In today’s business world Innovation is the key to success, to grow and remain competitive in the market innovation is most important means. The only way to stay ahead of others is by protecting innovation and prevent others from using your efforts. Most effective way to keep innovative ideas safe from others for a period of time is Patenting. Since Intellectual Property Rights (IPR’s) are assets for any organization or individual, it is important to know its value.
To better understand the value of intellectual property, let’s have a look at some cases involving big market players.
- Kodak, a company once a market leader and inventor of the digital camera, sold its strong portfolio of more than 1,100 patents related to digital photography to big companies like Apple, Microsoft, Google for USD 525 million.
- Google in a bid to protect its leading mobile operating system Android from rivals have bought Motorola Mobility with its 17,000 patents for USD 12.5 billion, later Google sold Motorola Mobility to Lenovo.
- AOL sold about 800 patents to Microsoft for more than USD 1 billion, Microsoft later sold about 70% of patents it acquired from AOL to Facebook for USD 550 million in an all cash deal.
These deals and Researches have shown that Intangible assets including intellectual assets are a large percentage of any company’s market capitalization. From this we can understand how important it is to protect your innovative ideas and know its market value.
It is very difficult to derive a definitive value of a patent, there are a lot of complexity and uncertainties associated with the patent. Below are the few general factors that are considered while evaluating a patent or we can say can affect the market value of a patent.
Patent life: Investors are most interested in patents which are proved valid during litigation or passed the period in which it was most likely to be challenged for its validity. Patents with very few years of protection left are of least interest to investors. In general, 8 to 12 years old patents are valued most.
Commercialization Status: If a technology is in very early commercialization stage it may have a lower licensing value because of the risk associated with the technology never being brought in to the market.
Licensing revenue: An important factor is anticipated licensing revenue that can be generated. As a result of licensing the patent net present value of royalties is calculated and is considered for valuation.
The size of the Market: The commercial value of a patent is directly proportional to the market size and the nature of the market for the product. A technology that can contribute to products with the big market appeal is valued higher than those that support a niche product.
End Product Sale: Patents are of high value if they have a potential to cause consumers to buy more products or newer version of the product. For example, with the introduction of new processors or software’s, consumers willingly retire their old machines to have a newer one with great processing power and can support new software’s. Patents are valued more dearly when a patent feature is a primary factor in demand for the product. A technology that can generate sales in new markets is valued high.
Add on sales: A technology that has the potential of generating add-on sale of products associated with technology, for example a patent that improves the functionality if skate board could also enhance the sales of safety gears. In such cases licensor seeks higher licensing fees from licensee.
Law Firm: A patent drafted by experts from a law firm have higher chances of successfully sustain invalidity challenge. A well-drafted patent, drafted by the well-known law firm are valued higher.
Patent examiner: When a patent is examined and granted by a patent examiner having an impressive record of granting patents that successfully sustained invalidity challenge are valued higher.
In today’s scenario, new inventions and innovations are very important to keep a company on top. Patent valuation is a very critical task as it directly affects the company market capitalization.