A patent is a legal tool that allows the holder to protect their innovative ideas. If granted, a patent serves to exclude others from using, making or selling the item protected by the patent for set period of time. But does this asset provide value to a business? If so, how do business owners know the value of their patent? This piece will discuss these issues.
Patents and value: Three methods
Since the patent itself is an intangible asset, it is helpful to value the invention protected by the patent to get an idea of its worth. One common valuation method is the economic-analysis valuation. This method uses three approaches. The cost approach focuses on the cost a business would incur to replace the protection available through the use of a patent. The income approach looks at the incremental cash flow to determine a value. This approach looks at the overall cost savings the patent provides, the costs versus the benefits. Finally, the market approach looks at what similar patents have sold for to determine the worth of this specific patent. Business owners can use one of these approaches to come up with an estimated value for the patent.
An accurate patent valuation is important, particularly for businesses going through merger and acquisition deals, business divorce or infringement battles.
Increase the value by following trends: High quality may be better than high volume
A recent analysis finds business owners may get the most value by building a portfolio that includes high-quality patents tailored to your business’ market as opposed to a focus on large numbers of patents. Recent legal developments have made it easier to challenge and invalidate patents. A prime example: Inter Partes Reviews (IPR). Compared to traditional litigation, an IPR allows for a less costly and quicker challenge to the validity of a patent. This could make it easier for opponents to challenge a patent. A focus on high quality as opposed to high volume patents within the business’ portfolio could prove helpful in the event the business owner needs to fight a challenge.