Most inventors follow a typical pattern: They perfect their invention, determine its marketability and take steps to protect it under patent laws. But then comes a difficult decision. How will the inventor make money from it? Should he license the invention to a third party, or should he manufacture and market the invention himself? This decision will affect not only how an inventor earns money, but also how much financing will be needed to proceed.

Licensing or assigning rights to your invention for cash is a simpler, less-expensive route than manufacturing and selling your invention. Licensing or assigning your invention is often preferable for those inventors who want to make money but care primarily about innovating and spending time in their lab.

A license is simply an agreement in which you let someone else commercially use or develop your invention for a period of time. In return, you receive money--either a one-time payment or continuing payments called royalties. As the owner of the invention, you will be the "licensor," and the party receiving the license for your invention is the "licensee." What makes a license appealing is that the licensee assumes all of the business risks, from manufacturing to marketing to stopping those who infringe on the product's patents. The inventor/licensor sits by the mailbox and waits for the quarterly royalty checks.

Before you proceed into licensing, you should know the odds of success. A study by Ed Zimmer and Ron Westrum revealed that only about 13% of inventors who attempted to license their invention were successful. That's about one in eight. (Note: This data is based on the persons who responded to the study, which probably skews the percentage positively. Those who were unsuccessful were probably less likely to respond at all.)

When you seek a license, you'll need to take the following steps: Find the right people to review your great idea, get the money necessary to develop and protect your invention, and present your invention to a licensee in a marketable fashion.

An inventor-for-royalties can also permanently assign all rights to the invention for cash. An assignment is a permanent transfer of ownership rights. When you assign your invention, you are the "assignor," and whoever purchases the rights is the "assignee." An assignment is like the sale of a house, after which the seller no longer has any rights over the property. As the assignor, you may receive a lump sum payment or periodic royalty payments.

Even though they have different legal meanings, the terms assignment and license are sometimes used interchangeably. Sometimes these two types of agreements seem to have the exact same effect, as in the case of an unlimited exclusive license, in which a licensee obtains the sole right to market the invention for an unlimited period of time. For this reason, you or your attorney must examine the specific conditions and obligations of each agreement to determine whether it is an assignment or license rather than simply relying on terms such as assignment and license...

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