Bright Ideas

Sell vs. License

Between a rock and a hard place is where most entrepreneurs find themselves when faced with the decision of whether to sell or license their great ideas. Following are some points to consider before making that choice.

If you plan to sell your idea outright, you can probably expect to receive some sort of lump-sum payment for it. This is the quickest route to getting some return on your efforts. The downside is whatever you negotiate as the price will likely be all you receive from the idea--even if it's a huge success.

A licensing strategy usually provides you with more money in the long run. Points to be determined in a negotiation include deciding exactly what will be licensed, for how long, how much you'll be paid, and how and what rights each party has if things go awry.

Many times a licensor wants to turn over "patent pending" rights to a licensee so he or she can finish the patent process. This is a common practice because many inventors can't afford the expense associated with obtaining a patent. If you turn over the rights to any patent, make sure your license agreement provides for royalties on any improvements made to your idea so you get income on future products your invention generates.

Also, give some thought as to whether to grant an exclusive, nonexclusive or sole license. An exclusive license gives exclusive rights to your idea to the licensee for a specified territory. A nonexclusive license allows you to license your idea to more than one licensee in a specified territory. A sole license allows you and only one licensee to make, use or sell your idea, and prohibits you from granting any other licenses for that idea.

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This article was originally published in the July 1997 print edition of Entrepreneur with the headline: Bright Ideas.

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