Different invention owners have already submitted their patents and USPTO (United State Patent and Trademark Office) have already awarded 4400 patents for the simple thing like a mousetrap alone! Now there is a big difference between innovation and invention. The invention is a process to develop something new, whereas innovation is the process of making it enable to use the invention. The scotch tape is an invention. But putting it inside a dispenser so that people can use it is an innovation. Similarly, the development of a thread for flossing the teeth is an invention, but the floss dispenser use minimizing wastage is an innovation. Both innovation and invention come with intrinsic values. Innovation unlocks the latent value of the invention. In this article, we will focus on the value of the patent information meant for innovation.
The WIPO or World Property Organization defines intellectual property as the mind creations such as the inventions, designs, names, artistic and literary works, symbols, and images used in commerce. Owners and creators of IP or Intellectual property include the required rights for allowing the owners to get an advantage from their current investment or work in creation.
Definition of a Patent
Based on the definition of WIPO, a patent is an exclusive right granted to the owner for the invention- a process or a product that offers a new way of operating something or something that will be a new technical solution for the problem. A patent remains valid for more than 20 years from the application date. But always remember to go through a thorough patent information search before filing for it. You can perceive it as a contract between the society and the inventor, where the society will grant the rights to the inventor to get profit from his/her discovery for a specific period. It can be in exchange for the discovery becoming public that can advance state of the art.
Definition of Trademark
According to WIPO, a trademark is defined as the distinctive sign that will identify certain services and goods provided and produced by an individual or a company. A trademark is significant to create a brand, the value of which will be a vital driver of the company’s total value. For instance, the brand value of Apple is 146 billion dollars, and Coca-Cola’s estimated brand value is 30 billion dollars.
A trademark registration, unlike patent registrations, does not include any expiry date. However, according to the USPTO, it requires continuous use to remain valid. It is for the business interest that you need to register the trademark as soon as you can.
Different Valuation Methods of the Intellectual Property
According to Professor Susan Chaplinsky of the University of Virginia, You can value intellectual property using the different approaches mentioned below. Now let us check out one of these methods in great detail.
1. Income Approach
This process primarily focuses on the cash flows in the isolating future, attributable to a particular intellectual property piece over the lifetime. Even though the patent lifetime is for 20 years, it will create the required cash flows in the patent future life. It will happen as the underlying technology present in the discovery will become obsolete. You can think about the patent value for the optical discs like the DVDs, after the streaming advent and solid storage devices like USB drives.
You can calculate the present value of the net future cash flows by implementing a discount rate, taking into account the time money value and the risks associated with the market. There are different approaches like WACC (Weighted Average Cost of Capital) or CAPM (Capital Asset Pricing Model) to calculate the approximated discount rates.
Numerous risks are also connected with the income approach process. First of all, new patents might make the old ones obsolete. There are no ways to know what different new patent applications were or will be filed. The USPTO will make all the information related to the patent public only after approving them. Even after the patent is issued, other people might attack it through an infringement lawsuit on the previously issued patents. Successful infringement lawsuit challenges might also nullify even the issued patents. This approach needs great care in assigning the revenue streams for the particular inventions.
2. Market Approach
The market approach method is similar to the approaches used in the business. But in place of evaluating the entire business, this method might compare the invention to those of the different competing companies. It will also try to benchmark the company valuation in the market. It will also become exceptionally difficult to attribute the various revenue systems to a single invention. Thus a massive portion of the product insight and the market is necessary for making a valued judgment.
There are different firms whose primary business is to get the licensing of the intellectual property. They also release the patent information disclosure statement once the authorities approve the patent.
3. Royalty Relief Approach
This method calculates the royalty stream a firm will have to pay for ordering the license to the relevant intellectual property of another firm. Once there is an establishment of the royalty stream, you can implement the discount rate to arrive at the current royalty stream value. It will become the IP logical value. A big understanding of the market and technology sector is also necessary to determine the comparable patents for getting a credible valuation.
The Patent Value
A patent will give the inventor the necessary right to exclude others from using, making, or offering a sale for what the owner claims to be present in the patent. However, it will give the investor the right to use, offer, and sell the claimed discovery. It is because there might be other aspects into consideration like other patent existence in the same sector, the requirement for obtaining the regulatory approvals from various agencies like national security concerns or FDA, or patent application information retrieval.
It is, thus, significant to consult a professional patent attorney to be aware of the worth of the patent information for the innovation. You also need to be careful of other patents present in the same sector.