Patents Evaluation

JimIvey

It's been a while since valuation of patents has been touched in these forums.  A former frequent poster here used to include value of patents in every answer to every question.

Your attorney is correct in his/her cautioning that market valuation is beyond the expertice of the typical patent practitioner.

I look at evaluation from two perspective.  The first is relatively easy:  how much would it cost you to get the same protection?  You simply look at the document itself and its history and figure out what your practitioner would charge to do the same work.  Of course, it ignores the fact that you can't go back in time and get that priority date (whether that matters depends on your circumstances) and it entirely ignores the value of the underlying idea itself beyond the effort required to protect it.

The second perspective is much more difficult -- and it's the one outside of what the typical patent practitioner can tell you.  

1. Identify all the feasible implementations covered by the patent.

2.  For each implementation: calculate a reasonable royalty for that implementation.  The reasonable royalty is some portion of the amount of excess profit the implementation will generate over the profit generated by non-infringing alternatives.  That requires knowing how much it will cost to produce the implementation and how much the consuming public will pay for it.  The portion depends on your circumstances and your negotiation skills.  One might assume 50% for a fairly negotiated license or 100% if you're going to produce and sell the implementation yourself (and not license it out).

3.  The reasonable royalty from (2) above should be calculated for the entire patent jurisdiction (e.g., the entire US).  To the extent you don't expect to serve the entire US, you should consider reasonable royalties for other regions.

4.  For each implementation: determine a likelihood of successful enforcement.

5.  For each implementation: weight the extra profit by the royalty share (e.g., 50% or 100%) and weight the product by the likelihood of successful enforcement -- that should be some estimate of the reasonable royalty for the implementation.

5.1.  Just a quick caveat on this calculation:  it's unlikely that your patent is the only one covering each implementation.  So your "reasonable royalty" may have to compete/share with other patents covering the same implementation.  At the risk of grossly over-simplifying things, you can probably divide your reasonable royalty by the number of patents infringed by the implementation (or, alternatively, by the number distinct owners of those patents).

6.  Sum those weighted reasonable royalties.

7.  The reasonable royalties should be calculated for the entire term of the patent -- and discounted for the time value of money.

8.  Sum those values for all implementations.

That's it.  That should give you a fair estimate of the market value represented by your patent.  Of course, the fair market value of the patent itself is whatever you can convince someone to pay for it.  In theory, the amount you paid is, by definition, the fair market value.

I hope that clarifies what parts of the inquiry are beyond the expertice of the typical patent practitioner.

Regards.

Faron

 I have a question concerning patent evaluation.  I have read Mr. Ivey's response, however this question is a bit outside of that scope. I will attempt to lay out the question.

First,  During the patent search, conducted by a repretable law firm that is listed as a registered agent by the USPTO, the search returned no prior art infringements to my idea. Quoting a representative of this firm, "Your good to go, you have a clean slate."

Second, the idea is a very simple, yet non-obvious idea.
Several corporations have reviewed it and agree that it is a sound concept. Several of these companies' patent attorneys have also stated that there is a 95% chance the patent will issue. These same companies have decided not to enter into any agreement until at least the notification of allowances are returned by the USPTO, so they may better guage the enforceability of the patent. Due to the simplicity of the idea. Which is understandable.

Third, the idea effects a worldwide market directly. It will most likely change this market and increase it's value. It will also influence various other markets and increase their values as well, however indirectly.

So the question is, if you have an idea that does not infringe on any other patents, does effect a worldwide market and will possibly increase that markets value, and will indirectly effect various other markets and increase their value, how can you evaluate it's worth?

Thanks

Isaac

Quote

Faron

 Thanks for your reply Issac. However this situation is not hypothetical but a real situation I am facing. I to find it very difficult to evaluate such a situation.

 In reference to the patent search by my attorney's office, they where shocked at not finding anything even closely relevent to this idea. Also the corporations' attorneys mentioned before could find no other relevent prior art. These companies are all major coporations that are publicly traded and have billions of dollars in assets.

But I guess the answer to the question is, that it can not accurately be evaluated.

Thanks

JSonnab...

One telling aspect of the facts presented is that none of these publicly traded companies with "billions of dollars of assets" wanted to pick up the technology at this point.  If the invention were truly as revolutionary and clearly patentable as the poster suggests, any of these companies would have jumped in.

- Jeff

Faron

 If you were a large corporate entity you would not just throw money at something of what is mostly likely of great value, until the at the notifications of allowances came back to give you a little more reassurance that the idea is patentable in the eyes of the USPTO. Especially if the idea is very simple to make. You would want to be a little more reassured of the situation prior to proceeding any further.

But that was not the question. If this was presented as a fact and all statements where true? How would you evaluate such an IP. Or is it even possible?

Isaac

Perhaps the IP could be evaluated.  This thread contains a number of theories for doing such an evaluation.   I would expect each method to come up with a different result.  Obviously we don't enough have information for using any of the methods.

The other problem is that your facts don't even support the conclusions you reach from the facts.  You cannot evaluate freedom to operate using the results from a patentability search.

Faron

 Ok lets try to approach this from an example and not a factual case. But hypothetical as Isaac suggested.

In the example we will use the USA market only and not consider any other markets.

EX: There is a widget. It has been around for decades. There are people that make this widget, people that use the widget, people that just have the widget, but some of them have one, both or all statements as true.

Now 70 to 80% of the population have this widget. Either they own it or it belongs to someone else and is in their legal possesion for use.

Now the people who make the widget have been making it for decades. They have made changes and protected those changes. So you can't really get a foot hold there of any value. Unless you create a demand for a brand new improved widget.

The people that use the widget have been using it for decades as well. They have made minor changes in the way they use the widget, but there are till big problems with the widget's use.  The makers of the widget have tried in vain to fix the problems with the widget use but have little to no success.

The 70 to 80% of the population that have widgets and want widgets, also must have the widget, and  hope that the widgets will get better, so they buy  the widgets that are available.

Now Mr X comes along. He has used a widget a few times but is not a proffesional widget user. He doesn't like using a widget, but has on occasion. He has a widget of his own as well. The last time he used this widget he realized their might be a better way to use this widget. So he tries to use the widget his way. Then he sees that it is now a better way to use the widget, but it also provides a solution to all the problems that where present in all widgets, regardless of whether you made the widget, used the widget, had a widget, or any combination.

 Now the way a widget is made, used, and desired has increased because his widget has everything that a widget should have.

Now considering that the widgets market is at $32 billion dollars a year. How would you evaluate Mr. X's widgets.

Hope that was helpful to answering the question.

Thanks

Isaac

I yield.