Licensing allows you to give suppliers, competitors or complementary businesses certain rights over your patent, while receiving royalty income and still retaining ownership of your asset.
To be successful, a licensing arrangement should benefit all the parties involved. By acquiring rights to a patent, a licensee can:
create new products, services and market opportunities for themselves
reduce costs to acquire new technologies, without having to develop their own
save time getting a new product to market
gain competitive advantage over rivals, especially if their licence is exclusive
If put into place correctly, licensing can be lucrative and mutually beneficial to both the patent and the licence holder. However, licensing can also increase potential competition and risks for both parties, so it's important to consider potential pitfalls.
Disadvantages of licensing patents
It can take a lot of effort and determination to find the right licensee. To give your product the greatest chances of success, you should put a lot of thought into evaluating potential licensees and structuring your licensing agreement.
Other potential risks and downsides to patent licensing include:
loss of control (partially or fully) over your invention
relying on the licensee's ability to effectively commercialise your patent
risk of poor strategy or execution damaging the product success
poor quality management damaging your brand or product reputation
In addition, by licensing out your product, you are effectively creating competition for yourself. You may try to limit the scope of the license as much as possible to avoid giving your competitors unnecessary advantage in the marketplace.
Keep in mind that you will need to manage your relationship with the licensee carefully. If things go wrong, you may find yourself in disputes or needing to cover legal costs. Before you sign over any rights to your patent, it's worth doing due diligence checks on any potential licensees to assess their suitability and track record.
If you decide to sell or license your patent, you should keep detailed records of any contracts or agreements you have made. Seek legal advice if in doubt.