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Q1. What is patent valuation?

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In  general there are 2 meanings for patent valuation:

 

1. The qualitative (comparing) valuation of patents – here the result is a qualitative score or a direct competitive result patent A is better than patent B or portfolio A has a better technical score than portfolio B. For qualitative valuation in general certain indicators can be used. Simple manual scoring methods for assigning a qualitative score to a patent are widely spread, these are returning an individual and difficult to verify picture of a patent/family/portfolio. Better approaches are automated or semi-automated methods using multiple-choice answers that are more tamper proof and more transparent. The qualitative valuation is limited to internal usage, like benchmarking, RnD controlling or decision-support.
    

2. The quantitative/monetary valuation. This valuation can more complex, depending of the method used, it also can be combined within indicator models. For the monetary valuation there are different norms and standards available. Using indicator based market analogy valuation approaches delivers a qualitatively as well and monetary value, is reasonable, fast and offers most opportunities for usage like also in accounting, trading, securities and offers a better understanding in benchmarking, RnD Controlling, strategy management.

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Q2. Why does a company need to know the value of its patents?

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Valuation offers a huge set of controlling, strategy and marketing instruments. Example: Why not having the potential of measuring the outcome of IP activities and the RnD effect and compare it with competitors? Why not knowing the assets of a company? Why not having a higher company value? Why not benefitting from additional assets in terms of i.e. better creditworthiness? So the correct question is “why not?”

 

Companies with (good) patents have a much higher value than known from their balance as long as their patent value is not activated in the balance. So hiding this value from your shareholders may cause problems.

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Q3. Why should a company know the patent value of other companies?

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Today it´s not a secret that companies with high qualitative patents and a strong IP activity have a much better future prognosis compared to those who don‘t innovate that much. It means patent value information is also a powerful instrument for investors to predict the future stock value development of the company.

Knowing the IP value and/or trend of your competitors will also help you to take strategic decisions or to support decisions.

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Q4. What methods do you use for patent valuation?

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We have an indicator based market analogy approach as well as an income-based approach in use, depending on the valuation scope.

In the indicator based market analogy approach patents are not directly compared to other patents in terms of the technology, the shares on a product or the market it is addressed to. Each patent is reduced to a set of key figures and indicators, which finally will be compared. The calculated value is based on the reference patterns of patents that were traded in the past. The more indicators can be used, the more precise the model and the value prognosis becomes. The result is a qualitative and quantitative (monetary) value of a patent, a family or a portfolio.

​In the income-based approach we use the relief from royalty method, means we calculate fictive royalty rates that would have to be paid in a scenario the patent to be evaluated wouldn't be owned by the patent owner. 

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Q5. What kind of value is calculated here?

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The value is known as “fair-value”, “market value” or “fair market value”. The indicator based market analogy is calculating the value of a patent as if it would be a traded good. This approach is very well known from real estate valuation. The patent value is thereby very close to its market price, because the indicator set (being an abstract model of a patent) is compared to patents that have been traded in the past for a certain price. So the reference data are empirical data and result into a very realistic market value.

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Q6. What is the difference of value and price?

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A value is the basis for negotiating a price with a vendor or buyer for a certain good, in this case a patent. The price is what is finally paid and can be the result of negotiation. So value and price do not have to be equal. So the price can be much higher when the individual value (benefit) for a certain buyer is higher than the market value is. Of cause it can also be lower, when a buyer is not willing to pay a certain sum or when a deal consists of additional things (i.e. services, a complete portfolio, licenses).

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Q7. What is the advantage of your approach compared to others?

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There is a list of advantages, compared with the other approaches:

 

• All kinds of patents can be valued

• „Fair value“ is according to all norms, standards, guidelines, even accounting standards (i.e. IDW S5)

• Market value is a potential trade value

• Very low effort to valuate (big automatization potential)

• Low failure rate (empirical data)

• Automized patent value data are already available in the market as well as software solutions

• Approach is a scientific trend

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Most of the other valuation approaches that are also mentioned in Norms are not made for patent valuations basically. Some are derived from company valuation (i.e. income approach) or accounting rules (i.e cost approach). This leads to problems in applying these methods to all patents. Also, different approaches may lead to completely different results for the same patent and their application is time-demanding usually. These facts make other approaches less precise and uneconomical compared to the indicator based market analogy approach.

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Q8. How much time does it take to valuate my patent portfolio?

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Usually the valuation takes less time than preparing a project, researching and assigning the correct publication numbers by our customers.

The duration is also depending on the scope of valuation that means if it is sufficient to perform a full automated valuation or to add a manual valuation which leads to a much more precise result. And of cause it is depending on the amount of patents we are valuing. In all of our cases in the past the valuation was much faster than our customer expected. Normally we can deliver a first value impression within a day. Our longest project took us 4 weeks including a manual valuation.

 

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Q9. What cost can be expected for patent valuation?

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The expected cost depend on patent portfolio size and preferred method (auto rating or option rating). Automated rating will deliver you a good value impression for a very reasonable price. If you need to have a more detailed and more precise value you may choose our manual option rating valuation with up to 72 additional indicators. The valuation result is extremely precise, the cost is very reasonable. Ask us for a quotation.

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Q10. How precise is your patent valuation?

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The valuation result ranges from “precise enough” to “100% precise”, depending on the valuation step you choose. Projects where we have been performing both autorating and optionrating never were wrong, this means a later traded price was always in our calculated value-corridor. Please find some valuation examples in the table: see our calculated value for patents/ patents families/ patent portfolios and the price, which was paid later, when it was traded and the results were published.