Invention Financing And Joint Ownership

Getting an invention licensed or patented can often be a very expensive endeavor.  To protect the intellectual property of the product being licensed, it is strongly recommended that individuals seek a patent for their invention before going through the licensing process.  For small businesses with fewer than 500 employees, or for individual inventors, the U.S. Patent and Trademark Office will give a 50% discount on the fees associated with a patent application.  The fee for individuals and small entities (fewer than 500 people) is $150 for the filing fee; $250 for the search fees, a $100 examination fee and a $300 publication fee, plus the small entity issue fee with is $700.  Thus, the minimum fee is $1,500 for the patent filing process, not including any preliminary costs or costs of an attorney or patent agent.  After the preliminary fees are paid, there are maintenance fees that occur on a schedule that requires fees to be paid on the 3.5 year anniversary ($450); the 7.5 year anniversary ($1,150); and the 11.5 year anniversary ($1,900) of the patent.  If an attorney is used for the patent application process, the average fee is around $6,500 for a relatively straight forward application.  For more complex applications, the attorney fees range on average $12,000 to $15,000 and up.

Financing The Idea

Every step of the licensing and patent process can be expensive and time consuming.  In order to be successful, it is important to properly assess the source of funding before the process is started.

Steps Leading To A License

Before licensing a product, the inventor should seek to get a patent to protect their intellectual property.  After a patent is obtained, the investor can look into the option of granting a license to a business that wants to produce or sell the invention.  In cases where the business will actually manufacture the invention, the license granted by the inventor is generally and exclusive license (i.e. the license will only be granted to one individual or business).

Conduct Market Research

To determine the marketability of an invention or idea, it is a good practice to research the product and search for similar inventions.  Inventors can do preliminary searches at the U.S. Patent and Trademark Office website.  Research can be as simple as entering a few search terms that are similar to the idea or invention simply to see what has already been done.  If there are thousands of products similar to the inventors’ idea, it may not be the best invention to pursue because of the thousands of similar products that already exist.  However, if the inventor knows that their invention is unique from all of the other products already listed; it might be a sign that the invention is a good candidate to continue on with.

Create Drawings and Prototypes

Creating drawings and prototypes are the first steps to make the idea into a tangible reality.  A prototype can be made from any material and can be any scale or size.  The purpose of a prototype is to spot any obvious design flaws and to help the inventor see the invention start to take shape.  There are many services that help inventors create prototypes or fabrications of inventions, and while they can be very helpful, they should always sign a non-disclosure agreement so that the intellectual property being shared is protected.

Determine Patentability Of Idea

To determine if an invention can be patented, inventors can do preliminary searches at the U.S. Patent and Trademark Office website.  Finding out whether an invention can qualify for a patent can involve doing specific searches on the USPTO website for terms that are similar to the idea or invention simply to see what has already been done. 

Funding Sources

Self Financing

Often times, self-financing is the only option available for inventors who have yet to patent their invention.  It is very difficult to get funding from a business for an “idea” that has not yet been “validated” with a patent.  The reason for this is that an idea may, in fact, be great – but it also may be the idea of hundreds of other people.  In such cases, great ideas are simply ideas – they do not have significant intellectual capital value because they are not unique enough to warrant a patent and they do not give ownership rights.  Therefore, self-financing is often necessary in the pre-patent stages.  Once a patent is obtained, there is still not guarantee that a company will want to finance the prototype or manufacturing process, especially is the capital costs are high and the expected returns are minimal.  In cases where a third party backer cannot be secured by the inventor, self-financing may be the only option.

Outside Borrowing/Funding

Once a patent has been successfully obtained by the inventor, they can solicit businesses and corporations to inquire about funding their invention.  The general idea is that if a company takes on the capital requirements and financial burden necessary to get a prototype made and to start manufacturing of the invention, the funding organization will be entitled to a significant portion of the proceeds if and when the product becomes profitable.  There are industry trade shows throughout the country that allow inventors to pitch their ideas to business owners who are interested in licensing options or in providing financial backing to an invention.  By marketing an invention in the correct way, an inventor may be able to find financing from an investor eager to get the project up and running, and on its way to profitability.

Financing Help And Joint Ownership

Joint Ownership Through Outside Financing

Outside financing can create joint ownership of a patent if the original patent owner/inventor assigns ownership rights to a third party, which would become a joint owner of the patent.  A patent owner may, in exchange for financing, agree to assign a certain percentage of the ownership of the patent to the financing party.  While this can be beneficial for the original patent owner in the sense that they may get funding, it is also a potentially dangerous situation because of the rights that the co-owner will have in the patent.  Upon assignment, the assignor (the third party) establishes themselves as a joint owner of the patent, and at that moment, their ownership interests become assignable, alienable (able to be transferred or licensed), usually without regard to the wishes of the original patent owner.  Thus, it is very important to have detailed assignment agreements that stipulate the rights of the assignor upon assignment from the inventor.

Joint Ownership Agreements

Joint ownership agreements are a critical element in ensuring the rights of the original patent owner as well as the subsequent joint owners.  A joint ownership agreement will set out any limitations of the assignment of an ownership interest, and will establish the percentage of ownership that joint owners share.  The rights and obligations of the joint owners should be clearly defined in the joint ownership agreement, and the agreement itself should be memorialized in writing.  Due to the often intricate and specialized nature of joint ownership agreements, it is advised that individuals seek the assistance of an attorney who is experienced in patent law and joint ownership agreements.  Additionally, some states require specific elements that must be included in a joint ownership agreement, and a local attorney will be in the best position to advise an inventor of the requirements of their specific jurisdiction.

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