The Great Patent Myth. What Is A Patent Really Worth?
I once worked with a small business where they had spent $1m on patent filings for a particular invention. The business pivoted away from the invention but it was assumed that there would be 5X return on cost spend through sale or licensing of the patents.
Sadly there was no value in the patents.
Another inventor once confidently told me that his patent would be worth at least £1m if he decided to sell it!
In both cases there were no buyers for the patents, so the assumed market value at that point in time was £0 $0 €0.
The Great Patent Myth 1
The Great Patent Myth 1 says that just having a registered patent means that there is some actual $ dollar value in the patent. Broadly speaking there is not.
Patent Brokerage
I have been engaged in patent brokerage for 15 years and in that time, I have been involved in selling patents for many multi millions of dollars.
There are many millions of patents however and I can now confidently reveal to you that at any one point in time the market value of any one particular patent is highly likely to be a big fat £0 or zero.
The Great Patent Myth 2
The Great Patent Myth 2 says that just having a registered patent gives you the ability to prevent others from practicing your invention.
In theory it does but in actuality it is very difficult to successfully enforce your patent against an infringer.
Why?
- your patent’s validity will be severely tested
- you have to prove infringement
- you need deep pockets and plenty of time to deal with the lawyers, courts and strategies deployed
The first two points sound easy to achieve, however you need to convince the judge and possibly jury of these facts.
Patents Under Attack
Patent validity challenges in the US may involve the very authority that granted you the patent in the first place (USPTO) re-evaluating your patent.
In a highly bizarre turn of events these challenges are resulting in patents being knocked out 70% of the time! Yes, you read that right, and that it is why I use used the word bizarre.
So What Is Patent ROI?
Patent ROI (return on investment) can actually be considerable and there is a huge difference between market value at any one point in time and value delivered to the company.
Patenting is a valid and valuable activity for many companies and inventions; however given the above, it is very important to go into patenting with your eyes very wide open.
Clear Patenting Objectives
You need to have very clear objectives for each patent that you file, there is no point anymore in patenting for the sake of getting a patent:
Freedom to operate; Blocking patents; Inventing around other patents; Impressing investors / stakeholders; Rewarding inventors; Licensing opportunities; Negotiating with partners; Innovation incentives; Standards
Patent Valuation
There are two main approaches to patent valuation quantitative and qualitative.
Qualitative methods look at the benefits the patent provides to the business such as freedom to operate, blocking competitors, kudos, investor interest, and inventor culture.
Quantitative methods include these broad approaches cost: i.) Cost of creation including R&D and patenting costs and / or cost of replacement or the cost to develop a substitute, ii.) Market price what might be paid for comparable assets; iii.) Discounted cash flow (DCF) applied to directly attributed profits; iv.) Relief from royalty, what might you have to pay to in license such patents, with DCF applied (requires good comparable data).
Patents Are Still Very Important
Patents are still very important for the reasons outlined above but they are certainly not as powerful as they were 15 years ago. It is important in many cases the file the right patents for your objectives, but also to support those patents with contracts, and other forms of IP such as trade secrets, brands, designs and copyright.
Indeed a blended approach to protection is now required in the current environment.
I am John Pryor, making IP accessible and valuable for your business.
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I am a strategy consultant focussed on intellectual property and dedicated to helping people and business to make the best use of all available IP to compete and win in the marketplace.
My aim is to increase people’s understanding of Intellectual Property, so that they can successfully and cost effectively use it in their business, to help achieve a higher valuation.
Book: The Innovation Handbook, 2nd Edition 2010. chapter: How to maximize the value of your intellectual property.
ABOUT MY YOUTUBE VIDEOS: In these videos I explain some of the most important aspects of intellectual property in ways that make it relevant and accessible to business people.
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