10/23/13
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`EPO - Patent portfolio management and patent evaluation - FAQ
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`Patent portfolio management and patent evaluation - FAQ
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`Questions
`What is a patent portfolio?
`What is patent value?
`How much is a patent worth?
`What exactly is evaluated in a patent evaluation?
`What are the reasons for carrying out a patent evaluation?
`Who carries out patent evaluations?
`Who might be interested in a patent's value?
`What are good indicators of patent value?
`What do the statistics say about patent value?
`How do you measure patent value?
`What is qualitative evaluation and when is it used?
`Does the EPO carry out patent evaluations?
`What EPO tools are available to help with patent evaluation?
`How does IPscore work?
`
`Answers
`What is a patent portfolio?
`A patent portfolio is the list of patents owned by an individual or a company. Managing your patent
`portfolio and comparing it to those of other companies is essential to helping you better determine the
`economic value of your own patents and remaining competitive. Patent portfolio management can help
`you to identify opportunity and risks factors (e.g. growing markets/appearance of substitute
`technologies).
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`What is patent value?
`The value of a patent is the future commercial utility that can be extracted from the use of the patent.
`The patent may be used to protect one's own products or to create licensing income.
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`How much is a patent worth?
`The value of a patent depends on the reason for the evaluation and who is exploiting the invention. For
`example, a patent will be valued differently if it is part of a bankrupt company's assets than in the
`context of ongoing production. The value it has for a bank, which can only resell it, is different to its
`value for a market participant who already has the means to produce it.
`
`In addition to monetary value, patents also have a non-monetary value. For example, they may improve
`the image of a company. Receiving patents for their own inventions may also increase the inventors'
`reputation and act as an incentive for even greater innovativeness.
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`What exactly is evaluated in a patent evaluation?
`When carrying out a patent evaluation, it is important not only to consider the patent as an exclusivity
`right, but also to consider its underlying technology, as well as the company's ability to use its
`complementary assets (i.e. its ability to commercialise the invention).
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`While it may be desirable to value each patent individually in theory, in practice, it can be difficult to
`separate two interdependent patents.
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`In many cases, it makes sense to evaluate whole patent clusters rather than individual patents.
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`What are the reasons for carrying out a patent evaluation?
`The need to find out the value of a patent can be triggered by both internal and external factors:
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`Internal
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`External
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`optimisation of patent portfolio costs
`alignment of patent strategy to overall business
`strategy
`remuneration of inventors
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`www.epo.org/searching/essentials/business/valuation/faq.html#faq-142
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`EPO - Patent portfolio management and patent evaluation - FAQ
`financing
`licensing
`mergers and takeovers
`accounting (IAS 38)
`enforced evaluation (insolvency,
`damages)
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`Who carries out patent evaluations?
`The skills needed to carry out an evaluation depend very much on the purpose of this evaluation. But a
`thorough evaluation requires expertise in many areas, including marketing, finance, R&D and strategy,
`so it is a good idea to use an interdisciplinary team.
`
`To ensure a meaningful result, the team should therefore include experts in both the patent subject-
`matter and evaluation methods.
`
`The methods used for monetary evaluation should be transparent, so that the results can be checked
`and verified.
`
`Support from intermediaries, e.g. PATLIB centres or national patent offices, may help to improve the
`evaluation process. Such intermediaries can also give advice on how to interpret and profit from the
`evaluation results.
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`Who might be interested in a patent's value?
`Apart from applicants themselves, a patent's value is mainly of interest to technology transfer institutes,
`banks and venture capitalists.
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`What are good indicators of patent value?
`Research has identified a number of indicators that may be used to assess a patent's value.
`
`The number of forward citations is often used as a strong indicator of patent value. A forward citation
`is a reference to the patent to be evaluated in a later document. An analysis of such citations produces
`a network of links called a patent citations network which is used in evaluation. The number of times a
`patent is cited indicates its scientific importance and therefore its value.
`
`Other indicators of patent value include:
`the patent family size
`the lifespan of a patent
`the outcome of oppositions to the patent application
`the number and quality of claims
`
`These factors or "value indicators" can influence the value of the patent both positively and negatively
`in the same way as factors such as location, numbers of rooms, nearby schools, etc. affect the value of
`a house.
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`What do the statistics say about patent value?
`Statistical analyses have shown that the number of patents with a very high value is quite small, and
`that the value spread varies from country to country.
`
`In 2005, a PatVal-EU study estimated the economic value of patents by collecting data on more than 9
`000 patents, including their value and a broad set of characteristics describing the context of the
`invention. The study estimated that only 7.2% of patents in the sample were worth more than EUR 10
`million each, while 68% were worth less than EUR 1 million.
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`PatVal-EU study
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`How do you measure patent value?
`Methods of evaluating patents for business purposes can be divided into two groups - quantitative and
`qualitative. Quantitative ways of assessing the value of a patent or patent portfolio attempt to calculate
`the monetary value of the patent. They fall into three basic categories:
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`1. Cost method: Cost theory looks at the costs which would be necessary to develop and patent a
`similar invention, either in-house or externally. This approach is generally used in accounting and
`bookkeeping.
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`2. Market method: Market-based methods value patents through comparison with prices achieved in
`recent comparable transactions. These methods require an active market, a comparable exchange of
`IP between two independent parties, and sufficient access to transaction price information.
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`3. Income method: Income-based methods measure the potential income that can be derived from a
`patent; the calculation of the present value of the patent on the basis of anticipated future income (less
`interest).
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`IPR2016-00754
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`EPO - Patent portfolio management and patent evaluation - FAQ
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`All three methods have their advantages and disadvantages, and the most suitable one must be
`chosen on a case-by-case basis. It is therefore always a good idea to get legal and professional advice.
`Here is an overview of the advantages and disadvantages of all three methods:
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`Method Advantages
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`Disadvantages
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`Cost
`method
`
`patents become visible in the company's books and
`patent awareness is increased
`useful indicator of patent value in the case of patents
`whose future benefit is not yet evident
`
`Market
`method
`
`relatively straightforward evaluation method
`useful to check the validity of other approaches
`
`Income
`method
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`relatively simple
`likely availability of required inputs from company's
`financial statements and market information - may be
`possible to identify/forecast cash flows
`
`no direct correlation between
`cost of development and the
`future revenue of patents
`future revenue from patents is
`not considered
`the cost method can encourage
`overspending
`
`
`limited formal markets for IP
`relevant pricing information not
`usually public
`uniqueness of IP makes direct
`comparison difficult
`
`can be an uncertain method
`and subject to subjective
`assumptions
`both uncertain and distant cash
`flows and the discount rate
`have to be estimated
`
`Different evaluation methods are needed for different target audiences, e.g. prospective investor,
`internal management, etc.
`
`The preferred method of most companies is the income method.
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`What is qualitative evaluation and when is it used?
`As quantitative evaluation only gives an indication of the estimated monetary value of the patent, this
`approach is often insufficient as a basis for recommending business strategy decisions. Qualitative
`evaluation goes further by identifying the strengths and weaknesses of the patent and creates a value
`guide through the rating and scoring of different factors related to the patent.
`
`For example: Even if the outcome of a quantitative evaluation was, "The patent is worth EUR 50 000",
`the result of a qualitative evaluation could be, "The patent protects a technology of strategic importance
`for an attractive market; it can be enforced efficiently, but significant investment is still needed".
`
`Qualitative evaluation methods are most often used for the purpose of internal patent management.
`They are most useful for comparing, categorising and ranking patents within a portfolio or vis-à-vis
`competitors' patents. They are also useful for assessing the risks and opportunities of patents.
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`Does the EPO carry out patent evaluations?
`The EPO does not provide tailor-made patent value assessments. It can, however, advise users and
`guide them to the appropriate tools that will help them carry out their own patent or patent portfolio
`evaluation.
`
`Watch out for virtual classroom seminars on patent evaluation and portfolio management on the EPO's
`searchable event calendar.
`
`Searchable event calendar
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`What EPO tools are available to help with patent evaluation?
`The EPO has acquired, adopted and distributed the "IPscore" software to the national patent offices in
`its member states.
`
`IPscore, developed by the Danish Patent and Trademark Office in co-operation with the Copenhagen
`Business School and industry, enables you to carry out a qualitative evaluation. The IPscore method is
`used to value technology, patents and patent portfolios internally, within companies, and provides a
`framework for evaluating and strategically managing patents.
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`How does IPscore work?
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`www.epo.org/searching/essentials/business/valuation/faq.html#faq-142
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`Apple v. PMC
`IPR2016-00754
`Page 3
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`EPO - Patent portfolio management and patent evaluation - FAQ
`10/23/13
`The IPscore assessment of a patent consists of five categories: legal, technology, market, finance and
`strategy. Each question relates to a different value indicator. In each question the patent is rated 1-5
`according to its strengths and weaknesses. Together, the 40 or so value indicators form a whole picture
`of the patent and related risks (e.g. existence of an alternative technology) or opportunities (e.g.
`winning new markets). These are then displayed in various tables and graphical forms to be used by
`management for taking strategic decisions. In this way IPscore can display information relevant to the
`decision-making process and facilitate cross-functional co-operation within companies.
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`Last updated: 10.1.2011
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`www.epo.org/searching/essentials/business/valuation/faq.html#faq-142
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`PMC Exhibit 2024
`Apple v. PMC
`IPR2016-00754
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