Most inventors do not themselves develop the invention covered by a patent. Rather, they make arrangements with an existing company to do this for them. Typically, the arrangement takes the form of a license (contract) under which the developer is authorized to commercially exploit the invention in exchange for paying the patent owner royalties for each invention sold.
A license may be exclusive (only one manufacturer is licensed to develop the invention) or non-exclusive (a number of manufacturers are licensed to develop it). The license may be for the duration of the patent or for a shorter period of time. Sometimes the patent is sold outright to the developer for a lump sum up front.
The developer itself may license other companies to market or distribute the invention. The extent to which the inventor will benefit from these sublicenses 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.
These distribution licenses are often limited by geography (for instance, different licenses for different countries or for different parts of one country) and by use. In many cases, the developer will trade licenses with other companies—called cross-licensing—so that companies involved in the trade will benefit from each other’s technology.
Related terms: anti-shelving clause; anti-trust law (federal) and patents; assignment of a patent; compulsory licensing of a patent; concerted refusal to deal; cross-licensing; defensive disclosure; exclusive patent license; geographic patent license; licensing of an invention; march-in rights; marking of an invention; misuse of patent; non-exclusive patent license; not invented here (NIH) syndrome; patent number; patent pools; price fixing; working a patent.