What is the economic viability of Patents? Ever thought of how patent valuation is done and how patent rights and antitrust laws co-exist? The existence of antitrust laws proves that market dynamics must promote fair competition. However, in the same market, patent rights guarantee a monopolized position. How are they co-existing? And why are they co-existing? An obvious answer is that the market craves for innovation and development. Hence, we need to reward the inventors, but with checks and balances. Therefore, National laws like patent laws and antitrust laws harmonize conflicting interests existing within society and commerce. Further, the ecosystem is full of patents, but the questions worth deliberating upon are whether all the patents have sound economic value? Why do companies go for patent valuation? Indeed, not all patents have economic viability. The quality of patents is directly proportional to the financial returns. Estimation of the worth of a patent forms an indispensable part of constructing business strategies. This post precisely makes two contributions;
1. Outlining the parameters to judge the economic value of a patent.
2. Elaborating on the legal constructs of patent valuation.
Parameters one must consider
1.Patent families and demography
The territorial limitations of patent laws interlock the commercial value of an invention with the demographic boundaries. A study on the patent family size, based on the GDP of a country, while doing multiple international filings will positively affect the patent filing decision of the owner. Because the owner of a valuable patent goes for international protections (1).
Path-breaking inventions drive future IP business strategies and fuel up the rate of inventions in that area. These finest inventions hold great market value. The quality of the patent is definitely associated with technological resources that a company spends on R&D. Therefore, apt investment in the R&D paves way for great economic returns.
3.The Grant time
Pierre Regibeau, back in 2010, stated that the relationship between patent value and patent grant time is inversely proportional (2). The researchers have proved that valuable inventions get speedy approvals.
4.Claims defining the scope
The scope of rights and liabilities are ascertained by looking at the claims. Therefore, more claims mean the invention will be commercially exploited over a broad market spectrum. This, to some extent, speculates on the economic value of the invention.
Future references by fellow inventors of a patent reflect that the patented technology holds a great value in the industry. This also significantly improves the company’s standing in the market.
6.The novelty of a patent
Novelty is coupled with patent value but in a narrow way. The novel patent but a general one may not fetch you high value. The key is to diversify the resources and knowledge base to construct novel results and economic value.
Let’s talk law
The pyramid constructed for economic exploitation of an invention would crumble without a legal shield. Below mentioned are a few essentials to be kept in mind.
1.Ownership and renewal
Patents can have complicated titles, while ownership dictates the control, licensees can only use it. A valuation document will have a checkbox ascertaining the nature of the contract of employment during which the invention was developed. In contractual or work for hire types of employment, the company loses ownership over the invention. Therefore, the valuation of a patent owned by the company would be much higher than the one licensed to it. Further, the renewal is a sine qua non to protect flourishing patents. Generally because, If a patent owner files for renewal, it signifies that there is a market for her patent. Therefore, the length of the patent will directly affect its value.
2.Scope of the invention
An invention to exclude others from copying in the US market must be protected with the USPTO’s patent regime. The specifications and claims, generally, define the scope and ambit of the patent protection. Conventionally, a wider bandwidth of claim results in a high valuation of the patent. An inherent feature of patents is that it can be licensed, therefore, it becomes relevant to consider the terms of licensing to identify legal implications of licensing. Concurrent licensing unlike exclusive licensing will surely reflect lower economic value.
An invention generally affects third party players in the industry. Therefore, to ensure that third party rights are not disturbed, the applicant must thoroughly inspect the relevant prior art. Litigation can cost a hefty amount of dollars and loss of reputation. It can stretch over years and can even eat-up on the term of protection. Lawsuits can severely affect the value of a patent, hence, all necessary steps must be taken to avoid it.
4.Indispensable legal support
Legal support is imperative to conduct frictionless business transactions related to patents. Drafting unambiguous contracts is one of the most important tasks. These contracts include both patent and non-patent contracts affecting the value. Consumer relations, workforce intangible assets, etc are equally important to construct value and are smoothly worked out because of legal interference. A pool of money could flood out of the corporation if the legal ends are loosely tied.
● The intangibility of a patent makes the process of its valuation complex as the considerations involved are multifold.
● Patent valuation helps enterprises to devise business strategies and gain a competitive advantage in the market.
● The economic exploitation of an invention stands on the shoulder of law, and this dimension shall be given adequate importance. Loose legal support can devalue even economically viable patents.
1. Flignor, P. and Orozco, D. (2006), “Intangible asset and intellectual property valuation: a multidisciplinary perspective”, World Intellectual Property SMEs Newsletter, July, available at: www.wipo.int/sme/en/documents/ip_valuation.htm
2. Squicciarini, Mariagrazia & Dernis, Hélène & Criscuolo, Chiara. (2013) Measuring Patent Quality: Indicators of Technological and Economic Value. 10.1787/5k4522wkw1r8-en.
3. Francois P. Kabore & Walter G. Park, (2019) Can patent family size and composition signal patent value?, 51:60 Appl. Econ 6476, 6476-6477.
4. Pierre Re¤gibeau & Katharine Rockett, (2010), Innovation cycles and learning at the Patent office: Does the early patent get the delay?, 58 J Ind Econ 222, 243- 244