How can an inventor make money with a patent?

On its own, a patent has no value. A patent becomes valuable only when a patent owner takes action to profit from his or her monopoly position. There are several basic approaches to making money from a patent.

Some inventors start new companies to develop and market their patented inventions. This is not typical, however, because the majority of inventors would rather invent things than run a business. More often, an inventor makes arrangements with an existing company to develop and market the invention. This arrangement usually takes the form of a license (contract) authorizing the developer to commercially exploit the invention in exchange for paying the patent owner royalties for each invention sold. Or, in a common variation of this arrangement, the inventor may sell all the rights to the invention for a lump sum.

A license is written permission to use an invention. A license may be exclusive if only one manufacturer is licensed to develop the invention or nonexclusive if a number of manufacturers are licensed to develop it. The license may be for the entire duration of the patent or for a shorter period of time. The developer itself may license other companies to market or distribute the invention. The extent to which the inventor will benefit from these sub-licenses depends on the terms of the agreement between the inventor and the developer. Especially when inventions result from work done in the course of employment, the employer-business usually ends up owning the patent rights and receives all or most of the royalties based on subsequent licensing activity.

In many cases, a developer will trade licenses with other companies called cross-licensing so that companies involved in the trade will benefit from each others technology.