If you've invented something or thought about inventing something, you might have considered: why would a company license my invention?
Don't they have smart people on staff to invent things themselves? Can my invention really be better than something full-time, paid professionals can come up with?
If you've had these thoughts, let us be the first to tell you that these questions, and a million more, are natural. The concept of an Imposter Syndrome has become a part of everyday lexicon, and a lot of high-achieving individuals (which usually includes inventors), have reported feeling these feelings of doubt.
"I have written 11 books, but each time I think, 'Uh oh, they're going to find out now. I've run a game on everybody, and they're going to find me out.'"
We think that not all feelings of doubt are a case of imposter syndrome, but there is a real market of licensing inventions, and many, many people have made a career out of inventing and licensing their inventions.
Open Innovation
Broadly speaking, there is business concept is called "Open Innovation," which was popularized by Henry Chesbrough, a professor at the Haas Business School, UC Berkeley, in his 2003 book "Open Innovation: The New Imperative for Creating and Profiting from Technology." The basic idea behind open innovation is that in a world of widely distributed knowledge, companies should not solely rely on their internal R&D for innovations but should also leverage external resources and ideas.
Traditionally, businesses would focus on developing technologies and innovations internally, in a "closed" setting. In contrast, open innovation promotes a collaborative approach, where firms can benefit from "outside-in" as well as "inside-out" flows of knowledge and technology.
Outside-In: Companies can source ideas, technologies, or processes from external partners, inventors, or even competitors.
Inside-Out: Businesses can also license or sell their internally developed technologies to other companies, often in unrelated markets.
Stephen Key in his book "One Simple Idea" does a great job of explaining these concepts further.
Why Would a Company License an Invention?
Companies have various reasons for wanting to license an invention, some of which are motivated by strategic goals, while others are driven by market demand or financial considerations. Here are some reasons why a company might be interested in licensing your invention:
Competitive Advantage
Innovative Technology: If your invention offers a technological improvement or a unique feature that can differentiate the company's products from competitors, it will be highly appealing.
More Competitive: If your invention offers a unique feature or benefit that competitors don't have, it can give the company a significant advantage in the marketplace.
Speed to Market: Developing a new technology in-house can take a considerable amount of time and resources. Licensing can enable a company to get a market-ready or near-market-ready product much more quickly.
Financial Incentives
Reduced R&D Costs: Research and Development can be expensive and risky. Licensing an external invention can often be more cost-effective.
Profitability: If your invention can open new revenue streams or enhance existing ones without substantial investment, it will be attractive to potential licensees.
Cost Savings: If your invention simplifies the manufacturing process or reduces material costs, the company can benefit from increased profitability.
Filling Product Gaps
Portfolio Expansion: Companies constantly need to refresh their product portfolios. Your invention might fill a gap or serve as a complementary offering to their existing products.
Entering New Markets: If your invention serves a market that the company is not currently operating in but wants to enter, licensing can provide a low-risk pathway.
Synergy With Existing Products: Your invention might work well in tandem with the company's existing products, creating an opportunity for bundle sales or upselling.
Regulatory and Patent Benefits
Intellectual Property: Licensing an already patented invention can provide companies with the benefits of a strong IP position without having to go through the lengthy and costly process of developing and patenting a new technology themselves.
Avoiding Litigation: Companies may also license technology to avoid potential patent infringement disputes.
Building Brand Value: Innovative products can strengthen a brand's position as a leader in innovation and quality.
Risk Mitigation
Shared Risk: The risk of market failure or technology obsolescence is shared between the licensor and the licensee.
Pilot Testing: Licensing can serve as a less committed way to test a new technology's market viability before deciding on full-scale development and production.
Avoiding Litigation: If a company's existing product infringes your patent, they might prefer to license your invention rather than engage in costly and time-consuming litigation.
Strategic Collaboration and Future Innovation
Access to Expertise: Through a licensing agreement, companies can often gain access not just to the invention but also to the inventor's specialized knowledge and expertise.
Foundation for Future Collaboration: A successful licensing agreement can be the beginning of an ongoing relationship leading to future innovation partnerships.
Technology Advancement: Your invention may offer an improvement on existing technology, making the company’s existing product line more appealing or cost-effective.
Licensing benefits companies by providing them with a more agile and adaptive strategy in a fast-paced, competitive marketplace. If your invention aligns with a potential licensee's strategic goals and offers clear market benefits, there's a good chance they'll want to license it.
Does Open Innovation Benefit Inventors?
The concepts of open innovation gives inventors access to a whole host of potential benefits, including:
Greater Access to Companies: Open innovation often involves corporations opening their doors to outside inventors, essentially expanding the potential venues where an independent inventor can pitch and license their invention.
Accelerated Development Cycles: Companies embracing open innovation usually have mechanisms in place to quickly evaluate external ideas, test them, and bring them to market. This can save inventors significant time and resources compared to trying to develop and market a product themselves.
Specialized Knowledge and Resources: Companies have specialized teams for market research, development, and distribution that an independent inventor often lacks. Once a licensing agreement is in place, inventors can leverage these resources to realize the full potential of their innovation.
Risk Mitigation: Open innovation allows inventors to share the financial risks associated with the development, manufacturing, and marketing stages. They may receive royalty payments or other types of revenue-sharing that could be more lucrative, in the long run, compared to financing the whole process themselves.
Cross-Industry Opportunities: Open innovation facilitates the application of a single technology to multiple industries. An independent inventor may create something for a specific niche, only to find that a company from an entirely different sector is interested in applying it differently through a licensing agreement.
Networking: Open innovation events, hackathons, and competitions give independent inventors opportunities to network with industry experts, potential customers, and other inventors, increasing the odds of successful licensing.
Feedback Loop: Engaging with companies that practice open innovation often provides inventors with valuable feedback that can be used to refine their inventions further.
Global Reach: Companies practicing open innovation often have a global presence, providing inventors with the opportunity to tap into international markets that they may not have been able to access otherwise.
Long-term Partnerships: A successful licensing agreement can be the start of an ongoing relationship with a company, leading to further innovation and licensing opportunities.
In summary, open innovation provides a more collaborative, faster, and less risky path for independent inventors to bring their inventions to market through licensing agreements. It removes many of the barriers traditionally faced by inventors, making it easier to translate innovative ideas into commercial successes.