By William Fowlkes, IP.com, Vice President, Analytics and Workflow Solutions
“How do you determine what a patent is worth?”
This is a common question among patent owners and is not easy to address. The truth is, there is no simple answer. What is the best approach to patent valuation? Patent brokers have put a lot of thought into this question and while there is no perfect answer, it is commonly recognized that certain events in a patent’s lifecycle can be tied to value.
Here is a simple model* that reflects actual buying activity seen by brokers in the U.S. and worldwide.
Of course, every patent is unique, and the transfer value of a patent depends on the needs and resources of the buyer and seller. But if we step back and consider the average value of collections of patents with the indicated qualities, this model might be useful for predicting value. We just need to place the patents in the appropriate A – G categories (G is top of the triangle – Industry-standard).
IP.com’s Insight Reports provide the means for correlating collections of patents to this model. The Patent Value Report provides Patent Factor Indexes (PFIs) to score an individual patent. The Portfolio Intelligence Report calculates the Patent Insight Indexes for a collection of patents. Each individual Patent Insight Index provides a more in-depth view into the quality of the patent. The factors each focus on a specific characteristic of the patent and enable a quantitative comparison of the patent to the peer group.
IP.com’s proprietary, cognitive retrieval engine uses the text found in the abstract and claims of the defined Patent of Interest (POI) to perform a concept search, which identifies the 100 most comparable patents to the POI. These patents comprise the peer group.
Previous work has shown that if we calculate the average of all 14 PFIs for each patent in a random sample of all US patents, we get a well-defined bell-shaped distribution of mean value scores, centered at a score of about 450. For this analysis, I studied the distribution of average PFI scores for collections that are representative of each of the groups shown in the patent valuation model.
Here are the results:
Group Scoring Range
Group G 575 – 650
Group E/F 525 – 575
Group D 500 – 525
Group B/C 450 – 475
Group A < 450
This was a very satisfying result. It demonstrates that the Patent Factor Indexes really do correlate to an objective measure of patent value.
A couple of qualifiers: the patents in the analysis were restricted to US patents issued in the last 30 years; some of the collections were relatively small, especially for groups E, F and G.
Also note that the average of the individual patent PFI mean value scores for any patent collection is itself a statistic, with a Confidence Interval (CI) range. Typically, for a collection of 1000 patents, the 90% CI interval is +/- 25 around the mean.
Do you have collection of patents that have been through litigation? We will score it and add the data to our results. Contact us for more information about how we can help you find out what your patents are worth.