Patents Explained - How to make money from a patent
How to Buy Patent Rights
Once an inventor has a patent on her invention, she has a limited period of time to make money from her exclusive rights before her patent expires. For this reason, many inventors sell their patents outright to businesses that are better equipped to market and distribute their invention to the public. In other cases, patent rights might be parceled out in the form of limited licenses for particular uses. You can buy or license patent rights by entering a contract with the inventor who holds the patent.
Finding an Available Patent
Find the patent for a known product.If you see a product and want to find the patent, with the idea of licensing it or purchasing it outright, you can search the online database of the U.S. Patent and Trademark Office.
- The USPTO's Full-Text and Image Database allows you to search the full text of every patent issued from 1976 to the present.
Check the USPTO Gazette.Inventors place advertisements in the USPTO Gazette when they have a patent they want to license or assign.
- If you read through these advertisements, you might be able to find something of interest.
Attend industry trade shows.Inventors often go to trade shows to find prospective buyers for their inventions, so you should consider doing the same.
Search online marketplaces.There are a number of websites that allow inventors to post patents that are open for sale or licensing.
- Before you use a website, check with the United Inventors Association to make sure it's a legitimate marketplace and not a scam.
Talk to a patent attorney.Because patent attorneys assist clients in obtaining patents, they also may know if an inventor has a patent he's looking to sell or license.
- You can search the member directory of professional associations such as the American Intellectual Property Law Association to find patent attorneys who work with inventors in your industry.
Consider hiring a broker.Brokers connect buyers to inventors who have patents that might interest them. If you have limited connections in your industry, a broker could help you find a patent more quickly.
Researching the Patent
Decide which patent you want, and what you're interested in purchasing.Before you contact the inventor, make sure you know what rights you want, and what you need to accomplish what you set out to do.
- For example, if you see a tool invented and patented by someone else, and you want to incorporate that tool into a combination knife you already manufacture, you must get licensing rights to manufacture and distribute the patented tool. However, you may prefer to buy the entire patent outright so you don't have to worry about paying royalties to the inventor.
Keep tabs on patent sales and inventions in your industry.Knowing the latest industry news helps you have a better understanding of what the patent you want to buy is actually worth.
Learn about the inventor or the inventor's company.Just as if you were interviewing for a job, you want to learn as much as you can about the person you're about to do business with.
- Once you have the inventor's name, search for her website or social media presence. If her business has a website, examine it thoroughly to find out the business's activities and its strengths in the industry.
- Understanding the inventor's position in her trade or industry helps you understand how to approach her. Someone who is just starting out will have different motivations, and different opportunities, than someone who is well established in her field.
If the inventor has other patents, study the filings.Your inventor may have several patents she's already licensed or sold. Read the patents themselves and any assignments or transfers filed.
- Studying other patents the inventor holds may give you some insight into what the inventor expects to get out of a patent. Additionally, if she has any patent applications pending that are related to the patent you want to buy, you may be able to work out a deal that includes an interest in those pending patents as well.
Make initial contact with the inventor.Once you've done your research, send a letter to the inventor and let her know you're interested in purchasing her patent, or licensing rights to it.
- Explain up front the specific rights you're interested in and what you bring to the table. For example, if you would like to buy the patent outright but would settle for manufacturing rights because you have a factory that could be retooled to manufacture the patented invention, you should state that in your letter.
Buying the Patent
Come to a basic agreement as to what rights are being negotiated.Before you start talking, make sure you both have a common understanding of what's on the table.
- Essentially, you want to make sure that both you and the inventor are on the same page. The agreement will be a complete waste if you think you're buying a complete assignment while the inventor is under the impression you only want a limited license.
Talk to the inventor.Work out the finer points of your agreement, including when and where it will be effective and for how long, what rights or ownership stake you are purchasing in the patent, and at what cost.
- Assignments of patent rights can be limited in scope, duration, or even geographically. For example, you may have a fourth-interest in the patent that is only good in the southeast United States.
- Keep in mind that a license, even if it is exclusive, is not an assignment of patent rights. It only gives you permission to do a particular thing, such as manufacturing or distribution of the invention, for a limited period of time.
- A licensing agreement also must include the precise method for calculating royalties, how often royalties will be distributed, and when the inventor has the right to audit your records.
- Come to an agreement with the inventor as to whether you are buying an assignment of rights in the patent, or simply a license. If you're looking at a licensing agreement rather than an assignment, you'll need to figure out if your license will be exclusive or non-exclusive, what the royalty percentage to the inventor will be, how long the license will last, and whether you will be granted any privileges to renegotiate the license before it ends.
Draft the agreement.Write up the terms as agreed and give the inventor the opportunity to comment on it.
- Although you can find sample patent assignmentsor licensing agreements online and adapt them to meet your needs, you might consider hiring or consulting a patent attorney to write or review your agreement and make sure it conforms to state and federal law.
- If you are drafting an assignment, make sure it complies with federal law. For example, an assignment is invalid under federal law unless it includes the invention's official title, its patent number, the date the patent was issued, and the name of the inventor.
- Unlike an assignment, no particular form is required for a patent licensing agreement – you can just write it as a regular contract or licensing agreement. However, a few states require certain formalities with regard to patent licensing, so check your state law or talk to a patent attorney in your area before proceeding.
Execute the agreement.When you've finalized your agreement, arrange to sign it along with the inventor in front of a notary public.
- If you don't know where to find a notary, call your bank and see if they have notaries on staff. Some banks provide notary services free to their customers. Otherwise, you can check the directory of one of the national professional associations of notary publics.
Record the assignment with the USPTO.If your agreement entailed a full or partial assignment, it must be recorded with the USPTO.
- If your agreement transfers ownership rights in the patent, either in whole or in part, it must be registered with the USPTO within three weeks of the date you sign the agreement. Otherwise, the patent can't be sold again.
- You must pay a fee to have your assignment recorded. You can send a copy of the assignment contract along with the fee and the USPTO's required cover sheet, to Mail Stop Assignment Recording Services, Director of the United States Patent and Trademark Office, P.O. Box 1450, Alexandria, VA 22313-1450.
- Since a license doesn't transfer any patent rights, it does not have to be recorded with the USPTO.
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