Patents

9. Exploitation of Patents

You have your issued patent. What next? Actually, most inventors do not wait until they have secured issued patents for their inventions before attempting commercialization. Only the largest of corporations have the financial resources to do this. Rather, most smaller corporations and individual inventors begin seeking out commercial opportunities for their invention once they have filed the critical first application (keeping in mind the one year Paris Convention period for following up with additional applications in other counties). That is, assuming a working prototype has been developed, or the invention has at least been proven viable in all essential respects, the invention owner may then either start the manufacturing process himself, if he is inclined and capable of so doing, or may enlist the help of investors or joint-venture partners to assist him in bringing the invention to the marketplace. Good market research, including a sound business plan, is essential if the inventor wishes to attract significant financial investment by others in his project. Legal counsel will most likely be required to set up appropriate corporate or other entities to facilitate investment by other parties in the project and to ensure strict compliance with all applicable laws, including, but not limited to, the applicable securities legislation. New and better prototypes may also be necessary so as to refine the invention for commercial production. The precise steps to be followed can vary considerably depending upon the nature of the invention and the parties involved. In nearly all instances, the commitment, in terms of both time and expense to take a product from the prototype stage to the stage of a vendible product or process is too great for a single person of average means. On the time side, such commercial exploitation of an invention can easily become a full-time occupation for at least one or two years. Most individual inventors who are not already involved in running a business to which the invention relates do not wish to commit such large amounts of their time and energy to an invention. Moreover, such inventors do not typically have the financial resources to do so. As a result, the vast majority of independent inventors will seek to form a partnership, joint-venture, or corporation with others to share the development work development costs and the proceeds, if any, later realized. Again, legal counsel is desirable in respect of such formation. More commonly, however, independent inventors will seek to sell or licence their inventions to companies that are already profitably engaged in a related business in exchange for a lump sum payment (in the outright sale scenario) or ongoing royalties (in the licensing scenario).

In order to effectively bargain for fair remuneration for the invention, whether in licensing or outright sale negotiations, it is essential that the initial patent application referred to above be already filed by the inventor and the Paris Convention priority period (one year from first filing) not have elapsed without further applications having been filed in other market countries in which potential purchasers or licensee might be interested in exploiting the invention. Absent such filings, the invention will have considerably less value to a potential purchaser/licensee. This is so for many reasons. For example, if the invention has been made public prior to the initial patent application being filed, the right to obtain valid patent protection may have been compromised or forfeited in at least some countries. This being the case, the inventor has no monopoly (or at best a doubtful one) with respect to such countries. Absent such monopoly, all the inventor is really offering to the purchaser/licensee is an opportunity to be the first commercial supplier of the invention in one or more markets. This is of limited value, as competitors will be in a position to copy the invention if it is successful in the marketplace. Moreover, such copiers may be able to make the invention available at a more competitive price, as they have not incurred the additional costs associated with paying the inventor, or any additional research and development or marketing costs that may have been necessary to perfect the invention for commercial production and to establish an initial market for it. Thus, for effective licensing of inventions that are not protectable other than under the patent laws, patent protection is essential if the inventor is to realize a full financial return.

The filing of foreign patent applications and their prosecution (especially outside of North America) is very expensive. While it is critical for the inventor wishing to exploit his invention by licensing to file the initial patent application on his own initiative and at his own cost at the earliest date possible, and preferably prior to disclosing the invention to any other persons (particularly those who might have a commercial interest in the invention), it is not unusual for patent licence agreements to provide for the funding of subsequent filings in other countries. This may be expressly accommodated by the payment of earmarked amounts under the licence agreement at specific dates to cover such filings, or may simply be accommodated by having the licensee agree to pay an up-front fee for obtaining the licence. The latter approach is more common with "exclusive" licence agreements, although the general trend today is to resist the payment of large up-front fees in favour of more generous royalty provisions over the life of the licence. Licensees favour this approach as it shares the risk of the invention being commercially successful with the inventor, and frees up the licensee's capital for application against the high start-up costs associated with commercializing most inventions.

Licensing of inventions is, like patent drafting, a highly specialized subject best left to specialists in the area. While some registered patent agents have experience in the drafting of licences for patentable inventions, the legal training received by lawyers ideally suits them for this task, particularly lawyers who are experienced with patent matters, such as those who are also registered patent agents. A further discussion of the licensing of inventions is beyond the scope of this treatment.