Patent Valuation

What is a Patent?

An inventor is given an exclusive privilege known as a patent for a specific amount of time. For the term of the patent's validity, no one else may make, use, or sell the invention in question. The primary asset generator for many sectors is the patent. Patent licensing and assignment provide significant revenue for businesses and industries.


What exactly is patent valuation?

Knowing the financial worth of the patents that the business or organization has is the main goal of patent valuation. This allows for the determination of the economic value of the intellectual property and the making of all strategic decisions. Furthermore, it's critical to realize that knowing the valuation aids in making strategic licensing and assignment decisions involving the company's IP.

There are various methods that can be used to value patents. The development of a patent and its economic value may be determined using a strategy like a cost-based method. A different option is a market-based valuation, in which case the valuation is done in terms of market transactions. Another option is income-based value, where the valuation is based on the cash flow the patent produces. Due to these advantages, it is highly recommended that industries to get its patent valuation.


Benefits of Patent Valuation

Calculating the patent's value makes licensing easier and aids in figuring out the right royalties for others who utilize its intellectual property.

It boosts innovation, encourages research and development, supports the growth of new businesses, gives the economy access to advantageous locations, and lowers the costs of commercial transactions.

IP licensing has a significant impact on valuation. The true value of the IP will determine the license conditions so, a solid contract requires accurate valuation.


The right valuation aids the company's internal strategy in addition to its external plan.


Methods and Process for Patent Valuation

The NPV (Net Present Value), Future Value Forecast, and Financial Modeling to Estimate Cash Flows are all covered in the patent valuation process. With discounting for patent contribution and discounting for patent risk assessment, the cash flows are estimated.


The two main techniques for valuing patents are:

1) Quantitative Approach: This approach measures the value of the intellectual property using economic and numerical data.

2) Qualitative Approach: This method involves researching potential applications for intellectual property. It addresses the chances and dangers related to the business's intellectual property.

The techniques employed in the quantitative approach are:

  • Cost Approach

According to this method, the value of the patent is its replacement cost, or the price at which the item would be replaced. In other words, it would be the cost to replace the invention.

  • Income Approach

The current value of the cash flow that the patent assist to generate will be the patent's worth. The corporation decided to patent the product because it anticipates that sales of the product will raise its capital or because it anticipates that the invention will result in cost savings.

Therefore, when employing the income technique, then anticipated sum equal the patent's worth. The two subcategories of this approach are "profit contribution" and "royalty." The profit credited to a patent is the profit contribution. The revenue stream anticipated in the event of a licensing deal is the royalty.


  • Market Approach

You must ascertain the price a potential customer would pay for a comparable good or service when using this technique. So, by comparing your patent to similar patents, you can determine its worth.


The value of a patent must be quantified for both companies and investors. After all, new discoveries and innovations frequently maintain businesses at the top. Patents are difficult to value as intangible assets, yet they can be crucial to a company's success and the success of investors who purchase their stocks.