Just because all products must be manufactured to reach the marketplace doesn’t mean YOU need to be the one to manufacture your invention! There are 3 ways to take an invention to market that you can consider, then decide which option is best for you.
What we often hear from inventors is this:
“I have a new invention that I’ve been working on. I’ve done my research, I’ve filed for patent protection, and I have investigated prototype and design options. However, I’m just not sure how to actually go about producing and marketing my invention. Do I need to arrange for manufacturing on my own, which seems like a challenging and expensive process, or are there other options that I can explore for succeeding with my invention?”
Eventually every inventor reaches this decision point. Some chose to manage the development process on their own, while others prefer to hand-off the task to a qualified company. Whatever the case, after the idea has been protected with a patent, here are the various options to consider.
#1 Licensing the Invention for Royalties
Many inventors have day-jobs, limited financial means, and a lack of manufacturing and marketing expertise. For them, it’s neither affordable nor practical to invest time and money to develop sophisticated samples and/or inventory. The best option for these inventors may be a license agreement. Assuming the inventor can generate interest from a company, and that he or she has some intellectual property (such as a patent-pending or issued patent), a license agreement can grant certain rights to the company, while also spelling out how the inventor gets paid. As a result of the agreement, the inventor receives either an ongoing payment called a royalty (normally calculated as a percentage of sales of the invention) or a one-time lump sum payment. Typically the company that licenses the invention will manufacture and market the invention.
#2 Assigning or Selling the Invention
When the inventor assigns the rights, he or she is permanently transferring or selling ownership of the invention and its patent. The inventor may receive a lump sum payment or a series of payments. The difference between “license” and “assignment” is in the transfer of rights. With a license, the inventor retains rights, like renting the patent out. With an assignment, they transfer or sell their rights.
#3 Developing and Manufacturing the Invention
Some inventors possess the time, money, and ambition to take a more hands-on role in the commercialization of their invention. They may elect to develop and manufacture the invention themselves. Depending on the complexity of the invention, costs to get a product to market can vary greatly. The steps can also vary, but ordinarily include:
DEVELOPMENT – CAD design, prototype development, working sample
SOURCING – choosing a factory (either domestic or overseas), building tooling, ordering inventory, creating packaging
LOGISTICS – warehousing, shipping to customers
MARKETING – website development, doing sales yourself or contracting with a sales/distribution company that operates on a commission basis
OTHER – product liability insurance, establishing a business entity
Making the Right Decision
Of course, every invention is different in terms of its complexity and structure, and that should be taken into account when deciding whether to license or manufacture. For some inventions, little development and setup is required, and this can simplify the manufacturing process. However, other inventions may be much more complex, requiring in-depth research, engineering, tooling, molds, etc., for mass production. As a result, manufacturing can be very expensive and usually involve a large setup fee. Overseas manufacturing can have added frustrations associated with the difficulties of finding and communicating with a foreign company.
A factory may require a minimum order of a large number of units to pay for production. If the invention doesn’t sell very well, this can result in loss of money as inventory sits in a warehouse. At that point, it is best for the inventor to find a sales/distribution company to help get the product moving. Hopefully the inventor has planned ahead on cost structure so there is enough margin to cover a sales commission as well as retailer margins.
While developing and manufacturing lets inventors control the product’s commercialization, it also forces them to assume the risks and huge costs that are associated with the process. Most inventors choose licensing, because it is significantly easier and the risks and costs are minor compared to manufacturing. With licensing, the inventor can rely on the company’s experience and established business to develop and market the product. Patent protection is of upmost importance. Realize that without patent protection, any individual or company can make or sell the invention. Therefore it would be less likely that a company would license or buy an invention that has no patent coverage.