Valuing a patent is a multidisciplinary endeavor that incorporates legal, economic, and technical perspectives. Receiving full value on a patent is an important step for many companies and inventors who may not understand all that goes into the process.
Valuating a patent goes beyond the technical specifications of the IP at hand, but it goes without saying that the underlying quality of an invention is a good place to start. Additionally, market demand, the competitive landscape, and the current patent’s legal status all play a role. These elements combine to establish a patent’s potential in the marketplace. This can include any patent portfolio building opportunities or downstream revenue potential. Finally, the total value of all these components can be impacted by the patentee’s ability to bring the patent to market. Fair or not, a patent’s value fluctuates based on who holds it.
The Basics of Patent Valuation
At its core, a patent’s value is derived from the exclusive rights to deploy a technology it provides to its owner and the legal scope of its language. While they are not the same, exclusive rights can impact scope and vice versa. The claims to exclusivity define the scope of the invention, which is essentially the boundary of the patent owner’s right to exclude anything or anyone falling within claim parameters. The stronger the monopoly over technology, the more leverage a company has to control its application and availability, and therefore its value. However, scope also plays a role with highly exclusive technology that can work against financial interest. A poorly defined scope can make it difficult for potential licensees to apply your technology to their own or to solve novel problems, thus limiting its downstream revenue-generating potential.
Exclusivity and Scope
This delicate balance is why it is important to bring all of the legal implications of a patent into focus in determining its value. The relationship between exclusivity and scope doesn’t always linear. More exclusivity does not always mean a smaller scope and a stronger, more complete monopoly. Licensing opportunities and downstream applications may or may not be impacted by judgments of exclusivity.
This places the wording of a patent in a very important position in determining its value because puts the weight of the law behind them. This can be seen in this year’s Amgen v. Sanofi Supreme Court case which resulted in Amgen’s biotechnology patent being reduced in scope absent precise enablement language in the original patent.
Examples and Applications
The context here powerfully illustrates the importance of thorough patent claims and the complexity that assessing its value can take on. Sanofi argues that patented drugs by Amgen may be similar but not the same, despite their acting similarly in the body. But the issue at hand isn’t that Amgen’s drug doesn’t work on the same physiological receptors. Rather, it does in a way that cannot be produced by the enablement language in the original patent. If enablement leaves out some of the endpoints the original design can reach, there is unprotected white space another inventor can use to achieve similar outcomes.
So, to determine the value of a patent takes a complete view of the IP landscape within an industry or intellectual domain to determine how exclusive the patent really is beyond just the novelty of the design at its core.
Ultimately, a patent isn’t simply valuable for its ability to maintain a monopoly. In an increasingly technologically-driven world, one where standards for technology rise and fall with the growth and collapse of single industries and even companies, a patent is valuable based on how well it can integrate into the existing commercial order. This is why a patent’s place in a portfolio can dictate its true value. Revenue streams can be developed based on the IP’s application, whether it adds to or build on the previous IP or creates its own industry other inventors will build around.
A good example is a period of progress known to many engineers and inventors: the advent and adoption of electricity. Tesla’s AC current, discovered over a century ago, is still considered superior today. But, as the story goes, it was not considered superior by its original core market. Thomas Edison’s DC current was ultimately chosen between the two because the Edison Electric Light Company succeeded in promoting the current’s widespread use. While it can be argued that Tesla had higher-quality IP, its value was virtually zero in the eyes of the marketplace because it could not fit into the electrical infrastructure rapidly being built. In the US, Edison’s DC current is still the standard today.