Innovation is essential if businesses are to prosper in today’s competitive marketplace.
Monetarizing ideas and protecting those ideas from competitors is an important aspect of innovation.
A patent protects inventors ‘and business entities’ innovative ideas for a fixed time period.
Most patents in the US are valid for 20 years from the date of filing of the application.
Once acquired, a patent grants its proprietor an economic right to exclude others from making, using, or selling the invention concerned.
A patent holding translates directly into financial value for businesses, and can lead to multiple overall high business valuations.
As a business owner, you should understand the patent valuation process and what patent holding signifies for a company’s value.
If you are interested in learning more about the method of valuing the patent, continue to read this article
1. Ensure patent status
The value of a patent is based upon the validity of the patent.
That means you must be sure to check that the patent is active and that the required maintenance fees are current and have been paid before you even start the valuation process.
Do your thorough research by requesting copies of the application for a patent and any correspondence with the patent office.
You may want to receive any applicable international patent applications so you have a better understanding of the nature of the invention or the IP at hand.
2. Have a good understanding
If your patent is for an invention, be sure to obtain all the relevant cost information for the said invention.
Your company will hire a team of experts who understand the entire process of patenting to carefully read the patent documents to ensure the information is correct.
Which involves arranging for additional help with a patent attorney.
Maintain a firm understanding of your patent criteria as well as the specifics of the service and value it provides.
This understanding of the valuation process will prove essential
3. Cost-based analysis
One quantitative economic approach to an analysis of valuation focuses on cost.
The cost method for patent valuation stipulates that the value of the patent is directly related to the item’s monetary value, or the exact sum it would cost to replace the item at the time.
A cost-based analysis takes into account the potential cost of making a patent.
This covers expenses related to research and development, filing and maintenance fees, solicitor fees and the expense of various internal supports.
The approach then contrasts this expense with the invention ‘s future monetary benefit and concludes that the expense of patenting will obviously be at least $50 K worth to be worth investing in the patent.
A cost-based assessment can prove to be limiting in anticipating future market value or growth.
This type of analysis is not suitable when dealing with intangible assets such as intellectual property since potential monetary earnings in this realm depend on less concrete variables.
4. Income-based analysis
The patent valuation income approach involves determining the Net Present Value ( NPV) of potential economic benefits.
This valuation method speculates the possible revenue flow produced by the patent when used at the marketplace.
If you anticipate a product patent that will save your business money, this may be the method of valuation analysis to go with.
An income-based valuation acknowledges the expected capital increases of a company and estimates the value of a patent based on this expected amount over a given period.
This method is the most reliable method for patent valuation, and therefore the most used method.
The income method is calculated using a discounted cash flow model which takes into account the current cash value of future financial benefits that patent ownership offers.
5. Market-based analysis
The patent valuation approach on the market calculates value based on what a prospective customer will pay for a product or service identical to that.
An active market for the patent must already exist for this valuation method to be a viable one in your business.
In addition, there needs to be evidence of comparable property transactions in the past.
For example, in the healthcare sector, study similar tools that are used in this industry and estimate the value based on products that already exist in the field.
When looking to patent a product, pay close attention to the characteristics of the industry, the potential for market share and the prospects for growth.
By understanding these factors and trends, you place yourself in a position to distinguish your invention in a competitive industry with similar holdings of patents.
Accounting for the value of a patent can often prove difficult, since it is an intangible asset.
There are diverse valuation approaches used by today’s professionals.
You have to ensure your patent status as a business owner before you can start considering valuation methods.
If this is done there are various economic approaches to evaluating the valuation.
These include analytical methods for cost , revenue, and market.