and Branding – Ensure that packaging reflects brand consistency and appeals to target audiences.
  5. Trade Shows and Industry Events – Showcase the product to potential buyers, distributors, and investors.

A strong marketing plan can differentiate licensed products from competitors and drive revenue growth.

Frequently Asked Questions

1. What is the difference between selling and licensing a product?Selling a product transfers full ownership, while licensing allows the inventor to retain rights and receive royalties without direct involvement in manufacturing and sales.

2. How do royalties work in a licensing agreement?Royalties are typically a percentage of each sale or a fixed payment per unit sold, defined in the licensing contract.

3. Can I license a product without a patent?Yes, but securing a patent or trademark provides legal protection and enhances the product’s marketability.

4. How do I find companies interested in licensing my product?Research industry leaders, attend trade shows, and network with businesses in relevant markets to identify potential licensees.

5. Do I need a lawyer to negotiate a licensing agreement?Yes, consulting a legal expert ensures that the contract protects your intellectual property rights and business interests.

If you still aren't sure how to sell licensing rights, 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 Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.