Patent valuation is an important aspect of the patent portfolio management process. The details that contribute to the value of a given patent might be complicated and not always obvious. Some patents may prove more valuable than they appear at first glance, and your patent portfolio might actually have a higher value than it appears to on the surface.
Making a thorough and accurate valuation of the patents in your patent portfolio might dramatically increase the value of your patent portfolio.
Most companies already have a diverse IP portfolio, and a large part of that IP portfolio is the patents or potential patents owned by the company.
In order to make an evaluation of the patents in your portfolio, you need to assess two factors:
The active market or similar market for the invention protected by the patent
Transactions in the past of a comparable product or process
Evaluators compare the patents in a patent portfolio to other patents to determine the value of a given patent. Valuing individual patents and then calculating them altogether determines the overall value of a patent portfolio.
Example of Patent Valuation
Individual patent valuation scenarios will differ based on a wide range of factors. Each patent in a company’s patent portfolio will need to be evaluated individually based on market realities, on the features of the invention protected by the patent, and more.
Although patent valuation will depend on the details, there are some examples worth considering:
If fees, including filing fees and litigation costs, meet or exceed $15,000, and anticipated profitability over 20 years equates to $500,000 or more, it shows that filing and prosecuting a patent application is worth considering.
A patent application makes much less sense if the estimated costs of filing exceed projected return on investment. For instance, if all fees and costs come to around $20,000 and an evaluator’s estimated ROI comes to $10,000, this would not necessarily be a profitable patent to pursue.
In the case of an older patent, in the instance of a patent coming to its 11n and a half year renewal deadline, and all fees and costs come to around $7,700, but ROI estimates are about the same, then the cost vs. ROI should be taken into consideration during evaluation of the patent portfolio.
It is impossible to create an exhaustive list of examples of patent valuation. While the principles of patent valuation remain consistent across the whole practice of patent valuation, every instance comes with its unique parameters and challenges. For every patent, there will be a separate evaluation.
Patent Valuation Methods
All patent valuation methods involve complexities. These evaluations require a great deal of experience, expertise, and market awareness. When done with accuracy and thoroughness, patent valuation dramatically increases the value of a patent portfolio. It can be time-consuming and appear financially costly to undertake a thorough patent valuation. However, the time will prove worth the investment and the increased value of your patent portfolio will offset the financial cost.
Evaluating a patent requires taking into account a variety of factors. Here we’ll briefly provide an overview of a few aspects involved in patent valuation methods:
Potential for Producing Revenue and Profitability
The value of some patents is derived from how they add revenue. Patented technology, designs, or processes may impact bottom-line profitability by increasing sales or production in other areas. A technology, design, or process protected by given patents might impact related profitable business sectors.
Some examples of patents improving a company’s bottom line include reducing costs of doing business or adding value to a company’s business.
In some instances, a patent may be valuable without a direct connection between the patent and the company’s bottom line. For example, when a competitor’s technologies, design, and processes infringe on areas of business where your company usually profits.
Nature and Scope of the Patent
Some patents are limited to specific industries, markets, or products. Others represent only an incremental improvement in the areas they affect. On the other hand, some patents apply to a wider sector of industry or across multiple industries. The scope and effect of the invention protected by a patent have a dramatic impact on the value, and therefore the valuation, of the patent.
Size of the Market for the Product Protected by the Patent
Patents impact the niches of the market or industries that they are pertinent to. How large or small that niche is, has a direct impact on the valuation of a patent. As a basic rule, if the technology, design, or process affects a smaller niche then it will come to a smaller valuation. Whereas, the value of the patent will often increase within a larger market. However, this won’t always be the case and some patents will have a valuation disproportionate to their market impact.
Patent Valuation Services
UnitedLex provides you with actionable intelligence to help identify adjacent markets and previously obscure licensing opportunities. Many businesses miss earning potential from their IP asset portfolio in spite of long-term patent investment. Digital IP solutions enable patent owners to create, monetize, and exploit patent portfolios. Companies that transform their IP practices with data-driven insights, deep legal expertise, domain knowledge, and integrated technology realize an increase in ROI on IP assets, increased revenue opportunities, reduced costs, and accelerated outcomes.
With more than 3,000 legal, engineering, and technology professionals globally, UnitedLex enables legal organizations to thrive in the Digital Age. Over the past 15 years, we have successfully delivered eDiscovery, Source Code and Document Review, IP Monetization, and Contract Management Improvement services to over 25% of the Global 500, 30% of the Fortune 50, and 50% of the Am Law 100. Contact UnitedLex to learn more about transforming your Intellectual Property function and our broader programs for Digital Legal Transformation.
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