Patent Evaluation is first step for an applicant who is targeting for commercialization of his or her patent. A patent is one of the most valuable assets for an individual and a company which can be commercialized if filed strongly and potentially implementable in the market.
What is Patent Valuation/Evaluation?
Patent valuation is an asset valuation (here asset is pending or granted patent) done through various method to assess an estimated cost to be fetched by the asset. Patent valuation is done through various methods comprising:
1. Cost based Patent Valuation Method – The cost based method is based on the principle that there is a direct relation between the costs expended in the development of the intellectual property and its economic value.
A cost based approach includes the cost of research and development, product trials and labour cost incurred while developing a product. The cost based approach can produce a cumulative value of the patent in absolute terms without comparing it with any other patent or product.
Demand value of the cost based patent valuation approach is based on various scenarios. Let’s take a case scenario of a product just developed by the inventor and a patent has been applied for the same in respective patent office. The value of such a patent would be determined on the basis of how much the seller has spent on the development of the product and during patent filing. The patent value hence determined may be very less with respect to the potential of the product in the market.
Let’s take a different scenario under which the inventor or the applicant had introduced the patent pending or patented product in the market and has run it for some period of time, say three years. In this case, the marketing value of the product, labour cost and sales cost will also be included in patent valuation which might give a higher value of the patent and will have some parity with other patent valuation methods as it took the time based sales into account.
2. Market-based Patent Valuation method – The market-based valuation method relies on the estimation of value based on similar market transactions (e.g. similar license agreements) of comparable patent rights.
The market based patent valuation technique is a relative valuation method i.e. it takes the closest matching patent or patent portfolio into account and projects a value (after applying few appreciation and depreciation techniques) of the patent or patent portfolio.
For a single patent, the value of previous or contemporary transactions vary wildly as each patent sales depend upon dilatability of the patent, patent age, sales of the product related to the patent and cost of development of the patent product. These factors are dependent on seller and buyer, sometimes most of these factors are ignored and the sales happens on an average sale price (as per general perception in the market) for the patents falling under the same technical domain.
However, when we consider a sales of a patent portfolio, then the relevant patent valuation factors are commonized for all the patents in the portfolio leading to development of an upper limit and a lower limit of the value of the patent portfolio. These limits do not change wildly for any patent portfolio matching the recently transacted patent portfolio belonging to the same technological domain and catering the same size and type of market.
3. Income-based Patent Valuation method – The income based method is based on the principle that the value of an asset is intrinsic to the expected income flows it generates.
The income based patent valuation method is relative and prediction based model for evaluating a patent. The projections are discounted on different parameters that shall affect the viability of commercialization of the patented product during a selected time period.
We can understand it through a case scenario of a touch sensitive smartphone related patent portfolio. Suppose, the patent portfolio includes coverage of processor of the smartphone, a memory unit of the smartphone, a display of the smartphone, a range of software applications compatible with the smartphone and a user interface of the smartphone.
Firstly, a previous competitive analysis will be taken into consideration when a game changing mobile phone tech came into picture in the past. Then over a period of time, the market capture done by such technology through the patent owner company is calculated. Further, the discounting of the revenue is assessed over a period of time, wherein the discount comes into the picture due to market dilution through arousal of the competitors in each individual technology covered by individual patents. The final discounted value will act as a benchmark for projections.
Then comes the projection stage – In this stage, a technical evaluation of the patent portfolio is done and a competitor analysis for each technology covered by independent claims of each patent is done i.e. mapping the claims with other patent having similar feature overlapping. Then, chances of arousal of a strong is determined on the basis of the competitor patents and additional researches being done by the owner of such competitor patents. This will lead to the next step of the patent valuation i.e. how the sales of the valued patent portfolio and product covered under them will happen and how to apply a discounting. The benchmark is used for such projections and a quantum of the benchmark can be kept same or increased or decreased depending upon the market size, competitiveness and strength of current patent portfolio.
4. Option-based Patent Valuation method – Differently from the other methods, the option methodology takes into consideration the options and opportunities related to the investment.
Although, not vastly practiced, this can be an additional patent valuation method. The option based patent valuation method takes securities in investment for a buyer into consideration. The securities for a patent right to be applied for excluding other from practicing the patent pending or patented product in the market is calculated through a Black–Scholes–Merton model (a mathematical model for the dynamics of a financial market containing derivative investment instruments).
Why An Inventor/Applicant Should Do Patent Valuation
The patent valuation sheet is a prime document asked by the patent brokers, attorneys and buyers which determines a fair demand value for the patent or the patent portfolio. You can only ask a price which should seem to be calculated on the basis of one or more aforesaid patent valuation methods.
Also, in order to avoid a mischief from either end of the transaction, a patent valuation document is must. A seller should know what is the fair demand price for his or her patent/patent portfolio, so that the buyer shall not indulge into purchasing the patent portfolio by paying a lower value. At the same time, the buyer should know a fair price of the patent portfolio, so that the seller may not end up gaining a massive transaction from a lower valued patent/patent portfolio.
How MuPat™ assists the inventor looking for their patent sales or licensing?
MuPat™ is a free web tool for high probability approximating a value of the patent derived through analysis of more than 100 patent valuations done in different technological domains and jurisdictions. MuPat™ uses a plurality of parameters such as Legal status of patent, No. of countries in which the patent is filed, prototype existence and revenue generated by the patented/patent pending product.
MuPat™ gives a fare idea that what a patent value is and what should be the asking price by the applicant in case of patent sale or licensing. Also, if a company wants to evaluate their patent assets and has to consider the value of their patent/applications in the business valuation/company valuation, then MuPat™ offers them a free and effective solution to do the same.
However, a certified valuation report through an experienced valuation team is advised to be considered to do final trading in terms of patent sales, patent licensing and company valuation or company overtaking/buy-off. To Get Idea of Your Patent Value, Please visit – /patent-value-calculator-free-tool/
How the Patent valuation Tool works?
- The above patent valuation calculation is activated by entering the patent application no. The applicant should enter only patent application no.;
- Enter the legal status of the patent application no. i.e. whether the patent application is granted or pending or lapsed;
- Enter a priority country into which the patent application is first filed;
- Enter the no. of countries in which patent family of the patent application has been filed so far;
- Enter a priority date of the patent application and enter the years left for the patent application i.e. (20-(Current Year-Priority Year));
- Please specify if the prototype of the patent application exist (a working prototype is preferable);
- Whether the product has entered the market and if yes how much revenue it has generated so far;
- Select the technical field of the invention/product from the drop down;
- Finally, choose the no. of independent claims, the patent application has;
On the basis of entered values, the patent valuation calculator shows you an approximate patent value. The approximate number can be justifiable by conducting in depth and detailed patent valuation report through an experienced patent valuation expert. For a verified patent valuation report, a patent value shown by all the above said methods should coincide with each other or should fall within 10% (plus or minus) of the patent valuation shown by each method.