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Brad Toynbee
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Patents Evaluation
« on: Jun 8th, 2005, 11:46pm »
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Hi,
 
I have recently purchased a patent for a quite ridicules price and needed to get evaluation of how much it really worth for licensing / selling.
 
My patent lawyer said that from a technical point of view it’s a great purchase but he cannot evaluate the market & financial value.
 
I tried several WEB evaluation services.  
 
The best one by far was www.patentprice.com. These guys seem to take their job seriously.
 
They have sent me two reports one for marketing and one for financial evaluation. It took them 3 weeks instead of 2 but they did a very good job.
 
I showed it to my patent attorney and he said these are very valuable reports for financial negotiation and for a licensing program.
 
 
Brad
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JimIvey
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Re: Patents Evaluation
« Reply #1 on: Jun 9th, 2005, 11:04am »
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It's been a while since valuation of patents has been touched in these forums.  A former frequent poster here used to include value of patents in every answer to every question.
 
Your attorney is correct in his/her cautioning that market valuation is beyond the expertice of the typical patent practitioner.
 
I look at evaluation from two perspective.  The first is relatively easy:  how much would it cost you to get the same protection?  You simply look at the document itself and its history and figure out what your practitioner would charge to do the same work.  Of course, it ignores the fact that you can't go back in time and get that priority date (whether that matters depends on your circumstances) and it entirely ignores the value of the underlying idea itself beyond the effort required to protect it.
 
The second perspective is much more difficult -- and it's the one outside of what the typical patent practitioner can tell you.  
 
1. Identify all the feasible implementations covered by the patent.
 
2.  For each implementation: calculate a reasonable royalty for that implementation.  The reasonable royalty is some portion of the amount of excess profit the implementation will generate over the profit generated by non-infringing alternatives.  That requires knowing how much it will cost to produce the implementation and how much the consuming public will pay for it.  The portion depends on your circumstances and your negotiation skills.  One might assume 50% for a fairly negotiated license or 100% if you're going to produce and sell the implementation yourself (and not license it out).
 
3.  The reasonable royalty from (2) above should be calculated for the entire patent jurisdiction (e.g., the entire US).  To the extent you don't expect to serve the entire US, you should consider reasonable royalties for other regions.
 
4.  For each implementation: determine a likelihood of successful enforcement.
 
5.  For each implementation: weight the extra profit by the royalty share (e.g., 50% or 100%) and weight the product by the likelihood of successful enforcement -- that should be some estimate of the reasonable royalty for the implementation.
 
5.1.  Just a quick caveat on this calculation:  it's unlikely that your patent is the only one covering each implementation.  So your "reasonable royalty" may have to compete/share with other patents covering the same implementation.  At the risk of grossly over-simplifying things, you can probably divide your reasonable royalty by the number of patents infringed by the implementation (or, alternatively, by the number distinct owners of those patents).
 
6.  Sum those weighted reasonable royalties.
 
7.  The reasonable royalties should be calculated for the entire term of the patent -- and discounted for the time value of money.
 
8.  Sum those values for all implementations.
 
That's it.  That should give you a fair estimate of the market value represented by your patent.  Of course, the fair market value of the patent itself is whatever you can convince someone to pay for it.  In theory, the amount you paid is, by definition, the fair market value.
 
I hope that clarifies what parts of the inquiry are beyond the expertice of the typical patent practitioner.
 
Regards.
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James D. Ivey
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Faron
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Re: Patents Evaluation
« Reply #2 on: Apr 22nd, 2006, 3:34pm »
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I have a question concerning patent evaluation.  I have read Mr. Ivey's response, however this question is a bit outside of that scope. I will attempt to lay out the question.
 
 First,  During the patent search, conducted by a repretable law firm that is listed as a registered agent by the USPTO, the search returned no prior art infringements to my idea. Quoting a representative of this firm, "Your good to go, you have a clean slate."
 
 Second, the idea is a very simple, yet non-obvious idea.
Several corporations have reviewed it and agree that it is a sound concept. Several of these companies' patent attorneys have also stated that there is a 95% chance the patent will issue. These same companies have decided not to enter into any agreement until at least the notification of allowances are returned by the USPTO, so they may better guage the enforceability of the patent. Due to the simplicity of the idea. Which is understandable.
 
 Third, the idea effects a worldwide market directly. It will most likely change this market and increase it's value. It will also influence various other markets and increase their values as well, however indirectly.
 
 So the question is, if you have an idea that does not infringe on any other patents, does effect a worldwide market and will possibly increase that markets value, and will indirectly effect various other markets and increase their value, how can you evaluate it's worth?
 
Thanks
 
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Isaac
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Re: Patents Evaluation
« Reply #3 on: Apr 22nd, 2006, 4:12pm »
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on Apr 22nd, 2006, 3:34pm, Faron wrote:
 First,  During the patent search, conducted by a repretable law firm that is listed as a registered agent by the USPTO, the search returned no prior art infringements to my idea. Quoting a representative of this firm, "Your good to go, you have a clean slate."

 
I've never said anything similar to the quoted statement to a client.  No search can be perfect.   For example yet to be published patent applications, unfindable by a search might contain relavent prior art .
 
Taken at face value this statement indicates that no obstacles to patentability were found in the search.   This is not the same as saying that your idea does not infringe an existing patent.  That kind of search might easily cost 50 or more times the cost of a patentability search.
 
Quote:

 So the question is, if you have an idea that does not infringe on any other patents, does effect a worldwide market and will possibly increase that markets value, and will indirectly effect various other markets and increase their value, how can you evaluate it's worth?

 
One possible way of evaluating the worth of a patent not discussed in the above posts is that a patent is not worth any more than the expense and lost revenue from  not using the patented technology.   In other words what would be lost by not using the technology compared to a non infringing equivalent, taking into account the cost of coming up with the equivalent?
 
No way to evaluate this based on the hypothetical information you've given.
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Isaac
Faron
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Re: Patents Evaluation
« Reply #4 on: Apr 22nd, 2006, 4:22pm »
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Thanks for your reply Issac. However this situation is not hypothetical but a real situation I am facing. I to find it very difficult to evaluate such a situation.
 
  In reference to the patent search by my attorney's office, they where shocked at not finding anything even closely relevent to this idea. Also the corporations' attorneys mentioned before could find no other relevent prior art. These companies are all major coporations that are publicly traded and have billions of dollars in assets.  
 
 But I guess the answer to the question is, that it can not accurately be evaluated.  
 
Thanks
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