While defining the meaning of intellectual property, it’s associated with “creations of the mind”. This is simply because original ideas in today’s times, especially the ones that help in the general good of the society are deemed to be commendable. The fact that an original idea takes months and sometimes years to take a form with a lot of effort and research put into it, makes it imperative for the idea to be protected.
This is where the idea of a patent comes in wherein the “patent is an exclusive right that is given to the inventors to protect their creations of mind i.e. innovation”.
As a significant need for intellectual property, a patent also enables inventors to earn monetary benefits by trading the exclusive rights that are associated with the patent. However just the fact that an idea is original doesn’t necessarily make it a worthwhile intellectual property. Sometimes it may be worth nothing at all or worth much more than it is being credited for.
Patent Valuation tends to calculate the real market value of the patent. For the practice of trading patents to take place, the real value of the intellectual property is required. There isn’t any legal framework defining the laws related to patent valuation as well, different institutions use their own methods to determine the market value of the patent.
A key method of valuing the patent is to obtain a value of the invention in question and make sure that it results in a suitable return for the inventor. As patents are intangible, sometimes it becomes difficult to attach a monetary value to them. One of the key factors entailing patent valuation is finding the correct parameters by which to determine the best market value of the patent.
The traditional method of patent valuation entails calculating a Net Present Value (NPV) of a patent which accounts the overall profits made by an entity using patented technology in a particular market. NPV’s parameters include market size, market share, annual turnover of the patent by the given market size and share, absolute profit and product factor which evaluates how important the subject technology is to the overall product.
While this method is good, it has been unsuccessful in providing the actual contributions of the patent. Sagacious has come up with a more practical approach of Patent Valuation which they have termed as the “hybrid approach for patent valuation”. They use 25 different indicators with scoring criteria and all their scores clubbed together helps determine the intellectual property factor (IPF). This IPF multiplied with the traditional method is observed to have arrived at a more practical value of patent licensing and can be considered as the most practical approach to patent licensing. Thus, patent valuation is a core practice required in businesses and therefore requires a practical outlook.