A patent is an asset that helps the individual or the company convey to the world and protect from it, a new invention that can make the lives of the people easier. It also helps in contributing to the inventor’s own growth. Intellectual property brings with it a lot of benefits and profits to the individual or the company. By understanding the need for financial and evaluation, we can understand the importance of patents and their applicability in such situations.
It is very important for any company to evaluate its own patents. They should be able to understand the worth of their patent holds. Since the market fluctuates with time, so does the patent owned by someone. Each and every patent holds a value that is added to the worth of the inventor or the company. Therefore, the company should be evaluating its patents and should be clear about the valuation. The valuation may be different with time as when any new technology emerges in the market, the patent value decreases. Therefore the company should be evaluating its intellectual property from time to time to ensure its true value and they would be able to change its strategy as per the needs and wants of the market as per the market fluctuations.
What is patent valuation?
A patent. Valuation is just about knowing the economic value of a patent that an individual or a company holds. By doing this, the company is able to ascertain the economic value or worth of a patent for the company. Valuation of a patent also helps in creating strategic decisions that would ensure profitability for the company. The three major approaches used in the patent industry for patent valuation are-
- Market Approach
- Income Approach
- Cost Approach
Why patent valuation is important?
Patent valuation is one of the most important items of an IP strategy. If any inventor possesses any patent, the value of the patent would be the money needed to replace the invention. Any person who is interested in the patent would not be willing to pay more than the amount they would have given for the protection of that invention. Patent valuation is important in many aspects, such as-
- In Mergers or acquisitions- In a merger, acquisition, or any such venture such as a joint venture, etc. the valuation of a patent is required as it plays an important role in such activities. Since intellectual property is the bedrock of the market depending upon technology, therefore, when it comes to mergers or acquisitions, or joint ventures, the value of the intellectual property is required for future decisions.
- IPR licensing: As already mentioned, IP licensing significantly affects valuation. The true value of the IP will determine the license conditions, so a solid contract requires accurate valuation.
- Patent Conflict and Dispute: Another crucial area where understanding the value is essential is in the context of patent conflict and dispute. Even when in dispute, a fair recovery depends largely on the accurate appraisal of intellectual property (IP).
- Loans and Capital: Since patents are frequently used as loan security, it's critical to accurately quantify patents in order to establish loan amounts and draw in investors.
- Other than the aforementioned, valuation is also needed for accounting and taxation purposes of the company wherein the company is required to report their assets
Since valuation holds so much importance for a patent, the company must be aware of undertaking such activities. As said earlier, various approaches can be taken into consideration while evaluating the worth of intellectual property. The cost-based method may be used where the development of a patent and its economic value is ascertained. Another may be the market-based method wherein the evaluation of the patent would be decided while keeping in mind the market forces and the market transactions. Or the valuation would be income based where the valuation is dependent upon the income flow that the patent generates.
Hence it is greatly advisable for the companies to undertake such activities such as patent valuation which would be a great benefit for the company.
