Step 8:  Agreements, Contracts, and Licensing

Types of Agreements

There are two basic types of contract agreements: assignment, or outright sale of your invention; and patent licensing, or leasing your invention in return for invention royalties. Let's begin by taking a closer look at assignment, and later go on to examine licensing patent agreements. When you determine the amount of licensing royalties, be forewarned that there is no set amount for any product.

Assignment. This type of contract represents a "legal document," recognized by U.S. law, which declares transfer of ownership. In assignment, you sell a company the complete rights to your invention. That means that once you've sold your patent, you no longer hold any rights to the make, use, or sale of your invention. Simply put, your invention is no longer yours. You may be asking yourself, "Why would I sell my invention?" Usually, assignments are made by employees who work for companies that specialize in innovative products. So, the real owner is the corporation. Generally, it's true that you'd be better off licensing your own invention.

Licensing.  Under this type of licensing contract agreement, a company doesn’t own your invention; this product licensing agreement only leases your right to your invention in return for royalties. The three separate rights that you are allowed to license to any entity under a patent license agreement are the right to make, the right to use, and the right to sell your patented invention. You need to be aware of three important licenses; exclusive, limited exclusive, and nonexclusive.