ValueMyPatent.com  Rapid, Accurate, Realistic Patent Valuation Service

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Valuation Methodology

Our valuation methodology is based on the premise that the value of a patent is the price that a ready, able and willing buyer is prepared to pay to buy the patent today.  Our valuation methodology accurately reflects the price a buyer is prepared to pay, as it uses the same algorithms as the buyers use themselves when evaluating a patent. 

There are 3 valuation scenarios:

  1. Patent with Unknown Licensing Potential refers to the value of a patent where the potential licensees have not been identified, and the licensing potential is unknown.
  2. Patent with Existing Licensees refers to the net present value today of a patent with ongoing revenue from licensees under contract or court mandate to pay royalties to the patent holder.
  3. Patent with Identified Potential Licensees calculates the net present value today of a patent where potential licensees have been identified and evidence has been gathered that such potential licensees are currently practicing the invention, or planning to practice the invention in the near future.

Our service currently only works with issued U.S. patents. Pending patent applications are too speculative to set a value until the claims have been allowed by the patent office examiner.

1) Valuation Methodology for Patent with Unknown Licensing Potential

Where the licensing potential for a patent is unknown our methodology examines a number of factors to determing the value of the patent, including:

  • Claims--broad claims are more valuable than narrow, limited claims. Much of the patent value is determined by the claims. We analyze the claims, identifying method and apparatus claims, "means plus function" claims and other criteria.
  • Forward Citations--indicate the patent is in an area of activity.
  • Backward Citations--indicate some research was done to identify prior art.
  • Age: Life Remaining--a patent close to expiration can lose value, unless past infringement is evident.
  • Age: Relative to Others--a patent filed early in a field can have broader claims and more value than a patent filed later.
  • International Family--international counterparts sold together, can add value to a U.S. patent.
  • Portfolio--patents sold in logical portfolios are more valuable than individual patents, as the chance of invalidation of a single patent is much higher than the chance of invalidation for a portfolio containing several related patents.
  • Figures--the presence of figures to explain elements of the patented invention can affect valuation.
  • Maintenance Status--a patent that has lapsed for lack of payment of maintenance fees is invalid and of no value.

2) Valuation of Patents with Existing Licensees

The cash flows generated from existing licenses can be discounted to produce a net present value of the patent today.  When calculating these net present values, it is important to factor in the cost of running a licensing program, and the fact that the buyer will be looking for a return on investment. 

This is perhaps the simplest valuation method, but is rarely used on account that relatively few patents have contracted, ongoing, licensing revenues.

3) Valuation of Patents with Identified Potential Licensees

Where the licensing revenues for a particular patent can be estimated with some justification, the different valuation metric is based on the net present value of the cash flows forecasted. When calculating these net present values, it is important to factor in the cost of running a licensing program, and the fact that the buyer will be looking for a return on investment. 

The cost of asserting the patents through a legal process must be assessed as part of this valuation, as potential licensees are often reluctant to pay license fees unless they face a credible threat of legal assertion of the patents if they do not agree to license.

The discount rate applied to the reasonable royalties that might be awarded in court, is quite high, to reflect the high risk of loss of the suit and the high risk that patents can be invalidated in the ligitation process, via the discovery of prior art or other issues.

Sellability

The sellability of a patent is determined by its value, the patent litigation and patent trading activity for the field in which the patent operates.