VALUATION OF PATENTS- COMPILED BY ER AVINASH KULKARNI

VALUATION OF PATENTS- COMPILED BY ER AVINASH KULKARNI

Saturday Brain Storming Thought (92) 19/12/2020

Valuation of Patents

It is one of the type of intellectual property

A patent is the granting of a property right by a sovereign authority to an inventor

This grant provides the inventor exclusive rights to the patented process, design or invention for a designated period in exchange for a comprehensive disclosure of the invention

They are a form of incorporeal right

Types of patents

1) utility patents

2) design patents

3) plant patents

Patents protects inventions and new discoveries that are new and non-obvious

Steps for filing a patent

1) determine the type of intellectual property protection you need

2) determine if your invention is patentable

3) what kind of patent do you need Utility, design or plant?

4) get ready to apply

5) prepare and submit your initial application

6) work with your examiner

7) receive your approval

8) maintain your patent

Utility Patent

It may be granted to anyone who invents or discovers any new and useful process, machine, article of manufacture or composition of matter, or any new and useful improvement thereof

Design Patent

It may be granted to anyone who invents a new, original and ornamental design for any article of manufacture

Design parents are granted in US

In India, we call it design registration

Plant Patent

It may be granted to anyone who invents or discovers and asexually reproduces any distinct and new variety of plants

Plant patents are not granted in India, in US it is allowed

A patent cannot be obtained upon a mere idea or suggestion

Laws on nature, physical phenomena and abstract ideas are not patentable matter

The patent law specifies that the subject matter must be useful

Advantages of patents

1) patent gives you right to stop others from coping, manufacturing, selling or importing your invention without your permission

2) you get protection for a pre-determined period, allowing you to keep competitors at bay

3) you can then use your invention yourself

4) alternatively, you can license your patents for others to use it or you can sell it

5) this can be an important source of revenue for your business

Disadvantages of patent

1) your patent application means making certain technical information about your invention publicly available

2) applying for patent can be a very time-consuming and lengthy process

3) market may change or technology may overtake your invention by the time you get patent

4) it will cost you money whether you are successful or not

5) application, searches for existing patents and patent attorney’s fees can all contribute to a reasonable outlay

6) not all patents have financial value

7) you will need to remember to pay your annual fees or your patent will lapse

8) you will need to be prepared to defend your patent

9) taking action against an infringer can be very expensive

Patent infringement

It happens when a third party uses, sells, manufactures or imports patented products or technology without the permission of the patent owner

For infringement to occur, the prohibited activity also has to happen

a) while patent is valid

b) within the country where the patent is in force

c) you can bring an enforcement action in court to prevent future infringement and/or seek damages

Resolving patent dispute out of court

1) send a cease-and-desist letter to the infringing party outlining your legal position

2) negotiate a licensing agreement

3) mediation – the intellectual property office (IPO) offers IP mediation services

4) patent opinion service – the IPO can issue an impartial opinion on validity or infringement of patents

5) although opinion is not binding, it can help to resolve issues without going to court

Remedies for patent infringement

Successful patent enforcement action usually results in one of two legal remedies

1) an injunction to stop infringing activities

2) monetary damages award which can be substantial

Patent valuation on balance sheet

When patent is acquired, generally accepted accounting procedures requires that it be included on the business’s balance sheet as its fair value

If the business purchase the patent, it should be valued at the cost to acquire the patent from the former owner

Patent expiry

Patents expire, because allowing them to last for too long places a constraint on others who want to improve upon existing technology

Current patent laws allows inventors to recoup their investment and profit from their invention without slowing down invention

Necessity of patent

It can help safeguard your invention

It can protect any product, design or process that meets certain specifications according to its originality, practicality, suitability and utility

In most cases, a patent can protect an invention up-to 20 years

Poor man’s patent

Describing your invention in writing and mailing that document to yourself in a sealed envelope via certified mail (or proof of delivery)

The sealed envelope and it’s contents could be used against others to establish the date that the invention was

Idea stealing while patent pending

After filing application, your invention is patent pending

Once application is submitted, nobody can steal, sell or use your invention without your permission

If this happens, they are infringing on your patent, assuming it gets issued

Ways of profit from your patent

1) to create and sell the product you invented

2) license your patent

3) use a patent licensing company

4) use it as collateral for a bank loan

5) sell of your patent rights

6) sell to a business that’s expanding to your country

Patent benefit usefulness

It is only useful to inventors with products for which there is a large market demand

Patent does not help to increase market demand for the product

Patent marking

It refers to a law that allows patent owner to collect damages from a alleged infringer even if they did not possess actual knowledge of your patent

When you comply with patent marking statue, the law states that you have given the world constructive notice of the existence of your patent

Labeling of patented products

You can mark a product by printing patent or abbreviation Pat together with either the patent number or a free-to-access web address of a page that associates this product with the patent number (virtual marking)

Patent Harvard style

1) inventor(s)

2) year of publication (in round brackets)

3) title (in italics)

4) authorising organization

5) patent number

6) available at URL

7) accessed date

Patent requirements

1) subject matter

2) utility

3) novelty

4) non-obviousness

5) writing requirements

Important part of patent

The claim set forth and define the patents scope of exclusive rights

Methods of patent valuation

1) DCF analysis

The income approach is the most popular method of patent valuation

DCF – it looks at the future cash flow from the patents potential commercial use and considers a patents value as the current predicted cash flow of the future benefits

A focus on future earnings

Consistency when comparing a patent portfolio

Most widely accepted and understood approach

2) comparable company analysis

It is a relative valuation method in which you compare the current value of a business to other similar businesses by looking at trading multiples like P/E, EV/EBITDA or other ratios

This valuation method provides an observable value for the business, based on what other comparable companies are currently worth

This valuation method is most widely used approach, as they are easy to calculate and always current

3) precedent transaction

It is another form of relative valuation where you compare the company in question to other businesses that have recently been sold or acquired in the same industry

These transaction values include the take-over premium included in the price for which they were acquired

The values represent the en bloc value of a business

They are useful for M&A transactions, but can easily become stale dated and no longer reflective of the current market as time passes

They are less commonly used

Compiled by:-

Avinash Kulkarni

Chartered Engineer
Govt Regd Valuer
IBBI Regd Valuer

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