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Funding

Prototypes

Licensing

Sale

Typically, the two most important things for an inventor are 1) seeing that they have made a contribution to society through their invention, and 2) the revenue that they get from it.  The information below should help you have a better understanding of how to make your invention profitable. 

Funding

There are usually some initial costs to getting a product to the market.  If the inventor is wealthy, this may not be an obstacle, but most often an inventor will either need to get a loan or convince someone else to fund at least a portion of the project.  Many of our government departments (such as the Department of Defense or Energy) have funding to promote research, usually through small business loans or through educational institutions.  An inventor ought to visit the government’s websites to see if the invention could qualify in one of the categories solicited by one of the government’s departments.  There may also be a larger company that may be willing to fund the development of an independent inventor’s idea as well, depending on the perceived impact of the invention. 

Prototypes

If a picture is worth a thousand words, a working prototype may be worth a million.  There is no better support for an inventor than being able to prove the concept behind his or her invention.  A prototype may not need to be as robust or as attractive as a final product would be, but it should be able to demonstrate that the invention can accomplish its intended purpose.  Without a prototype, a potential investor may not think that an inventor is serious about his or her idea and they may not even believe that the idea will work.  Demonstrating the invention through a prototype shows that an inventor is serious and has some equity in it.  A working prototype may be enough to get an investor to want to buy into the idea before their competition does.

Licensing

Licensing is a common way to earn money from a patent.  When a patent owner licenses his idea to another, he grants permission the licensee to perform certain activities that the patent owner has rights to control such as sell or make the patented invention.  The license may be an exclusive license where the patent owner agrees to only license one party, or it may be non-exclusive where the patent owner makes no promise to not license anyone else to his patented technology.  In some cases, an exclusive license within an industry may be used.  For example, a patent owner may license his heat sink to a video card company and also to a personal computer company who won’t compete in the same market.  A license agreement usually entails a payment up front as well as royalties (a percentage of the revenue earned from the licensed product over a period of time).  A typical license is around 3 to 5 percent, but it will vary from industry to industry and will depend on the expected profit margin.  If a patent owner appears too greedy or demands a higher royalty or too much money up front (especially when his product still needs to be introduced into the market) he may risk losing the opportunity to license his idea.  For non-exclusive licenses, a patent owner ought to be more conservative in negotiating a license.  Once the patent owner sees how much impact his product has in the market he can adjust his next offer.

Sale

Instead of licensing, a patent owner may consider selling his patent.  This way the patent owner does not have to pay maintenance fees to the patent office, pay for litigation, or worry about the economy.  Typically, a sale involves more money up front, but no royalties over time.  Generally, over the long run a patent owner will probably earn more money over time by licensing his patent than by selling it.  However, selling patents may appeal to some patent owners because of future economic recessions or the licensee may decide to stop or never even begin production of the patented product.  Further, a licensee may also get into financial trouble down the road, declare bankruptcy, and never pay the patent owner the agreed royalties.  An inventor will want to carefully weigh the pros and cons before deciding whether or not to sell or license his ideas.

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