How Much Is A Patent Worth?

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.

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