A More Practical Approach for Patent Valuation

by | Mar 28, 2019 | Insights | 0 comments

The process by which one can calculate the actual market value of the patent

Intellectual Property is simply defined as Creations of Mind. Any creation of mind or more precisely ‘an Idea’ that can contribute to the mankind in any form is appreciable. Although, the inception of an idea takes years of hard work and research, copying an idea is not that difficult. Thus, the protection or entitlement of that Idea is also very important to encourage the pioneers. Patent is an exclusive right that is given to the inventors to protect their creations of mind i.e. innovation. Patent, a true significant of intellectual property, is also a potential way to earn monetary benefits by trading the exclusive rights that are given to the patent. Earning a good amount of money and generate a true revenue from patent is in itself an art. However, a question still haunts everyone! What is the worth of Intellectual Property? From the past experiences, we have seen that the Intellectual Property can be worth billions, millions, thousands or even nothing at all.

The answer to this is Patent Valuation!

Patent Valuation is the process by which one can calculate the actual market value of the patent.  If a person wants to trade in patents (Buy, Sell, License) then it is necessary for that person to know the true market or trading value of that intellectual asset. While the regulatory agencies have defined laws related to Patent Prosecution, no law defines the criteria of Patent Valuation. Different entities use different methods to evaluate the market worth of patent and the industry has forever been sceptical about their results. The process of patent valuation consists of selecting some specified parameters or characteristics, upon which the patent is judged to generate its true market value. These parameters play a vital role in the patent valuation process. Hence, selecting the right parameters is a key process for patent valuation. These parameters not only make the valuation process more clear but also help in finding out the best market value for the patent. Comparing an idea or intellectual work with money is not intuitive. That’s why process of patent valuation and feature extraction demands a certain level of expertise in the field to get better results.

Now it is apparent that valuation process is crucial for patent business and to generate money from one’s intellectual property. As discussed above, the whole process of valuation revolves around the parameter or feature selection and since the industry was still not contented with the traditional approaches. Hence, we at Sagacious put our best minds to work so as to find out a more practical approach for patent valuation which is more comprehensive, market compliant and robust. In this process, we reviewed several approaches that are currently being used for valuation so that the whole process becomes more transparent and also provide the better results than before. All these efforts of countless hours resulted into a new and revolutionary technique termed ‘Hybrid Approach for Patent Valuation’. The results were highly accurate and the clientele applauded the approach.

Before we go into the details of what ‘Hybrid Approach for Patent Valuation is, let’s see how a general Market Evaluation Method is used for patent valuation. The traditional method involves calculating a Net Present value (NPV) of a patent which accounts for the overall profits made by an entity using patented technology in a particular market. The parameters upon which the valuation is based include Market Size and Market Share of said technology, Annual Turnover generated by patented technology based on the given market size and share, Absolute Profit after applying all Tax and DutiesDiscount Factor which is based upon the risk assessment of the patent, Product factor which factor implies how important the subject technology is to the overall product. After processing the patented technology upon above key features, a Net NPV is calculated and corresponding Licensing fees or Market Value is given. Although, this is a good approach but it was felt that it only gives an idea about the baseline, not the actual contributions of the patent. What if the patented technology is part of a broader domain in which the broader domain is flourishing but the patented technology is obsolete? The above approach would show a significant value of the patented technology whereas in reality the technology might be worthless. There might be a case that the patented technology is in itself is revolutionary; however it requires significant changes in current products worldwide to make it publically available. Even in such cases, the industry might not adopt the patented technology.

We at Sagacious identified 25 such indicators which hugely influence the market value and introduced these as Intellectual Property Evaluation. Each indicator has some scoring criteria such that all scores are clubbed together to get a final score. This final score helps to get an Intellectual Property Factor. Then the Intellectual Property Factor multiplied with previous result of Market Evaluation Method is used to arrive at a more practical value for patent licensing.  

After analyzing this new approach of patent valuation, it is apparent that, the consideration of Intellectual Property Evaluation Parameters is crucial for getting an accurate market licensing value for the intellectual work. The combination of both approaches gives a more practical result than before. Intellectual Property Evaluation Factor method will give you an upper hand in the valuation process; this will not only provide a right market value to the intellectual properties but also make the whole process more clear for the trading parities. 

Read more about Patent Valuation in our exclusive report. 

And the best and most important thing is – The Clients are Happy and Appreciable for the effort. It’s all that matters!!!

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