Patents are hidden values - why it is making sense to measure them?

Today the value of intangible assets are much higher (>80%) than those of material assets. Among the intangible assets: The companies Patents.

In 2009 the biggest Canadian ICT company NORTEL was bankrupt. The 5 year average company value was about 1.2b USD.
One year later, in 2010 the Patent Portfolio of NORTEL was finally sold: 4.5b USD.
The value of the Intellectual Property was obviously more than 3 times higher than the company itself. So what happened?
Nortel didn’t know about the value of their IP. And it was not in the balance. If Nortel would have known the asset and would have activated it in the balance – Nortel would not have become insolvent.

Nowadays companies know much more about valuation of IP – the conferences in the past 3 years were all about this issue. Many think, it is sufficient to have a qualitative comparison of IP just in order to be able to compare the own portfolio with the portfolio of competitors. This is making sense for sure. But wouldn’t it make even more sense to have a value tag on each patent? Wouldn’t it be much easier to negotiate about licenses or cross-licensing or to negotiate with banks if the value would be known? The answer is: Yes, it makes sense.
The only reason why companies don’t do it, is because they don’t know how.

Here are some important issues about monetary valuation of patents.

1. value is not price. The value can be much lower than the price that is paid e.g. when a buyer sees a strategic value on it. On the other hand the price can be even lower than the value
2. Known approaches for Patent Valuation are e.g. the Cost Approach and the Earned Income approach. Both may deliver completely different values. But the most relevant value is the market value or economic value of a patent: a potential buyer may have a completely different income situation regarding a patent and measuring the value by the cost structure that led to a patent means that developing an innovation is just a matter of the funds. The market value of a patent is comparable to a real estate or a car “Schwacke” value that is dependent on certain indicators.
3. Patent Valuation is not necessarily expensive. Today there are great tools in the market that make the Patent Valuation more easy, more transparent and more efficient.
4. A high qualitative value does not mean a high monetary value and vice versa. How is this possible? When comparing patents on a qualitative level it is always important to know the factors and indicators the evaluation is based on. Sometimes the indicators even have a certain individual weighing factor. The monetary valuation is a bit more complex:
Having a look on the valuation method of the software tool PatentEvaluator – the indicators are having a different weight and depending on how strong certain indicators are specified in combination with others the patent value varies strongly.

The method of PatentEvaluator is based on indicators, like valuation of a real estate. But what is much more, the assigning of a value to a patent is an empirical approach. This means, it is based historical transactions of patents. So the basic model of indicators is topped with a similarity approach – which means: The result cannot be completely wrong. There may be a certain fuzzyness but the result itself can’t be completely wrong. The fuzzyness of the result is expressed by a value interval and the width of the interval is smaller the more indicators were applied.

Two cascades for valuating are offered:
- A first, fully automated step where indicators are sourced automatically out of bibliographic data – this step is like reading tracks that a patent has left during its process to being granted. 25 different indicators can be analyzed here.
- A second step is a manual valuation step and can be compared with a Multiple-Choice questionnaire. Depending on the valuation scope up to 75 indicators are provided here.

The whole valuation takes up to 20 minutes per patent-family with an impressive result so far: In more than 25 different valuation projects with the PatentEvaluator the calculated values were comprehensible. In all evaluation tests of customers who were rating a patent with a known value the calculated value by PatentEvaluator hit the reference value.

Due to the fact that Patent Valuation is often based on a certain event and then valuation has to be done very fast (e.g. due to an offered Patent Portfolio or an acquisition of a company is planned), the InTraCoM Group is now offering fast and cost-effective patent valuation services based on the methodology and tools mentioned above. Seven different Patent Valuation Experts of different technology fields are able to valuate patent portfolios of all sized in an extremely short period of time.

InTraCoMs customers are big sized blue-chip companies as well as SME companies, M&A agencies and attorneys all around the globe.

InTraCoM Group is a Fraunhofer Spin off and since more than 13 years active in the field of Innovation- and Intellectual Property Management.
Our Services include all kinds of Patent Search and Patent Valuation. Based upon a determined Patent Value we can also provide Patent Utilization (Patent Trading) due to our complex worldwide network. Togther with our sister company IPR-Systems (Software provider) we are developing new, effective solutions for patent valuation.

InTraCoM GmbH
Sigmaringerstr. 35
70567 Stuttgart
Press: Anja Uhl
+49 711 797328 0
presse@intracomgroup.de

This release was published on openPR.