Profiting from Inventions

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Lonnie G. Johnson has amassed 71 patents since 1979 including a smoke alarm, a valve for maintaining soil moisture, a fluid-powered thermodynamic heat pump and a wet-diaper detector that plays nursery rhymes. Although Johnson has invented thermodynamics systems for NASA, he may be remembered best for a toy originally known as the Power Drencher -- the first water blaster to incorporate air pressure. After it was renamed the Super Soaker in 1992, Johnson’s invention went on to generate $200 million in sales. Like many inventors, Johnson avoided the hassle of manufacturing and selling his invention himself. Instead, his company, Johnson Research & Development licensed the rights to the Larami toy company. While Johnson toiled on new money-making ideas, Larami promoted and protected the Super Soaker, making it one of the biggest hits in toy history.

Many inventors prefer to take the same route as Lonnie G. Johnson and license their inventions. A license is 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 onetime payment or continuing payments called royalties. Before considering licensing, many inventors consider two other basic alternatives to licensing: assigning your rights or manufacturing and selling the invention by yourself. Although a license allows you to retain ownership of the invention, some inventors prefer to assign all rights in return for a large one‑time payment. As for manufacturing and selling the invention yourself (referred to as a venture), most inventors do not have the funds or experience to create ventures or to market their own products. Manufacturing and marketing require money, knowledge about the industry, connections with distributors, and a lot of hard, hard work. In addition, many inventors cannot afford the significant expense of pursuing infringers. For this reason, most inventors choose licensing instead of ventures. We discuss all of these options in this section.