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Checklist of 10 Warning Signs for Overvalued Patents

Patents are often considered valuable assets, but not every patent lives up to its promise. Investors conducting due diligence or evaluating licensing deals should not be misled by the mere existence of a patent. A seemingly strong patent can turn out to be worthless—or even a liability.


Checklist

In this checklist, we highlight 10 warning signs that indicate overvalued patents - from lack of enforceability and technological obsolescence to questionable transaction histories. If you recognise these factors early on, you can avoid bad investments and invest more specifically in IP rights with stable value.


1. Lack of Enforceability

  • Warning sign: The patent contains broad, vague claims or has been invalidated in previous legal cases due to lack of technical merit or inventive step.

  • Example: A software patent deemed unenforceable due to "abstract ideas" (Alice Corp. vs. CLS Bank).

Alice Corp. held a patent for a computer-based system to manage financial risk (“escrow”) through a third party.

The U.S. Supreme Court ruled that the invention was an “abstract idea” (risk minimization via an intermediary) and that mere computer implementation lacked sufficient “inventive step.” This judgment led to the establishment of the “two-stage test” for software patents in the USA: Step 1: Is the invention an abstract idea, law of nature or mathematical formula? Step 2: Does the implementation add “significantly more” (e.g. technical innovation)? As a result, this led to the revocation of thousands of software patents that only superficially “computerize” algorithms or business methods. USPTO examiners reject 80% of software patent applications after Alice.

Key takeaway: Patents with claims such as “system for performing [abstract process] on a server” are high-risk.


2. Claim limitations due to Prior Art

  • Warning sign: Older patents, publications, or open-source projects cover the core innovation.

  • Check: Use tools like Google Patents, Espacenet or commercial tools for prior art search or hire a patent research expert to assess validity.

  • Example: Warner-Lambert (Pfizer) and the Pregabalin Patent (2014)

Pfizer's patent covered the chemical compound, manufacturing process, and therapeutic applications of Pregabalin, specifically for neuropathic pain and epilepsy.

However, generic manufacturers pointed to older patents and publications describing similar compounds. As a result, the European Patent Office (EPO) restricted Pfizer’s patent to the specific therapeutic application for generalized anxiety disorder (GAD)—an indication that accounted for only 5% of the market.

Although Pfizer's patent remained legally in force, its commercial relevance was severely diminished due to its narrowed scope in a niche indication. Generic manufacturers circumvented the patent by simply marketing pregabalin without a GAD indication.

Risk: If a patent is too close to prior art, key claims may be invalidated through objections, oppositions, or nullification lawsuits, making it easy to design around.


3. Short Remaining Lifetime

  • Stat: In the semiconductor industry, patents often lose 60% of their value after eight years.

  • Warning sign: The patent expires in <5 years with no extension options (e.g., pharma SPCs).

  • Example: Concordia International (Canadian pharma company) acquired rights to Vimovo (Naproxen + Esomeprazole) in 2015, with its patent expiring in 2020.

60% of Concordia’s revenue came from Vimovo. The company lacked a strong pipeline to offset the looming revenue decline. Concordia took on $3.5 billion in debt, assuming the patent would remain profitable for years.

Generic manufacturers finally flooded the market. Vimovo’s revenue collapsed from $240M (2019) to $12M (2021), and its stock price plummeted from CAD 95 (2015) to below CAD 1 (2020), leading to restructuring and delisting.


4. Technological Obsolescence

  • Warning sign: The technology is being overtaken by disruptive trends (e.g., 5G patents vs. 6G roadmaps).

  • Red flag: No updates or follow-up patents in the past three years; royalties from the patent decline by more than 10% annually, with no niche markets offsetting the loss.

  • Example: Siemens and the Obsolete Industry 3.0 Sensor Patents

In 2010, Siemens patented sensor technologies for Industry 3.0 (e.g., RFID-based machine control). With the rise of Industry 4.0 (IoT, AI-driven predictive maintenance), these patents became technically obsolete.

However, in emerging markets like India and Brazil, where factories have been slower to adopt Industry 4.0, these older patents remain relevant. In 2022, 18% of Siemens' licensing revenue in Latin America came from so-called "obsolete" Industry 3.0 patents (Source: Siemens Annual Report).

Additionally, in 2021, Siemens leveraged these patents in negotiations with Rockwell Automation to secure access to newer 5G industrial patents through cross-licensing.

Thus, these patents still offer strategic value, including Cross-selling opportunities, legal protection against patent trolls, complementary use alongside newer technologies, continued relevance in niche markets.

Key takeaway: Technological obsolescence does not always mean a complete loss of value—it depends on how the patents are leveraged and monetized.


5. Lack of Market Relevance

  • Warning sign: The patent describes a solution with no clear commercial application ("solution looking for a problem").

  • Question: Are there pilot projects, partnerships, or licensees?

  • Example: Google Glass patents

Between 2012 and 2015, Google patented hundreds of AR technologies for Google Glass.

Problem: The product flopped commercially—the patents covered solutions for which there was no mass-market demand (e.g., "eye-tracking for ad placement").


6. High Dependence on other IPs

  • Warning sign: The patent is part of a dense patent network and cannot be used without licensing other patents.

  • Example: Apple vs. Ericsson (2015–2023) – The 5G SEP Battle.

Apple developed a patented energy-efficient system for 5G antennas to improve iPhone battery life. However, to implement this patent, Apple required access to Ericsson’s 5G modem SEPs, which Ericsson demanded licensing fees for. Apple refused to pay and sued Ericsson in 2015 to force lower fees. In response, Ericsson blocked iPhone sales in Colombia, Brazil, and the Netherlands in 2022 due to unlicensed SEP use.

Apple’s antenna patent was worthless without Ericsson’s SEPs—it could not be implemented in devices using 5G standards.

In 2023, Apple paid a one-time fee of $500M plus ongoing royalties to Ericsson for SEP licenses.


7. Excessive Licensing Fees

  • Warning sign: The demanded royalties exceed industry-standard FRAND rates (e.g., >5% revenue share for SEPs).

  • Check: Compare with public licensing agreements in the sector.

  • Example: Unwired Planet vs. Huawei (UK, 2020)

Unwired Planet demanded Huawei pay 1.5% of revenue for SEPs—courts reduced it to 0.05%, ruling the demand was not FRAND-compliant (fair, reasonable, non-discriminatory).


8. Geographical Limitations

  • Warning sign: The patent is registered only in countries with weak legal enforcement or small economies, but not in major and/or growth markets.

  • Risk:  In large, growth markets where no protection exists, competitors have freedom to operate.

  • Example: Dyson vs. SharkNinja – The U.S. Vacuum Cleaner Dispute

In 2016, the British manufacturer Dyson developed an innovative bladeless vacuum technology ("Air Amplifier") and patented it in the EU and the UK—but not in the U.S.. In 2018, SharkNinja (a U.S. competitor) copied the technology and launched a similar product under the name "IQ-Air" in the U.S. market.

Since Dyson had no U.S. patent protection, it was unable to sue SharkNinja for infringement in the U.S. Outcome: SharkNinja dominated the U.S. market with Dyson’s technology, causing Dyson to lose market share in the most valuable sales market in the industry.

Remark: 62% of all patent lawsuits in the U.S. in 2022 were filed by NPEs (Non-Practicing Entities), which often strategically exploit geographical patent gaps (Source: RPX Corporation).


9. Questionable Transaction History

  • Warning sign: The patent has been repeatedly traded among NPEs (Non Practicing Entities - patent trolls) without ever being licensed.

  • Research tip: Check history e.g. in the USPTO Assignment Database.

  • Example: Vringo vs. ZTE

The patent troll company Vringo acquired old Nokia patents in 2012 and sued ZTE for $500M in damages.

Vringo was unable to enforce any of the high claims for damages in court. The patents proved to be weak/unenforceable. Vringo spent millions on lawyers without generating any significant revenue. Vringo's share price dropped from USD 4.20 (2013) to USD 0.10 (2017). The company was dissolved in 2018. The patents were later sold to other NPEs such as Dominion Harbor, which also sued unsuccessfully.

The patents had never been licensed before and were used solely for litigation.


10. Poor Documentation

  • Warning sign: No detailed lab books, inventor records, or documentation of the invention’s development.

  • Consequence: Weakens defense against challenges (e.g., “Reduction to Practice” proof).

  • Example: CRISPR patent dispute (Broad Institute vs. UC Berkeley)

UC Berkeley published a groundbreaking Science article in 2012 describing CRISPR-Cas9 in vitro (in cell cultures). In 2014, the Broad Institute (MIT/Harvard) filed a patent for CRISPR-Cas9, demonstrating its applicability in eukaryotic cells (e.g., human cells).

The U.S. Patent and Trademark Office (USPTO) had to determine who first achieved "reduction to practice" for CRISPR in human cells. UC Berkeley failed to provide detailed, dated lab notebooks or witness testimony proving that they had successfully tested CRISPR in human cells before Feng Zhang from the Broad Institute.

As a result, UC Berkeley lost critical CRISPR patents in 2022 because they were unable to sufficiently prove the exact date when the invention was first implemented.


By watching out for these ten warning signs, investors can avoid overpaying for patents and focus on intellectual property with sustainable market value.

If you are unsure whether an invention is a profitable investment, consult a patent valuation expert.

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