Archive for the ‘Patent Valuation’ Category

How Much Is A Patent Worth?

Thursday, August 9th, 2012

Patent WorthHow much is a patent worth? What is the value of the idea or invention covered by the patent? One way to think about the value of the patent is by considering the intrinsic or underlying value of the product or idea.  For example, before the company actually made one or sold one, how much was the Apple iPhone patent worth?  Putting a value on the patent has to recognize the value of the underlying product.  How much is the patent worth on the next new light bulb (several patents have been granted in the U.S. recently for new LED light bulbs)?  The intrinsic value of the bulb may be less than an iPhone, but if more light bulbs can be sold, perhaps the patent is worth more than other patents that have been awarded.  So market size plays a role in determining the value of a patent as well.  As an inventor or product creator you may believe that your patent is worth a lot of money, and it may well be, but there are several objective criteria used to establish how much your patent is worth.

How Important Is Your Idea or Invention?

How important is your idea or invention? The answer to this question can be a clue to how much your patent is worth. For example, a new patent on a new breakthrough cure for cancer may be more valuable than a patent on a new broom handle.  Typically, breakthrough patents or patents that explore whole new areas of technology are among the most valuable.  In addition, if a patent is awarded to an invention or idea that is the first to find an answer to a long-standing problem, then that patent has more value as well.  These types of patents may well be worth billions of dollars because they provide the owner with what amounts to monopoly power in a market, niche or segment.  By having the right to exclude others through patent protection, the inventor or patent owner can command higher prices and effectively increase the value of the patent. One good way to think about how much your patent is worth – especially if it’s a breakthrough – is to ask the question, “How much would my competitors pay to use my protected product or service?”

How Big Is Your Market?

How big is your market? This can be another clue to helping establish how much a patent is worth.  For example, there are about 30 million small businesses in the U.S.  About 21 million of those are single-owner or sole proprietorships that do not report payroll.  The remaining 8-9 million are and businesses with fewer than 10 employees.  If the new product or invention can be used by all 30 million, that is a relatively large market.  By comparison, there are about 300 million households in the United States.  If you have an invention that can be used by most of these households or used frequently by homeowners that is an even larger market than the business sector of the economy.  When you think about how much a patent is worth, consider how large the market is where the idea or invention will be used.

How New Is Your Patent?

How long has the patent been in effect?  Unlike wine, generally speaking, the newer a patent the more it will be worth.  As the protection term expires (typically 20 years) or as the patent reaches the end of its enforcement period, it is likely to be worth less.  One of the key functions of patents and patent law is to spur innovation and creativity.  Once a patent is granted, even though the inventor or creator has the right to exclude others from his or her intellectual property, others in the same field and the competitors of the original patent holder will begin to evaluate the patent and create products or services of their own.

Without violating any intellectual property rights, the publicly available information in the patent, including design and uniqueness, can provide a basis for even newer innovations and creations. These too may then be patented, but when they are the first patent no longer has as much value.  Over the 20 year life of a patent, there may be several competitors who become more innovative and create new products of their own. By doing so, they dilute the monopoly control of the first patent as well as limit how much the patent is worth.  When patents are new, the intellectual property owned by the patent holder may still provide enough market control over what’s produced and how it’s produced to create more value in the patent before competitors can react.

With many categories or types of patents, it may take years for competitors to come up with new ideas or inventions of their own to effectively compete with the new patent.  Along those same lines, if there are more patents granted within a particular type of product or category, a patent will be worth less than in markets where there are fewer patents. There are fewer patents for innovative medical devices than there are for computer technologies according to the latest statistics from WIPO, the World Intellectual Property Organization.  Patents in computer technologies may be worth less as a result, apart from the underlying value of the product or new idea, which also suggests that the significance of the idea being given a patent has something to do with the value of the patent as well.

Summary

How much is a patent worth?  There are objective markets for and legitimate ways to determine the dollar value of a patent.  These are best handled professionally, through patent attorneys or objective financial analysis firms.  Several factors go into determining how much a patent is worth. The underlying value or significance of the product or invention, the size of the target market, how competitive the market is and who competes with the patented idea, as well as the amount of time the patent has been in effect.  These all play a role in establishing the value of a patent. To determine how much a patent is worth, though, ultimately it comes down to how much someone will pay.

Valuing a Patent

Thursday, July 1st, 2010

Valuing a Patent

Valuing a patent

 

One of the most important tasks you will carry out as a patent holder is assigning a monetary value for it. This could become necessary for any number of reasons, such as:

  • Selling the patent
  • Licensing the patent
  • Deciding how much equity to give to business partners investing or working with the patent

None of these decisions can be wisely made without first knowing, at least roughly, what your patent is worth. It is not always an easy task, as patent valuation is a somewhat inexact science. However, whether you have a provisional patent, a design patent, a utility patent, or a plant patent, some key principles should be observed.

1) Valuing a Patent: What is the Market Size?

You should value your patent with an eye toward the size of the market it could serve. If you own the patent to a new kind of baseball bat, you would want to determine the size of the baseball gear market. Consider this the starting point, for without knowing how much money is spent on similar existing products, you have no valid basis for assigning a worth to your own. After all, wouldn’t you agree that whether your market sees $1 million or $50 million in yearly sales, there would be an impact on how much your patent is worth?

Valuing a Patent: What have comparable patents been valued at or sold for?

One of the benefits of working with a patent attorney is that he or she will have access to comparable patents, or how much similar patents have been valued at or sold for. It could be that a new baseball bat was patented 10 years ago and valued at $500,000. Now, this does not necessarily mean that your patent is worth exactly that. Market forces change all the time, and the further back that similar patent was valued, the less it should influence that value you assign to yours. (Conversely, the more recently a similar patent was valued, the more that valuation should be heeded.)

Nevertheless, it pays to get a read on how similar patents are being valued rather than arbitrarily plucking an attractive number out of the air and assigning that as your patent’s value.

Valuing a Patent: Determine the patent’s validity

One major factor that needs to be considered when valuing anything is risk. In this context, a major risk is that someone who buys or licenses your patent will find that it does not hold up in court – that is, that the courts might decide the patent is invalid. How could this happen, you might ask? The website JournalOfAccountancy.com offers 2 possible scenarios:

“If it is discovered after a patent has been issued that the inventors didn’t meet the statutory requirements for obtaining it–for example, if they weren’t the inventors (35 USC section 102(f)), or had published information about the invention or offered it for sale more than one year before the date of application (35 USC section 102(b))–the patent is invalid and substantially worthless.”

Obviously, this is not desirable and any perceived risk of it happening will reduce what someone is willing to pay for your patent. The solution? Consult your patent attorney on ways to investigate the validity of your patent and convey this to prospective buyers. The more you can eliminate the perception of risk, the higher a value you can assign to your patent.

Valuing a Patent: Does Your Patent Overlap?

Part 3 of our “Patent Facts and Fiction” series says that a patent does not give you exclusive rights to make your invention, only to prevent others from doing so. But what if making your invention would infringe on someone else’s patent? This type of patent overlap is quite common and could lead to your patent being invalidated by the courts. Work with your patent attorney to investigate if any overlap exists and communicate to prospective buyers or licensees that this will not be an issue. Eliminating this risk will allow you to value your patent higher than if it was not addressed.

Valuing a Patent: What are the current substitutes?

No matter what you value your patent at, anyone thinking of buying or licensing it will investigate their alternatives. They will look for the “next best thing” and try to figure out if that would be cheaper than your patent. Since they are going to do this anyway, you had might as well figure out in advance and incorporate it into your valuation. Doing so offers you a strategic advantage – namely that if the next best thing is expensive (or there is no next best thing) you can use this as justification for charging more. Of course, if the next best thing is inexpensive or close to what you are asking, this could suggest a need to lower your valuation.

Valuing a Patent: Why are you selling/licensing?

You cannot value your patent in a vacuum, looking for the one, true, “right” value. Rather, you should assign a value by keeping your unique needs in mind. Why are you selling the patent? If you are just looking to cash out fast without a lot of meetings, delays, and deliberations, it might make sense to use a lower valuation. Money today is worth more than money tomorrow, and holding out for a trivially or even substantially higher price may not actually be worth it. Or, maybe it is – the point is that you need to make this decision consciously and not out of egotism or greed.

Valuing a Patent: Proceed with Caution

Keeping these 6 tips in mind will not instantly generate the “right” patent value for you, but it will ensure that whatever value you decide upon is far more realistic and valid than it would have otherwise been.

Now that you are on your way to Valuing a Patent, learn more about Selling a Patent. Also, take time to learn more about patent licensing as an option for commercializing your patent.

Need Assistance? Call 1-832-683-1527 | Idea Buyer LLC – Ohio Limited Liability Company

How to Value Your Intellectual Property

Monday, March 31st, 2008

Value Intellectual PropertyValuing intellectual property is no easy task. No matter what kind of intellectual property you own, there are certain bases you need to cover in order to assign a reasonable value to it. It cannot be done on a whim, based on what you feel your patent, trademark, or copyright is worth. As with anything else, your intellectual property is only worth what someone is willing to pay. Obviously, the key then becomes setting a value that is high and convincing. You want potential buyers to feel like the price you have set is commensurate with its true value. In this article, we will explain some of the most crucial steps in setting such a value.

The first step is to get the advice of an intellectual property attorney. The valuing and sale of intellectual property is not like holding a garage sale. There are thorny, complex laws and regulations governing how to assign a value to different kinds of intellectual property. It is not the kind of thing a beginner should try to jump into with no experience or research. Instead, take the time to find a respected intellectual property attorney and spend the money to acquire his services. He will advise you on key considerations, as well as offer advice on how to set a value effectively and legally. Beyond that, he will ensure that any transactions after the fact are documented in a professional, comprehensive way. The importance of this cannot be stressed enough. If your valuation becomes the subject of patent litigation, what will be more comforting: knowing that a licensed attorney stands behind the valuation, or that you concocted it with no professional help? The moral of the story: don’t cut corners on legal advice!

The next step is to assess your intellectual property from an outsider’s point of view. You might think your patent or trademark is the best thing since sliced bread, but you may be looking at it through rose colored glasses. This affects creative people in all fields, not just intellectual property. But before you set a value, you need to take those glasses off and see your IP like a complete stranger would. If someone tried selling you a patent, what are some of the questions you might ask?

What is the market and market size?

What are the competitive advantages the patent offers?

How much will it cost to implement the underlying idea?

How long before competitors start crowding in?

There is simply no way around these questions, and your valuation must take them into account if you hope to be taken seriously. The more appealing the answers are, the higher your valuation should be. A huge, untapped market with few competitors is more valuable than a marginal niche filled with established players. Again, these are market realities that you cannot ignore. Once you have a rough valuation in mind, it’s time to consult the professionals once more.

You need to research comparable transactions and see what similar intellectual property has sold for in the past. The best way to access this data is through an appraiser, or your intellectual property attorney. Together, you can discuss what you think the value of your IP should be as compared to comparable values. Try to settle somewhere between your own idea of the value and the values of the comparables you research. This is a time-tested formula for valuations that stand up and get taken seriously.

Finally, you need to heed the age-old warning against being greedy. You cannot ask for too much in valuing your intellectual property, or else you will scare off potential buyers. To prevent yourself from doing this, ask yourself some more hard, honest questions:

How long would it take you to develop this idea yourself? Months? Years? And how much money would it cost on top of your time? Thousands, tens of thousands, even hundreds? Generally, he longer and more expensive this would be, the lower your valuation should be. The other party will still be doing most of the work, and they know it.

What about unexpected problems or challenges that might come up? Businesspeople are familiar with the maxim that everything is harder than you think and takes longer than you think. Ask yourself whether holding out for a few extra thousand dollars is really worth committing yourself to years of headaches and problems that you can’t even anticipate right now.

The point is that whoever buys your intellectual property will be assuming all of these risks. You shouldn’t lower your value to the ground, but you shouldn’t be overly greedy, either.

If you keep these considerations in mind and execute them in order, you can accurately value your intellectual property. Good luck!

Jay Cross is a staff writer for Idea Buyer LLC which owns and operates http://www.IdeaBuyer.com – The Online Marketplace for Intellectual Property. The site gives inventors the opportunity to showcase their intellectual property to consumer product companies, entrepreneurs, retailers, and manufacturers. You can email him at JayCross@IdeaBuyer.com.