Patent Attorney and Founder
So you’ve got your patent issued and maybe you can have a portfolio of patents but what are they worth what is the true valuation of your patent portfolio hi I’m JD Houvener, owner and founder here at bold patents law firm and today we’re going to go over three fundamental ways of evaluating as well as two more advanced ways engines are valued in today’s economy so let’s jump right into it first way this is these are three fundamental ways that patents are valued the first way is cost and this is sort of a basic easier way to measure value is looking at how much investment has there been in the invention itself so if you look at all the costs related to you know forming actually getting the invention developed or if it’s testing it hiring an attorney to protect the patent doing research and development and maybe customer tests beta tests or even some of those more sticky FDA required clinical trials or whatever you’re going through in order to bring your product to Market all those costs those Investments those can be attributed to at least a base level value and there is some you know trouble with this assessment because there’s this you know um I’ll say it like a assumption that all the costs that have been put into the patent that go toward the research and development that it’s actually going to be worth that on the market there is that base assumption like hey okay I purchased this house for x amount of dollars at least it’s going to be worth X when I go to sell it that’s the basic fundamental premise with the cost method that you all the inputs all the research all the time and effort energy and money that went into developing this patent and portfolio is what it’s worth now at least this much it’s a conservative approach so number two market assessment all right so looking at not just how much investment is but what is the true um actual sale looking at other published sales that have been um recorded and shared with the public what are other licensing deals that have that are currently being done or have been done recently to look at what’s evaluation if I were to go to market and sell my license or sell my portfolio outright or to license it the trouble there is that a lot of deals are done in confidence for you know good reasons they want to they don’t want to necessarily say what they’re selling for but there are ways to get that information through confidential sources and sometimes it’s a great way to see okay how much is this actually worth and then going looking at what the market currently brings for these these types of products okay uh the third fundamental way of valuing patents is the income method now income has to do with forecasts usually unless you actually have income around your product or service if you want to try to value your patent portfolio pre-revenue you’re forecasting and that is considering what is the cost to make the product you know the cost of to get the product what’s called landed what is your prospective margin and what do you what’s your you know um your forecast your projections for your sales and that could be for one two three years now the issue there is that accountants that perform these types of valuations will need to do a present day calculation you can’t just acquire income out you know 10 20 years what is that in present day valuation so they’re going to bring back the the time value of money into the current day so it’s all calculated based on what the present current day evaluation is based on what the projected income will be now this does come with a lot of you know hypothesis and best guesses in terms of how the market will perceive it how the the cost might go up or down with you know supply and demand with raw material Goods all of that those are all variables the I’ll go into that calculation that is probably the most common one is the income stream method so we’ve talked about cost market and income those are the fundamental ways of valuing a patent or patent portfolio there are two more complicated ways the first one is what’s called an option based option based valuation and this is sort of akin to the financial markets where you will consider your the value right the patent itself and there’s this option similar to what a financial put would be if you’re familiar with financial terms and it’s this ability to not not be obligated but to have an option to purchase or sell and exploit the patent down the road and so this is sort of like packaged you know contractually defined option that you can sell and go to market with and that is what’s valued is what is that that sort of specific type of option worth this is more usually the way that very high growth or very high risk um inventions in the biotech or pharmaceutical industry are valued at times because there’s so much volatility with respect to you know large sometimes even political issues that can arise with laws that are passed or with policy change with respect to Pharmaceuticals specifically so that’s why options can be the best option to Value more high-tech biotech those sort of inventions the second fairly complex way to value a patent is called Monte Carlo Monte Carlo you know not time we’re going to the casino here we’re talking about Monte Carlo in the simulation so using computer Aid to to run thousands or maybe even millions of potential scenarios where you put in lots of lots of variables maybe even hundreds of variables with respect to market conditions technology fluctuations global warming right you know different variations in foreign exchange and currency to see okay what are the different ways that this could go to market um and what are the what’s the most sort of what’s the average among all these various different potential scenarios and looking at the most rare you know super I don’t know touchdown uh best potential options as well as some of the lower really undesirable options for valuation and coming up with this really robust computer-aided way of simulating all the different options that are possible of course there’s a lot of you know investment in actually hiring a CPA or even a specified company that will perform this type of money Carlo analysis for you so it’s usually for companies that have sizable patent portfolios that can do these types of analyzes um but in any way there are ways to value a patent even pre-revenue right even before you’ve actually gone to Market you want to know what you might build a sellot or license it for the three fundamental ways as we talked about today are the cost method looking at what are all the different ways that money that I put put up already to kind of put a baseline okay at least it’s worth what I’ve invested option number two and the fundamental is the market approach we’re looking at published you know publicly available licensing agreements or sales of patents or portfolios so you can see I feel like my patent is a lot like that one and it just got sold for x amount of dollars mine is worth at least that the third bundle away is the income approach as I mentioned looking at forecasting what your sales are going to look like what the margins are and the overall net valuation there so those are the three basic ways hope you all learned that something about evaluating patents today and if you’re brand new to this and you want to get started I encourage you to please book a link click the link below and and they’re subscribe to our channel uh that link is a discovery call to see if now is the right time for you to move forward to see if patenting is the right thing for you um trademarking as well we’re happy to help with any questions you have so I wish you guys a wonderful day and wish a great week ahead go big go Bold!