How to License a New Product

by Business Editor; Updated September 26, 2017

How to License a New Product. As an inventor, you may not have the capacity to manufacture and distribute a product you invent that's in high demand. If that's the case, you can license out your product to a larger, more capable, corporation. That company, the licensee, buys out the rights and patents to your product, plus pays you royalties on the product sales, usually ranging from three to ten percent. The steps below will guide you through the licensing process.

Step 1

Finish all of the initial required tasks for your product before licensing it out, including patents, prototype production, information and tests on your target market, details on how the invention works, and a list of goals for the product.

Step 2

Determine if you want an exclusive or nonexclusive license. With an exclusive license, you work with only one licensee (the company manufacturing your product) and a nonexclusive license gives you the ability to license your invention to more than one company.

Step 3

Calculate the value of the license agreement. Determine the value by comparing your product to similar products in the same market, the cost of developing the product and/or the profit margin the invention could earn when sold.

Step 4

Search for companies (about 20 to 100) that might have interest in licensing, producing and selling your product (see Resources below). Stick with companies that already sell similar products to yours and find out who the licensing contact person is for each company.

Step 5

Prepare a professional packet to send to each company, including a letter briefly explaining your product and your personal requirements for a licensing agreement with that company. Also consider including some preliminary drawings of the invention to get their attention.

Step 6

Include a Confidentiality Agreement in the licensing package you send to potential licensees. Require that a person of authority within the company, or the company's in-house counsel, sign the Confidentially Agreement before you divulge details about the product.

Step 7

Consult with a business attorney prior to revealing details about your invention to a company. Once you decide on a licensee or two, hire the attorney to assist you with negotiating and drawing up a licensing agreement with the company.