Advantages and disadvantages of licensing patents
Explore the pros and cons of patent licensing, from revenue potential and market access to potential risks for both parties.
Patents are valuable business assets but can be costly to turn into a product. If manufacturing or selling your invention isn't feasible, licensing allows you to earn income while still keeping ownership of your invention.
Benefits of patent licensing
For patent owners, licensing offers simple and practical benefits:
- No commercialisation costs - The licensee handles manufacturing, marketing, and sales, so you avoid the cost and effort of production.
- Faster to market - Established businesses can leverage their resources to launch your invention quickly, saving you time.
- Access to new markets - Licensing can help you reach regions you may not have access to, avoid export costs, and benefit from your licensee's existing market networks.
- Steady revenue streams - Licensing generates income through royalties, one-off payments, or profit-sharing, giving you consistent returns without direct involvement.
- Retaining ownership - Licensing lets you profit from your patent while staying in control of it. This means you can explore additional opportunities or expand your licensing agreements in the future.
For many businesses, licensing is a simple and effective way to turn patents into profitable assets. But it's not without challenges.
Disadvantages of licensing patents
While licensing can be lucrative, it also comes with risks that need careful consideration. For example, choosing the wrong partner can lead to missed opportunities, poor management of your invention, or even legal disputes, which can take time and money to resolve.
Other concerns may include:
- Loss of control over your invention - Licensees may use it in ways you didn't intend, such as entering markets you planned to target, or compromising product quality, which can harm your reputation.
- Dependence on licensees - Your success depends on the licensee's ability to market and sell effectively. If they underperform, your invention may not reach its full potential.
- Increased competition - Licensing to multiple parties can create direct competitors, leading to price wars or reduced market share. This can also impact your profits if you plan to sell the product yourself.
By thoroughly vetting potential licensees, creating clear agreements, and regularly monitoring the partnership, you can minimise these risks and protect the value of your patent.
Read more about licensing your patent or using and licensing other people's patents.