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How to value patents: in the eye of the beholder?

By Lawrence B. Ebert, Esq.

In a recent post, the IAM blog, in discussing patent valuation by the National Science Foundation [NSF], noted:

Patents on inventions for which protection is sought in the United States, the EU, and Japan require substantial resources for obtaining and maintaining them. This suggests that their owners consider them to be valuable. These patents are herein treated as an indicator of the distribution of high-value patenting around the world.

[as mentioned in the IPBiz post,
NSF on high value patents ]

Specifically, to be included as a "high value patent" in the NSF analysis, a patent application had to ALLOWED in the US, and filed in the EU and Japan. In their words, This suggests that their owners consider them to be valuable.

In a BusinessWeek post titled Debunking the 'Patent Troll' Myth, Ron Epstein looks at this subjective view of patent value in a different light:

In my experience as a patent broker, patents coming from the individual inventor/failed entrant category are of much greater quality and value than those coming from operating companies. When I tell people this, they are usually incredulous. They forget that U.S. tradition has long featured individual inventors. Perhaps more important, the $25,000 to $50,000 or more that it takes to obtain a patent means a lot more to an individual than it does to a company. As a result, individuals are much more likely to limit filings to innovations they feel passionate about. They spend more time ensuring that they get good patents.

That is, the inventor who spent his last $25,000 on a US patent application, is laying (proportionately) more on the line than a corporation which spends $125,000 on filings in the US, the EP and Japan.

However, either measure is subjective, based on "how much" the patent applicant is willing to spend. To actually HAVE value, an invention embodied in a patent application has to be coupled with a business plan to exploit the invention. Sometimes an inventor has a business plan, sometimes not. With a patent in hand, the inventor can go to someone else to help the inventor out. LBE has written much about the Spencer rifle of the Civil War, wherein the patent enabled the inventor to go to someone else, who made the invention valuable. Chester Carlson struggled for years to interest big companies in xerography, but succeeded only with a little company, who took a chance.

Epstein also goes after the myth of the "evil" non-practicing entity:

The second major criticism is that NPEs shouldn't ask for money if they're not producing anything. While the suggestion is emotionally appealing, it ignores economic realities. To "produce" a product, an inventor must not only invent something, but also raise capital and hire a team. The inventor must manufacture, market, and distribute the product.

Full post as published by IPBiz on February 02, 2010 (boomark / email).