Patent Valuation Opportunities Practice Area

Four Kinds of Patent Value  May 20, 2008 – 01:55 am
book on Patent Valuation:

Patents create value for their owners in a variety of different ways. One of the biggest problems with nearly all patent valuation techniques is a failure to be explicit about what kind of value they are attempting to measure. It is essential to have an accurate model of value types in order to identify the source of the information that is needed, and also to formulate the correct approach for interpreting that information.

The Four Kinds of Patent Value

Patents basically allow the rights holder to pursue legal measures to prevent others from practicing the subject matter. This is the reason why many people are quick to point out that patents are only valuable in the way that they act as a blocking mechanism, and this is certainly true. However, although it is very important, it is not accurate to say that the value of a patent is purely a function of its enforceability. In practice, there are different ways to use patents to create value, and people are getting more creative about it all the time.

I group the major ways patents create private economic value into four dimensions.

  1. Practicing

    The first and most obvious method for realizing economic value from patents is by producing and selling products which embody the patent. This is what is known as “practicing” the patent. Value derives from the producer’s ability to exclude competitors and therefore earn monopoly profits. In practice, this type of value is virtually impossible to measure directly particularly because it is nearly impossible to determine exactly how much value is attributable to the patent’s exclusionary rights versus all other factors such as superior design, branding, timing, market power, other intellectual property, and existing manufacturing efficiencies. Another problem is that the value that a company may ascribe to a patent in this context will not normally be the same as the price at which the patent would transact in the market.

Source: Ideanomics

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A few thoughts

I'm not sure I understand exactly what you're contemplating, but you might find this useful or interesting:
1. People have understood the importance of IP (and patents, specifically) to a company's bottom line for a while. Perhaps the most stark example of this is an investment bank called OceanTomo. Among other IP-centric things, they have a few index funds based on patents. See for an ex... it, but it doesn't really do you any good.
But the guys putting together the portfolio were smart guys, to be sure. They were a bunch of zillionaire Wall Street types with a few fancy patent attorneys thrown in. Although I don't necessarily hold that crowd in high esteem, these guys were smart. So either they're bonkers or I am. And that's enough for me to say that valuation is tricky. :)

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John Wiley & Sons Patent Valuation: Improving Decision Making Through Analysis (Wiley Finance (Hardcover) #571) [ PATENT VALUATION: IMPROVING DECISION MAKING THROUGH ANALYSIS (WILEY FINANCE (HARDCOVER) #571) BY Murphy, William J ( Author ) May-08-2012
Book (John Wiley & Sons)

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