Licensing vs Manufacturing: Everything You Need to Know
When deciding between licensing vs manufacturing your invention, there are a lot of aspects to consider depending on your long-term goals.3 min read
When deciding between licensing vs manufacturing your invention, there are a lot of aspects to consider. Depending on your long-term goals for your product or process, one avenue may prove more beneficial or lucrative than the other. As you decide, you'll want to know the basic differences between each choice.
How to License Your Invention
When a patent owner chooses to license their invention, they simply agree to allow another party to purchase the rights to their protected intellectual property. Patent licenses are usually only for a set period of time. In return for licensing the rights to your invention, you'll receive a previously agreed-upon payment amount. Sometimes payment for licensing a patent comes in a payments sequence referred to as royalties.
The patent owner is the licenser, and the party paying for the rights to the patented invention is the licensee. Usually, the party that is licensing the invention is doing so in order to manufacture and market it.
How to Manufacture Your Invention
Some patent owners will choose to manufacture their inventions themselves rather than licensing the rights for manufacturing to another party. This means that the patent owner remains in complete control of their invention, but they also have the full responsibility of coordinating the manufacturing process either in their own country or overseas.
If choosing to manufacture your own invention, you'll need to hire a company to create or build the invention. This is appealing to inventors who have a very specific vision for their invention and therefore what to maintain control of the process. However, when an inventor manufactures on their own, they do accept some risks and potential costs that come with the process.
Advantages of Licensing
There are some perks that come with signing a licensing agreement for your invention. These include:
- Saved expenses on prototypes.
- Income from royalties.
- Less risk.
- Opportunity to focus on future inventions while others take the last idea to market.
- Less involvement required from the inventor in the entire process post-invention.
Disadvantages of Licensing
One of the most notable disadvantages of licensing a patent is that the inventor relinquishes quite a bit of control when it comes to the production and marketing of their invention. Once another party purchases rights to the invention, they may choose to change the name of the invention or its appearance or suggested pricing.
Negotiating the licensing agreement is a difficult and intimidating process at times, especially without the help of an experienced lawyer. Another disadvantage of licensing is the potential for delays in the product making it to market. It can also be tough to find someone to license your patent to in order for them to handle the manufacturing. If a licensing agreement goes poorly, it could lead to legal issues and loss of time and money.
Advantages of Manufacturing
When a patent owner decides to handle the manufacturing process of their invention themselves, they gain some advantages. Usually, inventions manufactured by their inventors make it to market faster when production is properly handled. The inventor retains control over the future of their invention. There's usually more potential for profit for the inventor when they manufacture themselves rather than just accepting royalties.
Disadvantages of Manufacturing
There are some disadvantages to consider when choosing between licensing or manufacturing your patented invention. For instance, it is typically less expensive to produce a virtual prototype than a physical one, but manufacturing requires a physical prototype. Along these lines, starting an inventory of your product is very costly on your own.
Some inventors will seek investors to help them cover the beginning costs of the manufacturing process. This practice helps the inventor maintain creative control while gaining some help with expenses.
Inventors who decide to handle manufacturing on their own will usually need to start a business of some sort. Corporations are a good choice because they allow for many investors, but they take time and money to start. You can see how this manufacturing process can quickly get very complicated and time-consuming.
Maintaining control of their product is worth the effort to many inventors, but others will choose the route that is usually easier by going with licensing. Basically, manufacturing offers a higher potential for reward but brings higher risk along the way. Licensing is a lower risk with a typically lower cash potential.
If you need help with understanding licensing versus manufacturing, 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, Stripe, and Twilio.