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Determining the market potential of patents can be a complex task for entrepreneurs. The value of a patent doesn’t necessarily equal the investment, and it may indeed be significantly higher or lower.
The worth of a patent, or a collection of patents, depends on numerous factors. The operational context of the patent in question largely influences its potential value.
A patent’s value can vary greatly, particularly when considering its role. It may serve as a tool to attract investment or act as a strategic asset during a lawsuit.
Understanding your patent’s potential is a crucial endeavor. It forms a cornerstone of your business’s growth strategy and protective measures.
The value of a patent in a business transaction
It’s easier to realize value from a patent when it’s part of the sale of a thriving business. In this case, it’s actively generating income and acts as a hedge against competition. An investor will see it as protection for their investment.
Also, when a business is marketed with a patent or patent portfolio, it serves as persuasive evidence to the buyer that the patent office has acknowledged its uniqueness. This is why patents or patent portfolios constitute a significant aspect of negotiations when companies are sold, merged or divested. Issued patents are a seal of approval that the business has technology that is differentiated.
In fact, given two companies with similar characteristics, VCs and investors will prefer to purchase a company with a patent portfolio protecting their products or unique production processes. Additionally, a recent study in the Journal of Business and Venturing shows that companies with a patent portfolio get a larger valuation than those without during VC funding rounds.
A company without a patent is vulnerable to licensing demand or even lawsuits.
Admittedly, the company may have never been sued before the acquisition because they’re too small to pay substantial settlements. However, they become an attractive target for patent infringement lawsuits once they’re purchased by a larger corporation with deep pockets or otherwise well-funded. Going public can also attract unwanted patent assertions or threats.
So, a patent that’s part of a successful business and a hedge against competition is easier to value. Protection of the business and the attraction of investment proves its value.
When the patent stands alone
Consider a scenario where you have a patent that is not linked with any business, possibly because you’re in the initial stages of your entrepreneurial journey or the industry pivoted.
Proving the value of a patent that hasn’t been utilized or generated any industry attention can be challenging. In such situations, the patent often appears as a distressed asset, making its value speculative.
In such situations, you’re required to employ creative strategies to demonstrate the patent’s value through unconventional methods. They include:
It attracts interest if you demonstrate the widespread use of your patents in the industry. Significant potential damages could be at stake. Non-practicing entities who enforce patents for business may consider acquisition under these circumstances. Check out the top 10 patent acquirers paying big in 2023.
The first step is to conduct research to find others doing similar things. Then create claim charts and other supporting research to demonstrate patent infringement within the industry.
Initiate your research by leveraging the capabilities of user-friendly, AI-powered patent search tools. Should you spot potential, it could be beneficial to engage a research firm for the identification of possible patent infringers who can map the patent claims to particular products.
Identify court cases involving the patent:
There may be instances where someone tried to challenge your patent in court, but it was confirmed to be valid. Maybe the court further ruled that they infringed on the patent. Or there may be a settlement or licensing by others. This proves that your patent is indeed valuable.
You can then evaluate the market and look at other people who have filed patents, successfully licensed patents or are successfully selling products in that area. It becomes easier to calculate potential damages and for people to understand the risks they might face where there is third-party affirmation.
However, it’s quite rare to use this method to prove the value of your patent. Furthermore, winning the first litigation doesn’t assure subsequent ones could be lost.
Turn distress into an opportunity:
Another approach is to identify competitors facing off against each other in the marketplace or the courtroom. For insights into potential lawsuits, consider following blog posts from reputable IP research firms. Alternatively, establish a Google alert to stay updated on patent infringement news.
If one of those competitors happens to be infringing upon the patents you are selling, you have the opportunity to strategically approach the other competitor and offer them an additional powerful weapon to strengthen their battle arsenal.
Uncovering the market potential of your patent portfolio, whether linked with a successful business or standalone, requires careful strategy. The goal is to effectively demonstrate the worth of your patent rights, either by emphasizing its protective power for a business, proving its value through legal victories or identifying infringers.
Although determining your patent’s potential value is complex, it’s worthwhile. Your patent is more than a paper tiger — it can be a strategic asset driving business success or providing a solid return on innovation investments.
Feel free to get in touch with further queries on this topic. Until then, best of luck in your patent valuation journey!