Patents provide value for a business and protect a company’s future. A company with minimal revenue can attract significant investors if the company owns patents that project the probability of future earnings.
Key to the value of products businesses produce is patent protection. Patent protection correlates with value and product credibility. Here’s how to understand what a patent is worth.
The value of a patent
Each year the US Patent and Trademark Office issues more than 3,000,000 patents. It is common for top businesses to hold many patents (IBM holds more than 90,000).
Securing a patent can be a lengthy and costly process. The filing process (including attorney fees) can exceed $50,000. Nevertheless, many see the value of securing a patient. This is evidenced by the growth of patent and intellectual property law work. Noted below are three reasons securing patents is often a crucial step for start-ups and growing companies:
- Patents translate into value, and value drives engagement from investors. Filing a patent application is a good first step but not a good destination. An investor understands the patent process can take three to five years, and weak safeguards surrounding company products and processes can cost millions if challenged in court. I encourage businesses to access professional assistance and secure patents sooner than later. This increases the value of a company, and ultimately, a good air patent portfolio will pay for itself.
- A solid patent portfolio can increase the perceived value of a start-up company by up to 50%. Patents provide an underlying value that multiplies the worth of the business. Businesses with good, protected IPs are attractive to investors and potential purchasers. As a patent attorney, I have seen strong patents play a principle factor in successful and lucrative sales.
- Securing patents on key products and processes positions businesses to thrive on many fronts. A good patent serves as a foundation upon which the company can build strong marketing and sales strategies. Further, patents that protect the underlying technology supporting the product or key processes presents the company with exponentially more options regarding future adaptation and enhancement.
Foundational thoughts regarding your business and patents
- Hire creative people. Hire those who enjoy creating, building, painting, or exploring.
- Protect your online name and reputation by reserving social media accounts and domain names for your company.
- Project where you want to be in five years and consider how patents will support your goals.
- Make every effort to guard your product and intellectual property–particularly if proper safeguards (patents) are not fully in place.
- Research the types of patents, the steps to secure a patent, and the limits each type of patent provides. Let this information help guide your strategic planning process.
A simplified way to assess the value of a patent
Value can be influenced by variables not mentioned in this article. However, the simple four-step process noted below can provide a starting point for determining a patent’s value.
Begin by asking yourself the following questions:
1. Is the patent associated with direct cash flow?
Does your patent contribute to a regular income stream? Note: Anticipating a patent-related revenue benefit in the future qualifies as a YES answer to the question
Would your product or business be negatively impacted if not protected by a patent
If the answer to any of the above is NO, then the patent may have minimum value.
Proceed to the point #2 (below) IF the answers to the above is YES
2. When does the patent expire? Project how long there be cash flow associated with this product?
3. Multiply the cash flow from the patent (noted above) by the projected length of time the patent will produce an income stream.
4. The patent’s value is 0.10 to 0.15 times the value noted in point #3 above
Utilize patents to protect your products and intellectual property. Patents can be monetized and should be viewed as tangible assets. In today’s tech world, a good patent is the same as gold or oil.
I leave you with this counsel: Be wise. Be proactive. Anticipate needs and strategize. Utilize every safeguard at your disposal to protect your interests. Remember the words of comic John Alejandro King: “Necessity is the mother-in-law of patents.”