If you only have time to skim this article, look for the TL;DR (too long; didn’t read) at the bottom.
Assessing a patent’s value is a challenging problem that every business (and patent attorney, for that matter) answers in its own way. In general, the value of a patent is based on how much of the market is exclusively captured by the patent. Below I have outlined a quick-and-dirty method for putting a dollar value on your patent. One thing to keep in mind as you valuate your patent is, at the end of the day, the value of anything is the meeting of minds between buyer and seller. So, while this method can give you a reference point for your patent’s market value, make sure to check it against your own trusty instincts.
1) Analyze the market
You are already evaluating the market. So, instead of me being the lawyer who tells you, the business experts, how to do business things (that’s why people hate lawyers!), I’ll simply leave it at this: at the very most, your patent is worth the total value of the market for your goods, services, etc. In other words, if you could completely box out all competition and garner all sales, you will have realized the maximum potential value of your patent.
2) Determine the status of the patent
The next step is to determine the status of your patent. By status, I mean one of the following: not yet filed; pending; issued; or abandoned. If your application is abandoned, the value of the patent is bupkis. So, don’t abandon your application! If your application is not yet filed, I’m going to say the value is also nada. If a competitor files before you and is granted a patent for a similar product, technology, etc., the portion of the market you can capture is reduced, and you may be prevented from entering the market altogether. Adhere to this mantra: Be the best, file before the rest. If you’ve done this and have a pending or issued patent, the value is assessed at the next step.
3) Evaluate the “real estate” your patent covers
A patent is very similar to a deed to real estate. The value depends on a) where the property is located, and b) how much of it you have. We have already addressed the location aspect, i.e. the market opportunity. Next is to evaluate the breadth of your patent, i.e. how much intellectual real estate you have. In general, a patent is more valuable if it describes the invention in great detail and captures as many design-arounds as conceivably possible.
For an issued patent, breadth is determined by what is stated in the “Claims” section of your patent. Your patent can only be asserted against a competitor that infringes every element of at least one of your claims. Based on the breadth of your claims, you can determine roughly what percentage of the market you could expect to capture. This could include blocking potential competitors, having the corner of the market on a superior product, and so forth.
Right about now you’re probably thinking, “Wait, if one little thing about my competitor’s product is different, I can’t assert my patent?” If you didn’t have a savvy patent drafter write broad claims for you, that may be true. But all hope is not lost! If your patent was issued within the past two years, you may be able to broaden your claims through a reissue application. In general, a reissue application may be pursued to amend claims to target a competitor. But, claims can only be broadened within the first two years after the patent is issued. There are risks associated with this strategy that should be taken into account when valuing the patent. That said, you can determine roughly what percentage of the market you could expect to capture based on the full disclosure of your patent application (i.e. the title, specification, drawings, and abstract), discounted by the risk associated with pursuing a reissue and by the risk that what you want to capture is somehow unpatentable.
For a patent that is pending, the coverage is still based on the claims - provided those claims are allowed and the patent issues. Thus, the value of the coverage should be discounted by the risk the claims will have to be narrowed to be allowed. Additionally, because the application is pending, you have more flexibility to target your competitors. This can be done either by targeting the claims of the currently pending application or by filing a continuation application with new claims targeting your competitor. Indeed, many companies follow a strategy of keeping patent applications “alive” by filing continuation applications after a set of claims are allowed. In such a case, the value of the patent is based on the entire disclosure of the patent application, discounted by the risk that at least some of what you want to capture is unpatentable.
A lot of the valuation technique described above relies on a carefully-executed patenting strategy. Thus, it is important to seek the advice of an experienced and pragmatic professional to help you evaluate the risks associated with the strategy (wink-wink, that was my soft pitch). But with a carefully planned strategy, you can accurately assess the value of your patent portfolio or the value of pursuing a patent! And, as always, if you want to discuss more, let’s grab lunch!
TL;DR: Analyze the dollar value of the entire market. Determine the status of your patent. Evaluate how much of the market you can block out with your patent. If your patent is issued, you block out what is in the claims. If your patent issued within the past two years, you may be able to cover a broader portion of the market and/or target competitors. If your patent is still alive, you have more flexibility in what you can block out but need to account for the risk you may need to narrow your claims to get your patent granted. The total value of your patent is based on what percentage of the market you can capture exclusively.
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