How do you estimate the economic value of a patent? In collaboration with accounting and consultancy firm Baker Tilly, V.O. has developed a model that arrives at an estimation based on various factors. The model offers an alternative to the more extensive investigations that are often used to determine a patent’s value. In this way an estimate can be made relatively quickly and at lower cost.
Why estimate the value of a patent?
Companies can find the value of their patent or patent portfolio interesting for a variety of reasons. For example, if they want to sell a patent or use it as collateral for a loan, or to be able to make a numerical estimate of whether it makes sense to pursue a patent application. For properly substantiated portfolio management, insight into the value of patents can therefore be very useful. Furthermore, it is also important for a curator to know the value of a patent in the event of a company's bankruptcy.
Quick and cost-efficient
The value of a patent is determined by many factors. Think of operational factors, such as the cost structure required to market the patent and the profit to be made. But there are also legal risk factors — the risk that the patent will be declared invalid or will not be granted. There are also other key aspects, such as the scope of protection, for example: To what extent does the patent actually prevent your competitors from performing activities that you also perform? These factors, and many more, collectively determine the value of a patent. By quantifying all the relevant factors and then combining them, one can ultimately arrive at a well-founded estimate of the value.
In classic patent valuation models, the emphasis is strongly on the prediction of the cash flows and the risk profile of the entire enterprise. The existing models are therefore mainly suitable for patents that have already been granted and are already producing cash flows. Only limited attention is given in the classic models to the legal aspects of the patent. In contrast, the model developed by Baker Tilly and V.O. also considers such less tangible aspects in addition to concrete financial considerations, including the risk factors associated with the aforementioned (in)validity and scope of protection.
Targeted questionnaires are used to work towards a total overview of all relevant legal and financial factors. Each factor is assigned a certain score on the basis of which an overall estimate of the value of the patent can be made. Furthermore, the value assessment can look at entire patent families at once, or at individual patents. The model also works for patents that have not yet been granted, i.e. which are still in the application phase. The most efficient approach is determined per case in consultation with the client. Cases of greater complexity require more custom work.