Marketing and Exploitation of Inventions and Patents

The top 4 options for Patent Marketing, including Practical Tips

Introduction: Patent Marketing

The main goal of marketing inventions and exploiting patents is to profit financially from intellectual property. You might hear in the media that major corporations spend millions purchasing an inventor’s or patent owner’s invention. But is the marketing of inventions or patents really that easy? What are the advantages and disadvantages of sales contracts and license agreements? What other types of exploitation do exist? In this article we are going to talk about the top 4 options to make a profit from a patented invention and what you need to consider. These insights are based on our many years of experience in the field of marketing of innovative technologies. Topics are:

1.    1. Selling a Patent
2.    2. Licensing a Patent
3.    3. Concluding an Option Contract
4.    4. Use of Patents in your own Company

Option 1: Selling a Patent

Many private inventors dream of selling their invention to a company for a lot of money. However, to be able to do so relevant preparatory work is required and the general selling conditions must be right. It is highly unlikely that you will manage to sell a mere idea. Ideally, you are able to present a fully developed product that is already available on the market as well as the appropriate property rights portfolio that protects the unique selling points (USP). It makes it easier for the buyer to calculate the economic risk they are taking. Then, the sales price can be determined, e.g. based on the existing cash flow.

The reality shows, however, that especially free inventors do have a long road ahead of them before they might be able to reach the ideal scenario, which we have just described above. Furthermore, they often expect an unrealistically high sales price. They only see the theoretical potential (“I could make millions with that”) and determine the sales price based on this potential. For inventions that are still at a design and development stage you need to consider that it is harder to market them since it is the buyer who would have to take all the appropriate, and usually costly, steps until market launch. A detailed analysis is crucial to find out whether the new technology will be adopted by the buyer and how exactly it may be utilized.

Moreover, patent applications and property rights should exist in countries and areas where the technology will be utilized or sold in the future. It’s another advantage if property rights have already been granted. Many companies ask that patents have been at least published or are granted before discussing a potential patent purchase. Hence, a certain input during the patenting process is required before property rights can be marketed and offered to a company. These requirements cannot be underestimated. Patent applications may quickly reach costs of tens of thousands of euros, especially for international applications. It is this international character though that most large enterprises require. The offered property rights portfolio must fit the patent buyer’s needs or strategy. Otherwise, opportunities for marketing and selling them decrease significantly.

Also, when companies or subsectors are sold the buyer needs to pay attention to whether they will obtain the right to use the patents. The relevant patents are often part of the sale in such cases. However, it is not guaranteed.

The sales price should not be unrealistically high, but of course not set too low either. You always put yourself in a better position if you propose a current sales price, accepted by the market, that has been objectively determined by applying relevant methods.

Within the context of patent marketing, the following aspects have a positive impact on successful sales:

• The technical approach is comprehensible and has ideally already been tested in terms of functionality;
• The invention’s technical and economic benefits are convincing and the unique selling points present major advantages in comparison to known solutions;
• The invention is protected either by a patent application or, better even, a granted patent;
• The property rights portfolio is, regarding material and contents, attractive to the buyer;
• The sales price is realistic and has been objectively determined by applying relevant methods.

Advantages of selling a patent:

• High (possibly staggered) payment at an early stage;
• No further costs after the patent sale; exploitation is completed.

Disadvantages of selling a patent:

• Possible larger input required for development and property rights;
• By selling the patents you usually lose the right of own use

Recommended reading: How to sell your invention and patent application

Option 2: Licensing a Patent

If you are aiming at exploiting your property rights by licensing a patent you can be more flexible in terms of definite contractual arrangements. Basically, there are 3 types of licensing:

• Exclusive license;
• Non-exclusive license;
• Cross-license.

An exclusive license grants the right to use the invention or patent portfolio to one single company. The licensor continues to be the owner of the property rights. This will be defined in a license agreement. Non-exclusive licenses grant the right to use the invention to multiple companies. Besides, the patent owner’s own use might be allowed. It is also possible to split the rights of production and distribution among different companies and to limit it to certain countries and areas. Cross-licenses are agreed upon between companies (B2B) that own their own property rights respectively. They state that companies grant each other the use and exploitation of the patents defined in the contract (mutual right of use).

The prerequisites for patent licensing are basically the same as for a patent sale (development preferably in an advanced stage, attractive property rights portfolio, etc.). The licensing process, however, can be carried out over a longer period and in a staggered and more detailed manner. Especially, when inventions still need to be further developed and the patent examination procedure is ongoing (which might take several years) the patent licensing gives you the possibility to meet the licensors’ and licensees’ different needs at an early stage. The licensor receives their first payments at the beginning of the contract term. Besides, they can spread the costs over an extended period and adapt them to the actual market development. If, for example, the demand for the product is not that high it is possible to agree on a license fee dependent on sales and therefore on possibly lower royalties. Should the turnover be large the royalties increase accordingly. The financial risk for the licensee towards the patent buyer is lower and exploitation or rather the successful conclusion of a contract is generally more likely. Many colleges and universities, EZN operates as patent exploitation agency for, prefer this approach.

Advantages of licensing a patent:

• Licensor receives regular payments over an extended period;
• Lower cost risk for licensee;
• More flexibility: agreement to exploit or license agreement may be adapted according to individual needs of contracting parties;
• Licensor does not lose ownership of property rights.

Disadvantages of licensing a patent:

• In comparison to patent sales, the licensor usually receives lower payments in the beginning;

Additional costs for property rights might occur for the licensor.

Recommended reading: Here you can learn how to monetize your patent application by licensing

Option 3: Concluding an Option Contract

Another interesting option to exploit property rights is the option contract. The option contract goes further than the common Letter of Intent (LoI), which often contains just a nonbinding declaration of intent or expression of interest. This type of contract is not as binding as patent sales contract or license agreement since it expires at the end of the option term. The option contract may define that the property rights owner grants the (exclusive) right to the buyer (taker), during a certain period, to exercise their initial negotiation rights or to buy or rather license the property rights under preset conditions. The property rights owner receives payments from the taker for securing this right. Before the option contract expires the two parties sign a user agreement (e.g. sales contract or license agreement) or the property rights owner may offer their patent portfolio to another interested party.

Advantages of an option contract within the context of patent marketing:

• Option contract for initial negotiation right usually easy to formulate;
• Option contract not a long-term commitment for buyer (taker);
• Securing of terms and conditions for the future, where applicable;
• Firs payments to property rights owner may be made before concluding a sales contract or license agreement.

Disadvantages of an option contract:

• In most cases, an option contract is a short-term contract;
• Payments are lower compared to sales contracts or license agreements;

In case of predetermination of terms and conditions they might have been set too soon.

Option 4: Own Use of Patents

For companies and founders, it is paramount that they will be able to use the invention and, hence, the patent in their own enterprise. This concerns primarily the protection of unique selling points in terms of technology. However, marketing plays an interesting part as well in the world of patents. A company being able to promote that a product is patented it emphasizes its innovation value and usefulness from a client’s perspective – the chances of selling it increase. Patents also play a crucial role for start-ups focusing on technology in terms of financing and acquisition of funds. The property rights may be used to protect the investors against risks. The chances of receiving better financing are higher if founders are able to present an attractive property rights portfolio. The main challenge for companies and founders lies often in emphasizing their most important unique selling points at an early stage of the innovation and development process and to protect those effectively and budget friendly.

The following aspects have a positive impact on an effective own use or own exploitation of patents:

• Company has innovation management tools established to identify and evaluate inventions;
• Company has a clear vision of technical and economic use of the patent or invention;
• Property rights strategy or adequate patenting strategy has been elaborated;
• Making use of subsidies and where necessary external expertise

Advantages of own use of patents:

• Protecting competitive advantages;
• Securing and increasing innovative capacity and future viability in a sustainable manner;
• Sole control of the patenting process and exploitation;
• Generating Core Assets;
• Better financing opportunities for start-ups (e.g. Venture Capital);
• For colleges/universities: Benefits in terms of acquisition of external funds, and regarding rankings.

Disadvantages of own use of patents:

Expenses for patent applications and other property rights are your responsibility.

Patent Marketing – Our Conclusion

In summary, it has become evident that you cannot name one best marketing option for all inventions or patents. Each invention is unique. And so are respective marketing strategies. You need to convince potential patent or license buyers and make them feel enthusiastic about your invention if you do not wish to realize your idea on your own. But that is not all. The added value, which results from using your idea, has to be convincingly demonstrated from a technical and economic point of view. And this does not just happen. When formulating contracts multiple legal and commercial pitfalls need to be considered. It takes a lot of work, skill, and experience to conclude a profitable agreement or contract. However, you are on the right track reaching your goal if you take the tips mentioned above into account and apply them smartly.

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Do you need help marketing your invention or patents? We would be happy to support you with our professional patent marketing. Please get in touch with us directly. We are looking forward to hearing from you!

Disclaimer

All contents in this article have been carefully compiled and examined. However, no guarantee as to the correctness, completeness and up-to-dateness can be given. This article merely contains general information and presents no legal advice. The decision whether a patent application or utility model  is officially patentable and legally valid is always taken by the patent offices (e.g. DPMA and EPO). Therefore, liability for acts that will be undertaken or refrained from based on this article’s contents is excluded to the greatest possible extent.

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