Monday, 4 March 2013

Patent valuation: how much does it cost?

A reader has contacted this weblog to ask the following request for information:
I need to know the typical or average fee charged to clients for "patent valuations." I have found a few Powerpoint presentations, papers, and the like downloaded on the Internet, which indicate a typical fee ranging from a low end of roughly $1,500 US per patent "family" for a so-called "internal" valuation (I assume this must be a "down and dirty" or bare bones valuation), up to about $40,000 per patent family for valuations done for banks, etc. I take it the latter would be the full-blown, more extensive approach, involving detailed market analysis and full pat scope studies, etc.
This blogger has no direct experience of patent valuation and imagines that the cost would be a function of various things: the methodology adopted, the nature of the patent(s) being valued, the magnitude and complexity of the prior art and even the purpose for which the valuation was sought. Can readers be of any assistance at all in giving some guidance in this matter?

4 comments:

Jackie Maguire, Coller IP said...

Yes, your assumptions are correct. The purpose is of particular importance. Amongst other things, this helps to determnine the levels of confidence required in the value placed on the assets. For example are we looking to transact one patent for the purposes of setting up a new company or are we looking to settle an infringement dispute amongst multinationals. I would comment that the low end of the range is too low if it is to be of a standard appropriate for independent valuations involving patent assets.

Malte Kollner said...

Everything that was written in the post is correct. The price depends
on a lot of things, predominantly on the depth of analysis.

There is, however, one important point: The amount of money spent
and - thus - the depth of analysis also has an influence on
the value that will finally be determined. As a rule of thumb:
the less money you spend for the valuation the lower the determined
value will be - usually. Exceptions to this rule are possible.

An exception occurs in cases where a more thorough analysis discovers
a severe problem that a more shallow analysis would have overlooked.

The rule, on the other side, has its origin in "Due diligence or Discount"
(http://www.lesi.org/les-nouvelles/les-nouvelles-online/2009/march-2009/2011/08/04/due-diligence-or-discount-monetary-effect-of-legal-aspects-in-patent-valuation,
ftp://ftp.cicese.mx/pub/dirID/Oficina_PI/MISC/Diplomado_2011/Modulo_3/Due-Diligence-Or-Discount-Monetary-Effect-Of-Legal-Aspects-In-Patent-Valuation.pdf).
If you do not dig into a certain aspect, you are left with a
remaining risk - that has to be discounted. I.e.: the value has to
be reduced.

The only way to get the value up is to scrutinize the matter and -
hopefully - not discover any problems and get out of it
innocently. Then the risk is gone and the value can be put up.

Obviously, if you want the value of the patent to be high, it
doesn't seem to be a good idea to go for the low end of 1.500 $ (you
can even have it for fewer, but the quality will be
correspondingly). On the other hand, spending too much for the
valuation process will eat up the value of the patent. There must be
an optimum somewhere.

I developed a little mathematical tool to find this optimum - i.e.
optimizing the valuation process.

Kind regards,

Malte Kollner

Fede said...

@ Malte Kollner
your point is interesting. In particular the last "On the other hand, spending too much for the valuation process will eat up the value of the patent", where, if I have understood, you include the cost for patent valuation as a minus to the final value embedded in the patent.
The final value should be the same however the cost incurred to develop the invention, to maintain the patent and to perform a value analysis. If I spend 100 and at the end the patent is valued 90, its value is 90 and not -10. If I sell the patent I will earn 90, with a final balance of -10; or I could ask a bank to get credit for an asset that now is "certified" that is worth 90.
According to your comment it would be very interesting to understand how the ex ante expectation of the inventor/holder impact on the final patent value.
Ciao!

Jasper Groot Koerkamp said...

My experience is that the value of a patent stronly depends on the business plan of the owning - or profiting, for that matter - entity.

A patent that may provide a basis for an injunction for smartphones may be worth more to a practicing entity than to a non-practicing entity. Because it could grant a monopoly to the practicing entity that could bring far more revenue than the patent would bring licensing revenue to the non-practicing entity.

If taken from a licensing perspective, a patent may be worth more to a non-practicing entity than to a practicing entity, as a non-practicing entity usually does not ask its customers for an additional licensing fee (yes, exceptions apply).

So the value of the patent depends, among others, on your own core business activities and how you intend to generate company value with the patent.

Converting additional revenue to additional company value is the subsequent step - for which there are a few methods, each with there parameters that may be tweaked.

Next point are the risk factors. Very important is how strong the patent is in terms of patentability.
Scope of protection is about equally important: how simple would it be to develop a workaround, considering current day technology?

But how will the market look like in eight years from now? Nobody knows and with an eight year old patent, this is a factor that is to be taken into account. What are the odds a revolutinary alternative pops up in five years from now and the product protected by the patent is obsolete?

Analysis of a business plan is to me an assessment virtualy any accountant would be able to do, in this case preferably with a patent attorney. Cost depends on time spent, which depends on complexity of the business plan.

Patentability and scope of protection is typically the work of a patent attorney. It yield in my opinion a risk factor (or fudge factor?) as a multiplier for the outcome of the assessment of the business plan. This excercise is relatively straightforward for a qualified patent attorney. Cost depends on time spent, which depends on the amount of prior art assessed.

But the other risk factors provide a serious challenge and in my opinion, any assessment further than five years ahead would rapidly approach the nonsene area.

Bottom line:
Cost would be assessment of business plan plus cost of patentability analysis and a look around in the market for probably infringing products.

EUR 5k as a ballpark figure?

And even that would provide an indicative value, at best.