Licensing vs. Manufacturing
The pros and cons, advantages and disadvantages of choosing to license or manufacture your invention





Do you need help deciding whether to license, sell or manufacture your invention?  If so, Inventors Workshop, one of the oldest and most respected nonprofit organizations in the U.S. may be able to help you out.  Inventors Workshop has been providing inventor help services for more than 35 years. You can contact them by email or you can call them at 805-879-1729.  Inventor-Help-Services.org


Licensing Advantages

Licensing is often the best bet for an inventor.  “Licensing is often the best bet for an inventor who doesn't have the manufacturing experience or resources to carry a new product to market himself, experts say.  When an inventor licenses a product, he is selling specified rights to manufacture and sell his invention in exchange for a royalty payment.” Licensing versus manufacturing.  Advantages of licensing. (Marcia Heroux Pounds, “Licensing Offer Inventors A Safe Path to Production,” Knight Ridder/Tribune Business News, November 10, 1998)

Licensing is less risky for inventors because the licensee assumes all business risks.  "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.”  Licensing versus selling.  Whether to license vs manufacture inventions. (Jack Lander, “Should You License Or Produce Your Invention?,” Forbes.com, October 24, 2006)  Discover informative publications and books by Jack Lander for inventors and inventrepreneurs.

Simpler, less expensive and allows inventors to spend more time inventing.  "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."  Licensing vs. production.  (Jack Lander, “Should You License Or Produce Your Invention?,” Forbes.com, October 24, 2006)

Requires less time and money and offers freedom to live and work anywhere.  “Essentially, licensing your product requires significantly less time and money; however, the potential payoff involved is also much smaller. If you license, you have the freedom to live and work anywhere. Licensing demands creativity, resourcefulness, an understanding of manufacturing, and, above all, an excellent ability to SELL.” (Stephen Key, “Licensing vs. Manufacturing: What's Best for Your Product?,” AllBusiness, Monday November 19, 2007, 8:00 am ET)

Licensing allows you to make money without risking your own cash.  “People who believe they have a marketable idea and want to turn it into a moneymaker have a choice to make, experts say. They can go the licensing route, where they sell the idea to another company that will make and market it. Or they can manufacture and market it on their own.  Going it alone can potentially be more profitable, but it's also more risky.”  The licensing route allows you to participate in the potential sales, without risking your own cash.  (Kathy Kristof, “Inventive parents can turn bright ideas into cash,” Houston Chronicle, February 13, 2006, p. 3)

By licensing their invention, inventors don’t have to invest up-front capital.  “Many inventors try to obtain licensing agreements since they don't have to invest up-front capital to get their ideas to market.” (Courtney Price, “Inventors need good strategy to sell products,” Denver Rocky Mountain News, March 29, 1998)

Licensing an invention avoids the problem of unsold garage inventory.  If you have a lot of ideas, and you're very creative, licensing is the way to go.  A lot of people venturing end up with a lot of inventory in their garage that they couldn't sell. (Stephen Key of Modesto, founder of www.inventright.com and licensor of more than 20 inventions, "quoted in Thuy-Doan Le, “Entrepreneurial spirit starts to pay off for Sacramento, Calif.-area inventor,” Sacramento Bee, December 12, 2004)

Licensing your invention to a large distributor like Wal-Mart may be more lucrative than manufacturing it yourself.  "I shuddered to think that I would only get about 50 cents for every unit sold, but if the company sells to Wal-Mart, that's 50 cents times a whole lot of product, versus the 10 bucks you sell off the Web site.” (Shelley Hunter, an inventor and stay-at-home mother from Danville, California quoted in Thuy-Doan Le, “Entrepreneurial spirit starts to pay off for Sacramento, Calif.-area inventor,” Sacramento Bee, December 12, 2004)

Royalty payments from invention licensing can be greater than the profits from manufacturing.  “If [licensing your invention is] successful, the royalties from an established, large manufacturer will most likely be greater than the profits from producing and marketing the product yourself. The upside for the company is that they get a new product to market without heavy R&D expenses.”  Invention royalties on patents.  (Courtney Price, “Inventors need good strategy to sell products,” Denver Rocky Mountain News, March 29, 1998)

Licensing companies will market your product but manufacturing companies will only manufacture it.  "While a licensing company will also market your product, a manufacturing company does not."  (Williams-Harold, Bevolyn, “You've got it made! (developing invention ideas),” Black Enterprise, June 1, 1999)

Licensing is the only way to go.  “Lisa Von Velden, for instance, recalled the six-year process that got her invention, a baby-mat for bathroom use, through the legal, design and manufacturing labyrinth. She ended up licensing the production to Baby Delight, a company in Woodbridge in the San Joaquin Valley. The mat, christened Cuddle Cubby, came out earlier this year. Following an Internet-only introductory sales period, it is set to hit stores in time for Christmas. Licensing the product, she said, was the only way to go.” (Marton Dunai, “More inventors try to market products,” Oakland Tribune, September 5, 2006)


What kinds of licensing royalty rates are typically negotiated for inventions?  Where can you find information about average intellectual property licensing royalty rates for a particular product category?  What kinds of invention royalty payment revenues have successful inventors earned?


Licensing Disadvantages

Very few inventors can retire on their inventor royalties. 
“I can count on one hand individuals who can retire on their patent royalties.” Drawbacks of licensing.  (Rick Martin, partner, Rick Martin, P.C., “Obtaining a patent can be worth the costs involved,” Mass High Tech: The Journal of New England Technology, February 4, 2002)

If you license your invention you only receive a small percentage of sales.  The downside of licensing your invention is that “if the product is a huge hit, you’ll get only 3 percent to 5 percent of the net sales.” License a product versus sell a product.  Patent royalty rates.  (Kathy Kristof, “Inventive parents can turn bright ideas into cash,” Houston Chronicle, February 13, 2006, p. 3)

Potential payoff for licensing an invention is much smaller than it is for manufacturing.  “Essentially, licensing your product requires significantly less time and money; however, the potential payoff involved is also much smaller.”  (Stephen Key, “Licensing vs. Manufacturing: What's Best for Your Product?,” AllBusiness, Monday November 19, 2007)

Securing a patent license or an invention license is hard, frustrating and time consuming.  "But, securing a license is hard, frustrating and time consuming. Companies receive many requests, but select few products since it is difficult to predict which products will be successful. In addition, some firms don't have the resources or time to market new products." (Courtney Price, “Inventors need good strategy to sell products,” Denver Rocky Mountain News, March 29, 1998)


Licensing Tips and Advice

Seek prospective licensees who are in the best position to manufacture your product.  “For licensing, [inventors] should look to the companies that might be in the best position to make their product, said [Steve Pope, president of the Inventors Club of Kansas City and] president of R2fact Product Development Inc., a Lenexa-based firm that works with inventors.”  (Joyce Smith, Business Columnist, “Seeing your invention through: Entrepreneur week helps highlight some success stories of those who dream big,” Kansas City Star, February 27, 2007)

Find an experienced mentor.  “Regardless of which path you choose, it's important to find an experienced mentor to help guide you through the process. Rely on more knowledgeable people in the industry to provide you with invaluable insight; their advice will save you time and money, and may even help shed light on which process is right for you and your product.” (Stephen Key, “Licensing vs. Manufacturing: What's Best for Your Product?,” AllBusiness, Monday November 19, 2007)

Manufacturing Advantages

Manufacturing your invention on a small scale first, improves your licensing chances.  "You have a better chance of getting a licensing agreement if you first make and sell your invention on a small scale." (Courtney Price, “Inventors need good strategy to sell products,” Denver Rocky Mountain News, March 29, 1998)

Manufacturing an invention can produce much higher dollar returns than licensing.  “Manufacturing a product demands a greater investment of time and money, but it can produce much higher dollar returns and can be accomplished on your own terms.”(Stephen Key, “Licensing vs. Manufacturing: What's Best for Your Product?,” AllBusiness, Monday November 19, 2007)


Are you an inventor looking for a manufacturer for your invention?  If so, you might want to contact Inventors Workshop to help identify potential manufacturers for your product.  Inventors Workshop is a nonprofit organization that has been providing assistance to inventors for more than three decades.  You can  contact them by email or you can call them at 805-879-1729.  Inventor-Help-Services.org


Manufacturing Disadvantages

Higher risk.  “Compared to licensing, manufacturing is definitely a more high-risk proposition, but it can be very successful if done correctly.”  (Stephen Key,, “Licensing vs. Manufacturing: What's Best for Your Product?,” AllBusiness, Monday November 19, 2007)

Going it alone with manufacturing an invention is expensive.  "While years ago, about half of the inventors would take their creations to market themselves, only about a quarter end up doing so nowadays, experts say. Over the last year, [intellectual property attorney Stuart West] said, he has seen a 20 to 25 percent surge in clients who licensed ideas to a manufacturer. Going alone, especially for the not so well-connected, is mind- boggling and prohibitively expensive. 'For the simplest thing, when you include marketing, budgeting, having a prototype made, and testing, expect to pay 40 to 50 thousand dollars,' West said. That is, before manufacturing even begins." (Stuart West, intellectual property lawyer based in Walnut Creek, California quoted in Marton Dunai, “More inventors try to market products,” Oakland Tribune, September 5, 2006)

Tough entrepreneurial challenge.  “Building a viable business based on an invention is perhaps the toughest of entrepreneurial challenges.” (Joyce Smith, Business columnist, “Seeing your invention through: Entrepreneur week helps highlight some success stories of those who dream big,” Kansas City Star, February 27, 2007)

Manufacturing an invention requires management, manufacturing, finance, sales and inventory control skills.  “The [manufacturing] process demands that an individual possess all the skills necessary to run a small company: an understanding of manufacturing, finance, sales, and inventory control. (Stephen Key, “Licensing vs. Manufacturing: What's Best for Your Product?,” AllBusiness, Monday November 19, 2007, 8:00 am ET)

Licensing companies will market your product but manufacturing companies will only manufacture it.  "While a licensing company will also market your product, a manufacturing company does not."  (Williams-Harold, Bevolyn, “You've got it made! (developing invention ideas),” Black Enterprise, June 1, 1999)


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Licensing Glossary

Licensing agreement (royalty agreement).  “A licensing or royalty agreement involves your company giving another company the right to produce and return a royalty to you based on your product's sales.”  (By Courtney Price, “Outsourcing helps inventor bring product to market, Denver Rocky Mountain News, November 2, 1997)

Invention license.  "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.'"  Intellectual property licensing royalty rate. Invention royalty. (Jack Lander, “Should You License Or Produce Your Invention?,” Forbes.com, October 24, 2006)