Can You Earn Royalties on Your Invention?

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It’s not as hard as you may think to land a royalty deal on a product or invention, provided you have a truly unique and innovative idea to start with and you have some important steps completed before approaching companies. In addition, you need to go into the process realizing that finding a good company to invest and believe in your idea can take time. Royalty deals do not happen over night.

To begin, let me step back and explain what I mean by “royalty deal”, which is more commonly referred to as a Licensing Agreement.

Types of Agreements

If you aspire to earn royalties from your invention, then the typical arrangement would be to secure a License Agreement with an interested company. A License Agreement is the legal document between an inventor (licensor) and a third party (licensee) which defines specific terms by which the licensee can commercially use the licensor’s invention. Among other things, the Agreement will define a time period, royalty rate, payment schedule, cash advance, minimum annual payments, etc. As a result of the Agreement, the inventor may receive an ongoing payment calculated as a percentage of sales (called a “royalty”), or a one-time lump-sum payment.

Another option would be for an inventor to assign his rights, which is essentially the process of transferring or selling ownership in the invention/patent. The inventor may receive a lump sum payment or a series of payments. The difference between a “license” and “assignment” is in the transfer of rights. With a license, the inventor retains rights, like “renting” the patent, and with an assignment they transfer their rights (i.e., sell it).

In addition to having a good idea there are other considerations when preparing your invention for license, such as intellectual property protection (i.e.: patent, trademark or copyright), development and presentation.

Licensing Does Not Require Manufacturing

It is important to understand that manufacturing your idea is NOT a requirement to license your invention for royalties. Many inventors believe that they need to setup manufacturing to pursue their inventions, which is not true. If your goal is to license your invention for royalties, I would not advise going down the path of setting up manufacturing capabilities. Assuming you have a good invention to start, you can approach companies about licensing your invention with a patent application filed, a prototype or design in place and a reasonably good presentation on why they should license your invention.

In summary, it is very possible to license a good invention for royalties. InventionHome has completed over 100 marketing/license agreements and we’re seeing tremendous interest in new and innovative products.