How to do a Patent Valuation
Evaluating intellectual property in general and patents in particular is difficult and imprecise. One of the first questions you should consider is this: do you wish to place a value on a “naked” patent, or on a patent that is part of a technology and business package. In most cases a potential buyer would have more interest in a package, than in just a stand-alone patent.
Most evaluation methods are based combinations of the following:
- development cost – This may be useful for internal bookkeeping or tax purposes, but usually irrelevant to potential buyers.
- business value to current owner – If the patent gives a quantifiable advantage to the current owner, such as the patent blocks competition or increases the cost to the competition, then traditional accounting methods may be used to estimate value to the current owner.
- business value to potential customer – What can the potential customer do with this patent that they can not do without this patent? Traditional accounting methods may help, but the seller normally does not have access to the potential customer’s information.
You also need to speculate on the cost of developing technology or business strategy that by-passes the patent claims. Additionally, you need to obtain legal opinions on the “strength of the patent”, i.e. the likelihood of the patentee prevailing in an infringement suit (even though there may currently be no infringement).
As with most things, the only way to determine what something is worth is to actually sell it.
There are books available on the subject. If this is important to you, read several, and hire a consultant that specializes in technology transfer. (By Richard Tanzer)
Most evaluation methods are based combinations of the following:
- development cost – This may be useful for internal bookkeeping or tax purposes, but usually irrelevant to potential buyers.
- business value to current owner – If the patent gives a quantifiable advantage to the current owner, such as the patent blocks competition or increases the cost to the competition, then traditional accounting methods may be used to estimate value to the current owner.
- business value to potential customer – What can the potential customer do with this patent that they can not do without this patent? Traditional accounting methods may help, but the seller normally does not have access to the potential customer’s information.
You also need to speculate on the cost of developing technology or business strategy that by-passes the patent claims. Additionally, you need to obtain legal opinions on the “strength of the patent”, i.e. the likelihood of the patentee prevailing in an infringement suit (even though there may currently be no infringement).
As with most things, the only way to determine what something is worth is to actually sell it.
There are books available on the subject. If this is important to you, read several, and hire a consultant that specializes in technology transfer. (By Richard Tanzer)
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