Hello and welcome to this episode of Patent Pending Made Simple. I'm your host, Samar Shah, and with me is Jamie Brophy. Jamie, how are you?
how are you? Hey, Samar. I am good. Looking forward to recording another episode. How are you doing?
I am doing well. The sun is out, so I can't complain.
Nice. Sunny day in February. Can't beat that.
Yes, that's right. Today's episode is about the differences between a patent and a license. A lot of our listeners think of them as synonyms, right? Or the same thing because ultimately their goal is to license their invention. But they are in fact two separate things. So I'm happy to be able to talk about this with you, Jamie.
Yeah, I think this is going to be great. As we've discussed in previous episodes I'm a patent agent, so I deal pretty much exclusively with patents. I think I'm going to be asking you a bunch of questions today, Samar, because I admittedly don't know a ton about licensing. It's not really my department, since I'm not an attorney. You handle all the licensing stuff. I think this is going to be a great topic.
Yes, I am going to do my best not to confuse.
So yeah, like you said, the ultimate goal is to license your patent. So when you get a patent, that's one of the ways to monetize it is to license it. So Samar, do you have to have a, an issued patent in order to get a licensing deal?
No that's a good question. And that question comes up all the time from inventors who call us and talk to us. In fact you don't need an issued patent to get a licensing deal done. In fact, we encourage our clients to try to get a deal done during the pendency phase. Just because it's a lot more. I want to say cost effective, but generally the patent process, as we've talked about in the past is quite expensive.
And oftentimes you don't know you're operating in the dark as to whether it's worth it to spend money on protecting some piece of invention or intellectual property. Having a deal done during the pendency phase is a great idea because then you know What your return on investment is going to be and you can you know make educated or rational decisions?
about you know Whether you should spend money on the patent process and how much you should spend on the patent process so I would encourage people to get deals done during the pendency phase In fact, if you can, a lot of our clients will file a provisional application. I think it's a great idea to try to get a deal done during the provisional phase, because then you have spent very little money on the patent side of things, or relatively less amount of money.
And you still have a high degree of clarity and confidence about whether you should continue with that process and spend more money on the patent front.
Yeah, I think that's a great piece of advice. I think a lot of times people submit their patent applications and then just wait around for their patent to issue before they do something with it. And I think, we've discussed this several times on past episodes, but while your application is pending is a great time to do some of these things like, try to look for a licensing deal. Maybe we should take, sorry, go ahead.
yeah, sorry just one more kind of mindset thing on this front Like I suffer from this. I'm sure a lot of our clients do and listeners do like imposter syndrome, right? Where you feel like Maybe you haven't done enough right or like your invention is not Worthy or there are all sorts of mental barriers to putting yourself out there right and trying to monetize your invention So there's you know real and perceived Fears about people taking your invention right during the pendency phase.
You don't have the ability to enforce those rights and There is the imposter syndrome where it's I don't know if I've actually invented something until the patent office tells me that I have a patent right?
I'm a patent rights holder So I think there's some mindset and fear associated with this where people Actually, ask me all the time, I'm just going to wait or they tell me I'm going to wait until my patent issues and then I'm going to monetize it or then I'm going to start calling people for a licensing deal and I tell them, nope, get out of your own way and try to get the deal done now because there's nothing stopping you. It takes three, four years to get a patent issued.
You should definitely not wait that long, right? You should try to get this out in the marketplace as quickly as possible and don't let. Your own fears hold you back.
Yeah, oh, that's a great point. Yeah, I like that. Maybe we should take a step back and talk about what a license is. Is it just selling your patent to somebody? Or selling your patent to a few different people or companies, or what exactly is a license?
Yeah. The best way to think about a license is as a contract, right? It's a contract between you, the patent rights holder, and somebody else who wants to use your patent or invention. And. Oftentimes it's good to think of it as a lease, right? You are leasing your invention to somebody else So they can use it and incorporate it into their products or build a product around it and sell it and so on and so forth in exchange for the Rights to use your invention.
They're usually going to pay you, something right? And that payment could be a one time payment like a lump sum to use the invention for x number of years It could be a royalty rate where they say, we're going to pay you, X amount of money for the first 100 items sold. And then X amount of money for the next 200 and so on and so forth. But generally most licensing deals are for some kind of royalty and usually peg to number of units sold.
And, almost like a profit sharing where they will pay you, A dollar or 10%, whatever it is per unit sold or X percentage of profits that they make from each unit sold, something like that. But the best way to think about a royalty is like a lease agreement. You're leasing your invention to somebody and in exchange, they're going to pay you something on some payment schedule.
Okay, got it. So the patent owner gets to negotiate the terms of that, contract essentially. And then can you license it to multiple different licensees?
Yes, so there are you can, as in any contract you can write up the contract a hundred different ways, maybe 500 different ways, right? There's just so many terms and you can be so creative about how you negotiate all of these terms. So most often if somebody is going to pay you a lot of money to lease your invention, they want to know that you're not going to turn around and lease. The invention to their top competitor as well, right?
So most licensees or people who are trying to purchase a license will negotiate what's called an exclusive license. So they'll say, thank you. No, like we'll pay you money to lease your invention, but in exchange, you had to agree not to lease it to somebody else.
Or you have to agree not to lease it to one of our competitors who are in markets X, Y, or Z. So most licensing deals are exclusive but you can, and I've seen it negotiate a non exclusive license, which means that you can go ahead and sell it to as many people as you want. It just really depends on what the two parties want in that case.
Okay, great. And then you can license your pending application or you can license your issued patent. Do you have to have? Do you have to have a patent or a patent pending? Or are there other, are there different types of intellectual property that you can license in a similar way? Assets that are
That's right. There's no requirement that you license.
It's
Theoretically you can lease or license any idea or intellectual property that you have, whether that intellectual property is embodied in a patent or not. I've seen licensing deals done where. licenses their know how, right? For example, we were recently working with a professor at a university and he figured out a chemical process for separating oil from something else. And he didn't have any patents on it, but this company. Wanted to do it and wanted to do it on scale, right?
So they just had a licensing deal with him where he would agree to, teach them how to do the separation process and they paid him a lot of money for it. Even though there was no patent involved there. So it is possible, a lot of times it just depends on what the other party wants from you, right? Do they want to know the practical know how of how you're gonna do a process XYZ or do they want you know If you invented a product do they just want to make the product as well?
so So yeah, there's no restrictions there, but the most usual case, 90 percent of all licensing deals, I imagine are about a patent just because patents are IP assets that are enforceable by the full weight of the federal government. So if somebody. Were to just take your invention and do it on their own, they would be a stop from it, right? A licensing deal is often desirable by licensees in those cases. Know how is tricky, right?
Because they could potentially just learn your know how and then terminate the deal, so there's not a lot of enforcement mechanism That's why most licensing deals are about a patent or some kind of other IP asset, like a copyright or a trademark or something like that.
Okay, good to know.
Oh, and one more point on that sorry but yeah, most licensing agreements will have a clause for everything, right? So they will want a license to the patent, but if they will also want a license to your know how, and any special or secret sauce that you know about making the thing work, they'll want to try to purchase everything, all the bundles of right in that one agreement.
Okay, got it. So yeah, the general process is to at least have a patent pending before you try to get a licensing deal. So I guess the next question, and maybe we want to save this for a future episode, but how do you find potential licensees.
Yeah, this is a great question, Jamie. And maybe a preview of our next episode. We have a interview podcast coming up with Stephen Key. He's a licensing expert or somebody who's licensed his invention and helps many other inventors license their inventions. But yeah, there is a process. There's lots of different processes for this, and I think Steven has figured out a way that is effective and repeatable.
So I am sure we'll be talking to him very soon here about what the licensing process looks like.
Yeah, great. I'm looking forward to that episode, and I think it'll be really helpful for our listeners. And this is a precursor, some basic, information about licensing versus patents to, as an introduction to that future episode. I think that's going to be great. Samar, is there anything else that we should know about licenses?
Yes. Sometimes I get this question posed to me is, inventors who are like should I license my invention or should I try to sell it on my own? And in my mind, there's. Nothing stopping you from doing both. In fact, if you're in the early stages of your inventing journey, I would explore both. I would try to start calling people to see if you can get a licensing deal done, right?
A lot of companies will have Invention submission form or an idea evaluation unit in the corporation so it might be a good idea to start getting those feelers out As soon as you're patent pending, but it's also a good idea to mock up your product and put a Amazon or Shopify e commerce page together right to see if there's any interest in people buying this thing direct to consumer There's nothing that's stopping you from doing both.
Don't let I Guess fear and uncertainty around it stop you, I have also seen licensing deals where once you know a licensee will want to Do a test run, right? So they'll pay you some amount of money for the first thousand units sold or something like that and if the product does well, then they will up your royalty rate, right?
So they'll pay you more money once they there's some kind of commercial success around the product and then they'll pay you sometimes even more money once the patent issues, right? So they'll maybe try to squeeze some leverage from you during the pendency process, but still, I think that shouldn't stop you. It shouldn't cause you to wait until a patent is issued, but you can always negotiate a higher rate once the patent does issue.
think that's all the Sorry, go ahead.
Yeah. Oh, yeah, sorry, one last thing on this. The other thing is, I think it's a good idea for you to talk to your attorney if they're going to write your patent application, that your goal is to license your invention. One of the things that we do, Jamie I like to know who, Are the potential licensees of a particular patent or intellectual property that we're working on because it can help us write a better patent application.
So sometimes let's say our client wants to license their invention in Graco, right? Then we can look up Graco's patents and we can get a feel for how they're writing up their patent applications. What is important to them? How are they claiming things? How many things are they cross referencing or citing in an IDS? And we can try to make our patent look more like Graco's patents, right? So when their business executives are evaluating your idea, it's all familiar and similar to them, right?
It doesn't feel so foreign. And it plugs into their portfolio very easily. We also will try to, we'll sometimes do analysis, a landscape analysis of whether, certain patent rights fit into a portfolio holder's portfolio, and we'll try to make the patent more attractive to them. So there's little tweaks you can do here and there. If you have a handful of ideal licensee or licensing partners, then we can try to make the patents a little bit more attractive to those folks.
Yes, absolutely. Those are great ideas, great points. Yeah, I don't think I have any other questions about licenses. Unless there's anything else you have to add,
No, I think I have confused everyone
everyone,
today.
I don't think so. I think this was a lot of great information. So thanks for teaching us today.
Anytime, I'm happy to do so.
All right. Talk to you next time.
Yes. Thanks, Jamie.
Thanks.
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