Patent Value

The economic value of a good is a measure of the importance of such an economic object (e.g. goods, services, enterprises) to the economy. Economic value is an important concept in economics. It is used, for example, to analyse markets, to evaluate companies and to measure economic performance.

Patent value refers to the economic value of a patent. The value of a patent is the future economic benefit that accrues from its use. The value of the patent comes from the use of the patent. A distinction is made between different values, depending on the type of use:

It is important to distinguish the value of the patent from the value of the protected invention. The invention is a solution to a technical problem by technical means. This solution exists even without the patent. The value of the patent corresponds to the value contribution resulting from the fact that the inventive solution has an exclusivity position on the basis of the patent.

There are basically monetary and non-monetary valuation approaches. Monetary valuation approaches use monetary comparisons and the result is a monetary value for the patent. In the case of non-monetary valuation approaches, qualitative-strategic comparisons are made and a qualitative assessment is obtained.

The three monetary valuation methods are based on three different comparative approaches:

The cost approach to patent valuation is based on the assumption that the value of a patent is determined by the cost that would be incurred to acquire or develop a similar patent. This means that in the case of the cost approach, the economic comparison to determine the patent value is based on the effort that the patent has or would have caused when it was acquired or created.

These costs include:

With available data, the cost method is relatively easy to apply and is particularly suitable for the valuation of patents in early stages of development or in the absence of market data. This also applies to incremental developments in established industries and industrial value chains.

However, it is important to note that high costs incurred cannot necessarily be equated with the economic value of the patent. Likewise, low costs, e.g. in the case of random inventions, cannot be directly equated with a low economic value. The cost approach can be justified in particular by the fact that patents for large economic areas tend to be more expensive than those for less significant economic areas.

The earned value approach in patent valuation measures the potential return that can accrue from a patent. When evaluating patents, it is important to take into account that it is the income from the patent protection that is determined and not that of the invention itself. In revenue-based methods, the net present value of the patent is calculated based on the estimated future return. This means that in the income value approach, the economic comparison to determine the patent value is based on the consideration of similar risks in the calculation interest rate of the discount.

The steps to carry out the earned value approach are usually as follows:

It is important to note that this method is inherently subject to uncertainty, as it is based on forecasts of future revenue. Uncertain and long-term expected cash flows and the discount rate must be estimated.

In the case of market-based methods, the valuation is based on the prices obtained in comparable transactions of comparable patents in recent times. These methods presuppose an active market, a comparable exchange of intellectual property between two independent parties and sufficient access to information on the prices of transactions.

An active market is a market characterized by high trading activity and liquidity. Further characteristics of an active market are:

This means that a market approach to patent valuation is justified only in exceptional cases, as no price formation can usually be observed in an active market. Nevertheless, in special cases, for example patents for interoperability standards (MP3, CD-ROM, DVD, UMTS, 5G, WiFi, etc.), there are quite observable price offers and negotiation results. However, these are individual negotiations with very little market transparency. In each individual case, therefore, the observable market result must be adjusted as a basis for comparison for the patent to be evaluated.

Qualitative strategic assessment methods include:

There are several reasons why patents are valued:

The preferred or customary valuation methods also depend on these valuation occasions. Patent valuation is a complex process that involves taking into account various factors such as technical influences, legal influences, and economic influences. Therefore, it is advisable to involve an experienced IP valuation expert in order to determine the value of patents as accurately as possible and to minimize possible valuation risks.

In academia and practice, a variety of quantitative and qualitative indicators are discussed that can be used to evaluate a patent.

Such indicators are usually used for statistical analysis of large patent portfolios and it has been scientifically shown that a combination of such indicators has a statistically valid statement or explanatory power for patent values.

Since patent valuation is a complex process that requires technical, legal and economic expertise, mistakes can be made that can significantly influence the result and make it meaningless. The nature of the errors is diverse and, depending on the evaluation procedure, there can also be several and mutually influencing errors. In particular, various mistakes can be made in patent valuation:

This incomplete list makes it clear how complex a patent valuation is in practice. Therefore, it is recommended to work with an IP expert specializing in IP assessment and seek advice.