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Valuation of Patents and Intellectual Property Assets


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Patent Valuation process covers analysis of scope of patent claims along with risk assessment and financial projections.


Patent valuation process includes overview of patent and valuation aspects followed by patent valuation approach. Overview of patent covers reviewing patent filing date, patent priority date, countries where patent has been granted, title and abstract of patent, along with scope of granted patent claims.

Patent Valuation Procedure
The patent valuation procedure covers the NPV (Net Present Value), Future Value Forecast, and, Financial Modelling to Estimate Cash Flows. The cash flows are estimated with discounting for patent contribution and discounting for patent risk assessment.

Patent Risk Assessment
The risk assessment of a granted patent is aimed at analyzing the validity of granted patent claims, possibilities of design around patents, and potential risks associated with infringement lawsuits.

Patent Valuation Approach
The patent valuation approach covers different factors, like, the size of market, market share, annual growth rate, per unit price, profit margin, and feasibility of making the patented product.

Patent Valuation Methods

The patent valuation is done by different approaches. Two methods are basically used for patent valuation

1) Quantitative Approach - which uses numerical and economic data to measure the value of the intellectual property.

2) Qualitative Approach - where the analysis of the potential uses of the intellectual property is done. It deals with the opportunities and risk associated with the intellectual property of the company.

The methods used in qualitative approach are:

A. Cost method

This approach indicates that the patent’s value is the replacement cost, which is the amount that it would cost to replace the item. Simply put, it would be the amount it would cost to replace the invention.

B. Income method

The patent’s value will be the present value of the cash flow or cost savings that it will help provide. For example, let’s say a company patents a product. The reason for patenting the product is because the company is expecting to increase its capital based on the sale of that product, or may expect to save money based on the invention.

Therefore, that expected amount will be the value of the patent when using the income method. This method can be further divided into ‘profit contribution’ and ‘royalty.’ The profit contribution is the profit credited to a patent. The royalty is the income stream expected if a licensing agreement is entered into.

C. Market method

Using this method, you’ll need to determine what a potential buyer would pay for a similar product or service. Therefore, you can value your patent by looking at similar patents.

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Valuation of Patents and Intellectual Property Assets

  3. 3. P A T E N T O V E R V I E W
  4. 4. 1 . F I L I N G + P R I O R I T Y D A T E S 2 . C O U N T R I E S O F G R A N T 3 . T I T L E + A B S T R A C T 4 . S C O P E O F C L A I M S
  5. 5. V A L U A T I O N O V E R V I E W
  6. 6. 1 . N P V ( N E T P R E S E N T V A L U E ) 2 . F U T U R E V A L U E F O R E C A S T 3 . F I N A N C I A L M O D E L 4 . E S I T M A T E C A S H F L O W S
  7. 7. 5 . C A S H F L O W S T O B E D I S C O U N T E D F O R P A T E N T C O N T R I B U T I O N 6 . C A S H F L O W S T O B E D I S C O U N T E D F O R P A T E N T R I S K A S S E S S M E N T
  8. 8. P A T E N T R I S K A S S E S S M E N T
  9. 9. 1 . V A L I D I T Y O F P A T E N T C L A I M S 2 . D E S I G N A R O U N D P O S S I B I L I T Y 3 . P O T E N T I A L I N F R I N G E M E N T 4 . L A W S U I T R I S K S
  10. 10. P A T E N T V A L U A T I O N A P P R O A C H
  11. 11. 1 . M A R K E T S I Z E 2 . M A R K E T S H A R E 3 . A N N U A L G R O W T H R A T E 4 . P E R U N I T P R I C E 5 . P R O F I R M A R G I N 6 . F E A S I B I L I T Y
  12. 12. QUESTIONS?