What is patent valuation?
So much media surrounding patents is in regards to the filing process, which is justified. However, many inventors find themselves in a common situation: what to do with a patent after you have it filed? This is where patent valuation comes into play. While patent valuation initially arose as a way to determine damages in case of patent infringement suits, it plays an expanded role in today’s intellectual property (“IP”) marketplace. Nowadays, smart inventors can utilize carrot licensing to offer proactive licenses to potential users of the patent, but in order to do that, they have to evaluate the patent in order to determine the size of the carrot license to offer to future partners. In essence, patent valuation can now be used to determine the value of a IP assets outside of infringement lawsuits and can predetermine the value of licenses that an inventor will offer to potential partners for the use of the IP.
With the basic principle of patent valuation covered, who should use it? The answer is a few different parties. First and foremost, inventors can use patent valuation to better negotiate their intellectual property portfolio by utilizing the stated value of their patent. Second, financial analysts may find patent valuation to be a helpful tool for determining expected value and potential returns on investment for the generation or purchase of the patent. Thus, patent valuation keeps interested parties better informed, and can help make informed decisions in regard to various aspects of the intellectual property marketplace. A patent valuation can also help financial analysts determine how much collateral is being offered when a patent is being used in an asset-based loan.
Patent valuation can be an important tool for early-stage companies. If a company doesn’t yet have a product, one must wonder how it can attract investors? A patent valuation can help determine the value of a company based on the intellectual property portfolio the company holds, and thus inform potential investors as to what the company brings to the table. Early-stage companies can also use patent valuation to a similar effect by leveraging the patent portfolio of the company to increase share value. The increase in share value can be a major help in bringing capital into the company, since if the share value is higher at a company’s IPO, more capital can be raised for the company.
Aside from the potential of a patent valuation to demonstrate the potential of an early-stage company to investors, a patent valuation can put a number on your intellectual property portfolio so that you can use your IP portfolio to get loans. An early-stage company may have trouble putting up collateral to get the loans it needs to get capital, thus a valued patent can be used as collateral in order to get a loan.
Building IP Portfolios to Enhance Company Valuation
Patent portfolio strategy is important. Companies should build IP portfolios that enhance the valuation of their companies, which means that the patents in a company’s portfolio should match the business goals of the company, and serve the purpose of boosting the company valuation. Patent valuations should aid a company in making informed decisions to reach said business goals, and the increase in value of the IP should affect the value of the company to that effect. Thus, having high-quality patents with a high valuation is important.
Patent valuation comes into play most specifically here when a company is attempting a capital raise. A capital raise puts figures on ownership and post-raise ownership, effectively determining how much equity in the company to distribute based upon the intellectual property portfolio of the company. Since the company does not yet have many, if any, physical assets, the intellectual property portfolio and the corresponding patent valuation are how the capital raise is targeted and the equity distributed.