Updated November 24, 2020:

A patent licensing agent represents an inventor's product. He or she searches for companies who will license the invention in exchange for royalty payments. The business of patent licensing came about when Walt Disney created Mickey Mouse. As the character's popularity grew, a businessman paid for the rights to put the cartoon's image on pencil boxes. This was the first time intellectual property was licensed to another person for profit.

Patent Specialists

As an inventor, you'll likely hire different specialists for the various types of assistance you need throughout the process. No companies exist that can handle the comprehensive patent process from start to finish. Therefore, inventors must develop relationships with:

  • product scouts
  • patent licensing agents
  • licensees. 

Agents seek licensees, or companies who are looking for products to license and sell. Product scouts are individuals who look for new products for the corporations they serve as clients.

The Importance of Patenting

Inventors must take certain important steps so product scouts and licensing agents take their creations seriously. These professionals rarely work with untested, raw ideas that have not yet been patented. Do not seek a patent licensing agent while you're still in the idea stage. Ideas do not have value unless you do something with the idea. Since the agent or scout will invest substantial energy and time in an invention, he or she will want to make sure that it's possible to license the invention.

When you do hire a licensing agent, you'll likely need to pay out-of-pocket fees that average $1,000. These costs usually cover:

  • travel
  • research
  • communication
  • copying. 

The agent will also receive up to 50 percent of royalties paid for your patent over its life span. Remember that most licensing agents receive more ideas than they can ever license. This means you'll need to be proactive to convince them to license your invention. Moreover, you'll need to have a patented product that stands out.

Manufacturing Versus Licensing Your Product

If you decide to manufacture your own creation rather than license it out, you'll need to invest substantial time and money in both national and international marketing. Those who take this route must first:

  • create a manufacturing business plan
  • have product liability insurance, and 
  • earn capital to finance the production of their inventory. 

You'll also need to identify partners such as industrial designers, agents, engineers, and marketers.

These costs can run into the hundreds of thousands of dollars. Large retail stores typically work with vendors who sell more than one product and typically take 90 days or longer to pay their vendors. Inventors need to be willing to put their financial security on the line and have the manufacturing and marketing skills to produce and sell a product successfully. Strive to minimize this risk and maximize your reward through licensing.

Proving Your Product's Value

An invention's success is directly tied to how hard the creator is willing to work. While you have a patent pending, you'll need to prove you have an excellent idea with value. Licensees are looking for products that have a competitive advantage over other products that already exist in the marketplace. For example, the product should be:

  • less expensive to produce, 
  • be cheaper to ship, 
  • make a higher profit, or 
  • sell more units. 

Develop an executive summary that expresses your product's competitive advantage to potential licensees. Think of inventing as a business rather than a dream to get your creations on the path to success.

Licensing Your Invention

Licensing means to give another individual or company the exclusive right to use, market, or create your invention in exchange for profit. The inventor typically receives a portion of the licensing agent's net profit from each sale. 

Most licensed inventions are covered by patent protection. The rare exception may include a product that has a secret ingredient or a process not disclosed in a patent application. Toys also tend to be an exception, since the life span of the typical toy is much shorter than a patent period.

You'll need to find the right company to license your invention. Research the desired industry to find a company with a strong brand and resources to devote to your product.

If you need help with licensing your patent, you can post your job 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.