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How To Get Your Licensee To Cover Your Patent Costs

by | Sep 21, 2023 | 0 comments

patent cost

Hey folks, I’m Stephen. Now, let me be clear, I’m not a patent attorney, and I am not giving legal advice. I have a strategy that has proven successful over the years. I want to share my experience with you.

Right from the start, I make sure to ask my potential licensee how crucial they consider intellectual property. In my experience, about nine out of ten times, they emphasize its importance. I think it’s just a quick reaction. But knowing this early on is key, especially when it comes to patent costs.

Early on, I inquire about their preferences regarding the location of their intellectual property. This information guides in understanding the patent costs associated with filing in various countries. And of course, I ask if they’d like exclusivity. Their answer is almost always a firm “yes.”

During the initial negotiation phase, I refrain from asking them to directly cover intellectual property costs. Instead, I wait for the relationship to gain some momentum and for things to flow smoothly.

Proposing Cost-Sharing Instead of Licensing Fees

I eventually ask whether they’d be open to contributing towards the intellectual property costs, rather than opting for a traditional licensing fee. I clarify that with an exclusive arrangement, they essentially gain ownership of the intellectual property.

This shift from a licensing fee to a shared investment in intellectual property is not only a sound business move, but it also offers added protection for them. Given their prior emphasis on its importance, this transition usually proves to be a straightforward and compelling argument.

Just remember, they’re only covering the cost of the intellectual property, not owning it. Even though they’re footing the bill, you still need to handle it with your patent attorney. This is the right moment to discuss the expenses. Ensure you have a skilled patent attorney with fair rates. It’s crucial.

I managed to discuss covering the previous expenses for my intellectual property, and I convinced the licensee to take on the future costs for any new intellectual property that we both agree on in advance and want exclusively. This arrangement allows me to present them with new ideas. If they’re interested and want rights to them, they have to contribute to the costs.

However, in certain scenarios, they might express a desire to possess your intellectual property. They could ask you to transfer ownership to them. I advise against this. In case they breach the licensing agreement, recovering your intellectual property could become quite a challenge.

The optimal scenario might involve placing it in a third-party escrow account. This would significantly simplify the process of recovering your intellectual property if any issues were to arise. But if possible, avoid this situation altogether.

Alternative Ways to Share Patent Costs

If they’re not willing to cover the intellectual property costs, there are a couple of other approaches to consider. Let me share some straightforward strategies with you:

Offset Costs Against Future Royalties

Any expenses associated with intellectual property that they cover can be deducted from future royalties. Now, if they agree to this, here’s an extra tip for you: don’t deduct everything in just one quarter. Instead, spread it out evenly throughout the year. This way, it’s a smoother financial journey for both sides.

Split Costs Equally

If the previous approach doesn’t quite fit, consider suggesting a 50-50 split. This means both sides, you and your licensee, chip in for the intellectual property costs. You can also set a limit on the amount they contribute. They’ll cover up to a specific dollar amount and no more. This ensures that the financial burden doesn’t become too heavy for either party.

Final Words

Throughout my years of negotiating licensing agreements, I’ve implemented all three of these variations. Remember, these strategies have worked for me, but every situation is unique. Once again, I strongly recommend seeking guidance from someone experienced in these negotiations.

Additionally, having an intellectual property strategist to help forecast and budget for your needs is invaluable in protecting your interests. If you require assistance with this process, don’t hesitate to reach out. Good luck.

Author

  • Stephen Key

    Stephen Key is an award-winning inventor, renowned intellectual property strategist, lifelong entrepreneur, author, speaker, and columnist.
    Stephen has over 20 patents in his name and the d...

    View all posts Intellectual property strategy, product licensing, and entrepreneurship.