Give me 5 minutes and I will tell you how to assess value of a patent set quickly
Imagine you’re in a meeting or making a presentation to a prospect/client, or are in an important meeting with your boss and other senior executives, and all of sudden, you’re asked a question that is strategic in nature, and you aren’t prepared to answer the question.
And if you are at a leadership position like heading the patent department of your company or managing a patent portfolio, or on a senior position of an R&D department, at some point, you might have been asked a question like — What value does this patent/patent portfolio hold, and expected to revert in short time— sometimes right away.
There comes a time when a patent holder or a technology leader asks this question. The reasons for asking this question could be multiple.
- An executive would use the information to raise funding or get a loan.
- The CEO may like to evaluate how much money patent licensing could fetch.
- An organization that wants to stay competitive in the market would like to know how much it has to pay to seek a license.
- Patent value is an important factor to consider in M&A, dissolution, bankruptcy, and infringement analysis.
Today, we plan to discuss a simple yet sophisticated technique to quickly analyze the value of a patent portfolio or a set of patents. The technique can help you in any of the situations described above.
Before we move ahead, I would like to clarify that the parameters we are about to discuss come handy for a preliminary level analysis. It can help you make Fermi estimates or back-of-the-envelope-calculation regarding the value of a patent.
Give a score to patents based on the following parameters:
1. How much time is left for the patent to expire (Remaining life)
Are you planning to sell/license the patent? Do check the remaining life of the patent before putting in efforts to evaluate the value. Generally, if the patent is due to get expired in less than 2-3 years, it is considered to have low value.
Now as I take you through the parameters and their scoring, I think the best way to understand would be going through a live example simultaneously, where I will exemplify the process by giving a score for a set of 4 patents –
In the example, score 1 is given to patents with more than 3 years of remaining life (except US’147) and score 0 to expired patent. For US’147, score 0.5 is given since it seems to be a recently filed patent and generally the market for the patent is low in initial years.
2. Are products from other companies in the market using your technology?
For the US, Patent infringement occurs when someone makes, uses, sells, offers to sell, or imports into the U.S. a patented invention without the patent owner’s permission. So, if you think you have a good patent, try to figure out who else might be using the technology covered in the patent. It is not about how much you are using but if anybody in the market is using. If you are able to identify a product in the market, make sure the potentially infringing products also have a good market in the US. Let’s say if the product has a good market in China, but it is currently not sold in the US, it couldn’t lead to direct infringement for a US patent. Therefore, it may not contribute much towards the value of the patent. Try to figure out if there is a product using your technology in the same country.
For each of the 4 patents in consideration, the market value in the US is evaluated based on known or popular products in the market in the same domain.
A quick look at the claims of US’206 and US’147 indicate they are relevant to Amazon Fire TV stick and smart bands respectively, in the US market. For others, the claim seems quite limiting or complicated and it would be difficult to show overlap, hence a 0 score.
3. Legal Status of a Patent
Keeping a track of the legal status of a patent is a must before getting involved in any kind of monetization activity. The pointers to check are:
- Confirm that the patent is alive
- The maintenance fees cycle is on track
- Assignment data – who is the original assignee and current assignee of the patent
Continuing with the exemplary set of 4 patents, the patent with 0 remaining life is given score 0, as shown below.
4. How many companies are evolving on your technology?
A patent with a high number of forward citations can be considered more valuable than the other patents in the same portfolio. Similarly, a patent with a lot of backward citations can be less valuable. You can easily identify the forward and backward citations by opening the patent in Google patents.
However, while doing citation analysis, do consider the age of a patent. A decade-old patent will have more forward citation than a 3-year-old patent. So while considering this data, make sure you are looking at it rationally. Well, any of these parameters are not foolproof, but we assure you that if you have to quickly assess the value of the patent these are the first one to go for.
In the example, score 1 is given to patents with high forward citations per year and 0.5 is given to US’147 as it is a recent patent and rate of citations may rise in the future.
5. Litigation Potential
Try to have a look at other patents surrounding your patent and check if any of it was litigated in the past, bought or sold in the past. If you have any such patent surrounding your patent (like in first level or second level citations), there are high chances that your patent may also be valuable. If you are able to identify such a patent, you may also have to consider evaluating how close is your technology to this patent. The closer it is, the higher the chances of your patent to be valuable.
A quick look at the patents surrounding the 4 patents under considerations indicated that US’206 and US’255 have citations bought or sold in the past. Hence, a high score is given to them.
Output of this study –
Summing up the scores show that US’206 and US’255 are the highest scored patents. This indicates these patents have a higher value as compared to others in the set. In fact, if we look up US’206 in the litigation database, it shows that Canon (assignee) has litigated against 2 companies using this patent. Hence, the assessment of the patents, based on the parameters discussed has been verified.
A friendly warning: What we are suggesting above is a quick fix. Confirming the infringement definitely requires a detailed analysis so if the decision that you are planning to take has a risk associated with it, do involve some professional help (like us :)).
For a deeper analysis, more parameters are considered along with the ones described above. However, the parameters mentioned in this short DIY guide can definitely come handy in the following scenarios:
- Building Credibility During Prospecting: You are an inventor or a small company and looking to sell your patents. When you go into the market, most of the people will ask you – “Why is your patent valuable?”. In such situations, sharing how much effort went into research is rarely helpful. In such situations, the above parameters will prove to be super useful in convincing the other party.
- Answering Queries During Higher Level Meetings: You are managing a large patent portfolio and in a high-level meeting, your senior asks you – “Can you quickly let me know which patents are good candidates to sell/license among this set?”
- Prioritization When Running Short of Time: You are a patent manager and your company wants to purchase or get a license for patents. You have multiple patent portfolios to consider and the meeting with your higher up is around the corner. So, you quickly want to ascertain which portfolio you should pick and analyze first.
- Quick Portfolio Valuation: This technique would also come handy when you have a portfolio of patents (say a set of 30 patents) and want to pick few patents which would have the maximum value.
- When Valuation isn’t Your Core Strength: Is patent valuation a daunting task for you as it isn’t your biggest strength? Fret not, these parameters can help you win the day.
Rome wasn’t built in a day. Every great thing takes its own time. Similarly, assessing the value of a patent or patent portfolio quickly isn’t an easy feat. It will take some time.
Initially, you won’t be too quick to analyze. However, with the passage of time, you will build speed and accuracy. Let time takes it time.
Meanwhile, here are DIY Resources on patent monetization liked by Other Patent Professionals:
- Strategic Acquisition: How Patent Due Diligence Can Help You In Acquisitions?
- List – 23 Marketplaces Where You Can Buy And Sell Patents
- A 3-Step Approach To Determine Infringement Of Your Patents In The Marketplace
- A 4-Step Process To License Your Patent Portfolio
- 18 Patent Monetization Strategies Everyone Should Know
Authored By: Vincy Khandpur, Team Lead, Patent Infringement