A Licensee is an individual or firm that obtains that license to manufacture or distribute, or otherwise profit from, the use of a product that is owned by the licensor. Generally, the licensor owns a patent and the licensee is paying for the right to use that product to generate a profit. Licensors (i.e. patent owners / inventors) have the potential to make a great deal of money by profiting from the sales of a licensee. Essential to the licensor/licensee relationship is the notion that the licensor retains all ownership rights over the patent, while the licensee merely has license to use the product, but not to own the intellectual property itself. Licensees will generally agree to pay 5% of the net proceeds of the sales of a patent product as a royalty fee to the licensor.
In order to find licensees, an inventor must successfully market their product to appeal to potential licensees. An inventor should attend trade shows; develop contacts in the specific industry in which their product applies; and network as much as possible to find potential licensees. It is never a guarantee that an inventor will be able to license out their invention; however, when successful, a licensing agreement can be lucrative both for the inventor licensor and the licensee. Trade shows are usually a good place to start because inventors can be put in contact with interest parties who are actually looking for licensing agreements. Another essential element in finding licensees is for the licensor to make the terms of the licensing agreement attractive to the licensee. Generally speaking, and licensing agreement that gives the licensor/inventor greater than 25% of the total profits to the inventor is effectively pricing itself out of the licensee market. To be profitable for the licensee, the fee paid for royalties must be reasonable and attractive.
An inventor may present their product at industry trade shows, road shows and industry publications. Any kind of advertising of a product allows for potential licensing agreements to result. An inventor will have the most success at presenting a product that has a tangible prototype that potential licensees can see, feel and assess. A full scale model of the invention is a great way to present the invention in the best light possible and makes it most attractive to potential licensees.
While many inventors license their inventions to foreign licensees, the issue of patent enforceability in another country may become a factor. Under the Patent Cooperation Treaty (“PCT”), an inventor may file a patent application that is enforceable in 117 countries. The PCT does not grant patents in all 117 countries, but it does simplify and streamline the international patent application process. In most countries, a product must have a patent in that particular country in order to be considered the intellectual property of the inventor, and in the applicable 117 countries, the PTC makes this process much easier. Thus, if an inventor licenses their US patented product to a foreign licensee, the US patent cannot be enforced abroad and the inventor risks losing claim to the invention abroad unless a patent is obtained from the specific foreign country in question. In order to combat this problem, inventors should have their invention patented in any country they wish to establish a licensee relationship in.