Appraising a Patent

by Victoria Duff

Many entrepreneurs invent new technology or innovate ways to produce or improve a product or procedure. Patenting these ideas is vital to the company's market position because it makes competition more difficult and adds to company asset value. Asset value is key to attracting bank loans and venture capital. Whether valuing your own company or evaluating an acquisition, appraising any patents is an important step in enterprise valuation.


In valuing a patent, first gather information so you know exactly what you have. Many patents look good, but are actually obsolete or expired. The U.S. Patent and Trademark Office is your source for all U.S. patent information. Look for any foreign patents and applications that are similar or have been filed to support the patent in question. Obtain any other documents such as a business plan, other appraisals, contracts, licensing agreements and any description of litigation or litigation files. Then, research the industry, the target market for the patented product and any engineering or manufacturing feasibility studies.


Many inventors avoid patents because once a patent is filed, everything about the design and manufacture of the product becomes public knowledge. In fact, many people are in the business of taking newly filed patents, changing them slightly and filing a new patent. A string of similar patents can affect the value of your patent, which is why research is important. It may even provide you with a forest of protective patents to acquire and add to your patent portfolio.


Many people have patents that are not feasible to manufacture or useful in real life. If your company is considering buying another small company that has a patent, thinking about buying a patent that could add a new revenue stream or planning to patent an invention of your own, that patent's value is in its ability to create revenues. If the product patented can't be inexpensively manufactured, distributed to a large target market of consumers or incorporated as an improvement to an existing product, it has little value.


It is always difficult to protect a patent from infringement. If someone is producing a product that competes with your patented product, even if you can prove infringement, the cost and time it takes to make an infringement claim stick makes fighting the infringement almost not worth the trouble. This is particularly true if it is a large or foreign company infringing on your patent. In valuing a patent, existing infringement or the ease of infringement is a major detractor to value.

Realistic Value

A valuable patent is, realistically, one that some big company wants to buy or which adds a significant revenue stream to your own company. It may be a vital part of the company's patent portfolio. Patents that are protected by other similar patents are more easily defended because the strategy in protecting a patent is to build a forest of protective patents. This makes any similar product an infringement on at least one of the patents in the portfolio forest. A single patent, though, is limited in value unless it has been successfully defended, produces licensing revenue and has companies seeking to buy it.

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