A truly new concept for goods or services might be able to receive patent protection and could be worth billions of dollars. Many are worth much less. Valuation experts provide patent valuation services to determine the values of individual patents and patent portfolios, and many other related services. Patents are a form of intellectual property (IP) and – for companies like Apple and Tesla – may even be the company’s primary assets.
In addition to affecting the value of the overall business, patent appraisers advise clients with such matters as buying and selling patents, determining appropriate royalty rates and terms for patent licensing, and assessing whether and to what extent patents may serve as collateral for lending purposes. The factors that influence the value of a patent depend on the type of patent, the industries in which it could be used, and other variables. Some general things to consider:
What is the Status of the Patent Filing? The value depends on the stage of the patent filing, whether it was approved, is pending, or is an earlier stage. Thorough research involves gaining a detailed understanding of a company’s IP holdings, including the patent application itself, any foreign patent applications that relate to the invention, litigation history, etc.
How Impactful is the Patent? Some patents are revolutionary; others are slight modifications on existing ideas and inventions that may affect an industry more marginally. It is the job of the valuation team to assess the potential of the patent. They will look at the industry and other patents and inventions to estimate the effect of the subject patent on the marketplace.
How Defensible is the Claim? A well-constructed patent claim may be more valuable if it likely to withstand potential challenges from competitors. Although the service of a patent attorney is not required to file a patent, the guidance of experienced professionals may result in a stronger claim that is more defensible, which is worth more to a potential buyer or licensee.
How Will the Patent Generate Cash Flow? There are many different ways that a company can monetize a patent. An owner can research, develop, manufacture, distribute, and retail a product that relies on the patent, essentially building an integrated business around the patents. Alternatively, it could license the use of the patent to others for royalties, which can be structured in various ways (up-front, annual, as a percent of sales or profits, etc.). A valuation firm should consider who will ultimately use the patent and how it will be used.
Clearly, although the concept of how firms generate profits using patents is fairly straightforward, determining a value for a specific patent can be quite complex and requires experienced appraisers. Appraisal Economics has deep experience working with clients around the world in practically all industries, and we have a staff that consists of engineers as well as appraisers. Contact us today to learn more about our patent valuation services.