Once you have a patent, it’s up to you to make it profitable.

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How can an inventor make money with a patent?

Some inventors start new companies to develop and market their patented inventions. This is not typical, however, because the majority of inventors would rather invent than run a business. More often, an inventor makes arrangements with an existing company to develop and market the invention. This arrangement usually takes the form of a license (contract) under which the developer is authorized to commercially exploit the invention in exchange for paying the patent owner royalties for each invention sold. Or, in a common variation of this arrangement, the inventor may sell all the rights to the invention for a lump sum.

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What does it mean to license an invention?

A license is written permission to use an invention. A license may be exclusive (if only one manufacturer is licensed to develop the invention) or non-exclusive (if a number of manufacturers are licensed to develop it). The license may be for the duration of the patent or for a shorter period of time.

The developer itself may license other companies to market or distribute the invention. The extent to which the inventor will benefit from these sub-licenses depends on the terms of the agreement between the inventor and the developer. Especially when inventions result from work done in the course of employment, the employer-business usually ends up owning the patent rights, and receives all or most of the royalties based on subsequent licensing activity.

In many cases, a developer will trade licenses with other companies – called cross-licensing – so that companies involved in the trade will benefit from each other’s technology. For example, assume that two computer companies each own several patents on newly-developed remote-control techniques. Because each company would be strengthened by being able to use the other company’s inventions as well as its own, the companies will most likely agree to swap permissions to use their respective inventions.

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Can inventors who are employed by a company benefit from their own inventions?

Typically, inventor-employees who invent in the course of their employment are bound by employment agreements that automatically assign all rights in the invention to the employer. While smart research and development companies give their inventors bonuses for valuable inventions, this is a matter of contract rather than law.

If there is no employment agreement, the inventor may retain the right to exploit the invention, but the employer is given a non-exclusive right to use the invention for its internal purposes (called shop rights). For example, Robert is a machinist in a machine shop and invents a new process for handling a particular type of metal. If Robert hasn’t signed an employment agreement giving the shop all rights to the invention, Robert can patent and exploit the invention for himself. The shop, however, would retain the right to use the new process without having to pay Robert.

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