Patents are expensive. If you can avoid the expense, you should.
So, can you sell an idea to a company without a patent? Yes, you can sell an idea to a company without a patent. However, the company needs to enter into a contract such as a nondisclosure agreement (NDA). Otherwise, they can steal your idea. Unfortunately, many companies will not enter into an NDA. As such, you may need to get at least a patent application on file to pitch your idea.
Let’s discuss the specifics.
How to sell or license your idea without a patent?
You can sell an idea to a company without a patent. You need a way to stop them from stealing the idea from you. One way to do that without a patent is with a nondisclosure agreement, aka NDA. The NDA would limit the company’s ability to use your idea without paying you for it.
Here is a simplified version of how that would work.
You approach the company and ask them to enter into a nondisclosure agreement with you. If they sign the NDA, they cannot tell others about the idea. Otherwise, they will breach the contract. If they do tell others without your consent, you can sue them for breach of contract. The NDA stops the company from using your idea without paying you for it.
Unfortunately, most sophisticated companies won’t enter into an NDA with you. For example, Under Armor, New Balance and Coca Cola all take idea submissions from people like you. However, they will not enter into an NDA with you.
Why would they?
An NDA is an invitation to a lawsuit. Nondisclosure agreements require them to keep things secret. If it even looks like they stole your idea or invention, then they might have a lawsuit on their hands. Because most ideas are not worthwhile, you are required to make your disclosure on a non-confidential basis. You have to protect it with a patent or trademark.
Companies have a policy of non-confidentiality
Here are the idea submission policies of three large companies that I mentioned.
Under Armor’s Idea Submission Policy
Here is Under Armor’s idea submission policy. They specifically tell you that they will not keep your information secret.
New Balance Idea Submission Policy
Here is New Balance’s idea submission policy. They are very blunt about it. “Your ideas are … submitted on a non-confidential basis.” They tell you to get a patent first.
Coca-Cola Idea Submission Policy
Here is Coca-Cola’s idea submission policy. You have to make your submission without confidentiality.
You get the point. Sophisticated companies won’t sign a nondisclosure agreement.
A few companies will sign an NDA
Fortunately, some companies will sign nondisclosure agreements to hear you out. You can find out by searching for any webpage on their website that describes the idea submission policy like Under Armor. If you can’t find the webpage, don’t give up. Lookup people on LinkedIn, etc. who work for the company. Ask them if they can sign a nondisclosure agreement to hear out your idea.
The bottom line is that some companies will sign a nondisclosure agreement, but many won’t. So you are limiting the number of potential buyers of your idea if you don’t get a patent or patent-pending status. However, it is possible. If you don’t have money for a patent, then your options are limited. You may have to pitch your ideas only to potential buyers that will sign the nondisclosure agreement.
Increase the number of prospective buyers with patent pendency
If you want to increase the number of potential buyers of the idea, then you could submit a patent application on the idea. Now, let’s be clear. You should submit a patent application only if the idea is an invention. By submitting a patent application, you establish a priority date.
For example, let’s say you submit your patent application on January 1 and tell others after your invention after that date. Anyone that hears your idea would have heard about it after January 1. If they file a patent application after January 1 on the same invention, then they will not get a patent.
You won the race to the patent office. You are first in line for the patent, aka priority.
In this regard, you don’t need a nondisclosure agreement in place before pitching an idea when you have patent-pending. You have more freedom to pitch your invention to companies without the need for an NDA.
Get extra protection: Do both (NDA and Patent Pendency)
Even if you have a patent-pending status, you can always ask the potential buyer to sign a nondisclosure agreement before you share your idea with them. By doing so, you can have both 1) contractual rights via the nondisclosure agreement and 2) a priority date with the patent application.
Are companies likely to buy just ideas?
In my experience, companies are not likely to buy just an idea.
They don’t know if they can get a patent on the idea if they spend the money to get a patent. They wouldn’t know the scope of patent protection even if they were to get a patent. Most buyers would prefer to see a patent so that they can evaluate the scope of protection.
Do you need a prototype to sell your idea?
No, you don’t need a prototype to sell your idea. However, that would be a good idea to show that the idea works, aka proof of concept. The prototype is a part of your pitch to sell your idea. Otherwise, the buyer has to build the prototype and prove that your idea works. If it doesn’t work then they wasted their time and money. You don’t need a fully functional prototype to show proof of concept. However, that would be a good idea. One again, a fully functional prototype would be a part of your pitch to sell your idea.
I think that you get the point. Although a perfect prototype is not necessary, it is helpful in making your pitch to others.
Do you need a prototype to patent your idea?
No, you don’t need a prototype to patent your idea. However, it is beneficial. It helps you and your patent attorney get a better feel for the invention.
Moreover, if your invention sounds like a perpetual motion machine, then people (USPTO, patent attorney, investors) will ask you to build and show proof of concept. Otherwise, the examiner will reject your patent application. Reputable patent attorneys will turn the work down.
How do you patent an idea and sell it?
You have two options for making money with patents.
Option 1: Sell patent rights
You can outright sell the patent itself. The benefit of selling the patent is that you have quick cash and you don’t have any responsibility later on if and when litigation occurs. The downside is that the sales price is all that you will make on the deal.
Option 2: License patent rights
You can license your patent to others. The benefit is that you can potentially make more money by going through this route. You can collect royalties for 20 years. The downside is that it is costly to negotiate the license, and the prospective licensee might back out of the deal at the end, leaving you to pay for your attorney fees.
Do you need a patent to license your idea?
No, you don’t need a patent to license your idea. You can license the idea without the patent. However, you need something that prevents them from stealing your idea. For example, you need patent-pending status, some intellectual property right or contractual right (e.g., nondisclosure agreement) to license your idea.