Importance of Patent Valuation – A Complete Analysis

For various industries, Patents are always the most vital Intellectual Property. Companies and industries ear a lot via Patent Licensing and Assigning. The Assignment and License of Patents are common practices in the market that makes the licensor earn royalties. With the rapid development and changes in technology and increasing customers around the world, the trends of Assignment and Licensing will not be going down soon. The companies or organisations not only use these assets for licensing but also use those assets for loan sanction and loan security. Scroll down to check the importance of Patent Valuation.

Estimating your Intellectual Property is another vital task that the company must consider. The market varies, and so is the Patents’ value that the company holds. Hence, the company must be clear with the Patent Valuation. There can be a lot of aspects that create a lot of variations in the IP valuation. Therefore, there are some points which the company must be clear of;

• The company must estimate Intellectual Property at regular intervals creating a robust database structuring the value of Intellectual Property they hold.
• The company must alter its strategy from time to time as per the changes in the market and decrease in the valuation.

Therefore, we realise the importance of Patent Valuation, it is vital to conduct Patent Valuation, and if needed, the service of a full-time law firm must be taken.

What do you mean by Patent Valuation?

Before we discuss the importance of Patent Valuation, let’s understand the meaning of Patent Valuation. Patent Valuation is an Intellectual Property process that allows companies or businesses to determine the financial worth of their Patents or the overall Patent Portfolio. In simple words, it is all about understanding the economic value of the Patents that the company holds. Since Patents are valuable assets, it makes more sense for companies to evaluate their costs and recognise opportunities to monetise them accordingly. As the number of filing applications for Patent Registration increases, there is a good opportunity that the Patent will remain competitive in the market, and the valuation of Patent Portfolio would be central to various business transactions.

What is the Importance of Patent Valuation?

In M&A (Mergers & Acquisition), M&A and other activities like Joint Venture, etc., have a lot to do with the Patent Valuation. Undoubtedly, as earlier discussed, intangible assets are the bedrock of industries depending on technology. Hence, when it comes to M&A or even Joint Ventures, the Valuation of Intellectual Property is necessary to structure the future decision. M&A are in everyday news, and therefore, valuation needs to be perfect. Following is the importance of Patent Valuation:

1. Patent Dispute: It is vital to know the value is in the situation of Patent dispute & conflict. While in dispute, mostly the correct valuation of Patent is vital for the qualification of damages for a fair recovery.
2. Licensing Patent: Patent Licensing has a lot to do with valuation. The licensing terms will depend on the real value of the Intellectual Property, and hence, valuation has to be perfect to have a better deal.
3. Loans & Capitals: As Patents are used for various loan security, and it is vital to have the correct Patents qualification to structure the loan amount and attract investors.
4. Internal Strategy: The correct and right valuation helps in the company’s internal strategy. The company knowing the value, is in a much better position to structure the decision internally regarding the usage of those Patents.

Further, the valuation is required for the purpose of taxation & accounting of the company where the companies are required to report their assets. After discussing the importance of Patent Valuation, let’s understand the basics of Patent Valuation.

Basics of Patent Valuation

Patent Monetisation is an integral part of managing an Intellectual Property Portfolio. However, before pursuing the strategy of Patent Monetisation, it is vital to have a sense of the value of the portfolio. In all, the shade and complexities of Patent Valuation is a complex undertaking, requiring a great deal of expertise, experience, and judgement.

The economic right symbolises in a Patent is granted in 35 USC 154 – namely, “the right to keep out others from selling, making, or using the invention throughout the United States (US)”. Usually, with some exceptions, the value of that right can show the Patent power to contribute to the profitability of the company in some way. In assessing the profit-making capacity of a Patent or a Patent Portfolio^[1], several dynamics may be worth considering.

Conclusion

With such importance of Patent Valuation, the company must accept it. Different approaches can be taken for the Patent Valuation. There can be an approach like the cost-based method where the Patent development and its economic value is determined. Another can be market-based, where the valuation can be done in terms of market transactions. It can be income-based also, where the valuation is dependent upon the inflow flow that the Patent generates. Therefore, it is highly advisable to conduct the valuation of Patents for industries owing to its benefits.

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