Patent savvy companies recognize the opportunity to exploit the economic power conveyed by the ownership of patents through licensing, litigation, divestiture and acquisition. Company management, stakeholders and investors are taking note – they realize that it is vital to understand the value of the patents it owns and the impact on the company’s net worth. Surprisingly, the practice of valuing patents is often not on the financial sector’s radar let alone being carried out with competence!
There is also an underlying assumption that best efforts are being made to leverage a patented invention and that the economic potential is being exploited. This assumption is not always true, more often companies do not fully exploit the full economic potential of the patents they own. Hence there is a need in determining the economic opportunity represented by potentially underutilized patents.
Patents provide an opportunity to acquire a monopoly of profits generated from innovation. They serve as powerful incentives for companies, research organizations as well as individual inventors to invest resources and patent their discoveries. A patent is a right granted by the government to a person or legal entity such as a corporation. The patent provides the patent owner the “right to exclude” others from making, using or selling the invention/s claimed in the patent for 20 years. As the sole source of the patented invention, owners are granted a time-limited right to exclude competitors from the marketplace. Further, the patented right can be sold for a lump sum or it can be licensed in return for royalty payments.
A patent portfolio bears similarities to a financial fund. A financial fund own assets such as publicly traded stocks:
Valuable patents by definition are patents that provide substantial economic benefit to their owners. Patent value is driven by different criteria: Is the patented technology used in products, is there significant revenue attached to those products, and can the use of the patented technology be detected and proved? The corollary question is equally important for inventors; how can I ensure my patent applications are more valuable? Existing patent tools provide quality and strength metrics that help to some extent. However, missing are accurate analytics that provide a thorough valuation determination.
Patent value and patent quality are used interchangeably and are often confused and misunderstood. It is therefore important to understand the distinction between the two.
A patent draws its value from a section referred to as the claims. Invariably the claims are the most important part of a patent and their analysis is an absolute requirement for determining value, they define the literal boundary of the patent owner’s right to exclude.
The Pelent Patent Rating system is a quantitative system that measures a) the probability that a patent is used in products, b) the revenue attributed to those products, and c) the extent that the patented technology be detected. The system analyzes and rates each patent using a scale from A through D. A-rated patents represent patents with the highest economic value, B-rated patents have medium value, C-rated patents have low value and D-rated patents are unlikely to have value.
Patent ratings provide critical insight for a given portfolio. Results are available in a raw data format or compiled into Portfolio Analysis Report. The raw data format is useful for patent specialists, the Portfolio Analysis Report is suited for financial analysts, portfolio managers and company stakeholders. The report provides a snapshot of a portfolio’s status and includes:
Patent ratings are a prerequisite for valuation. The market approach is the most direct method for portfolio valuations. The approach relies in part on the efficiency of the market to properly value the patents. Market pricing is derived from recently brokered patents because they represent the majority of the public market for patents. The current market price combined with Patent Ratings provides a Fair Market Value Equivalent for a portfolio. The valuation should be recompiled on a regular basis to monitor change in value over time. The change in value can then be used to measure the effectiveness of a company’s investment in it portfolio development.
The Claim Analyzer, Patent Ratings, Portfolio Analysis and Portfolio Valuation provide an integrated suite of services for patent professionals and portfolio managers. Portfolio owners and managers can consistently identify, create and fully exploit valuable patents and patent portfolios. Clients work smarter and faster, results are data driven and accurate. Whether your goal requires portfolio valuation, discovering companies with valuable patents, or determining the likelihood that a portfolio can be successfully licensed or litigated – we provide unrivaled insights.