Patent Valuation
“How do you determine what a patent is worth?” We heard this question in law school and in practice from fellow patent attorneys, corporate attorneys and clients. For that matter, we have put the question to fellow patent attorneys, corporate attorneys, clients, and in-house counsel. The truth is, there is no simple answer. A mature market for trading in patents does not exist in the same manner that a mature market exists for real estate, corporate stock, or commodities. Unless you are selling a patent that has a steady and somewhat predictable license revenue stream, the value of the patent is very fact specific based on the needs and resources of the buyer and seller.
One company out there trying to help identify a price tag for patents is IPOfferings, LLC. They collected the sale price for 35 patent transactions in 2012 and calculated a per patent sale price of $373,573 with a median value of $220,558.00. That seems high. These sales frequently represent the sale of portfolios rather than the sale of individual patents (e.g., Kodak sold 1,100 patents for $527MM, an average of $479,091/patent). With only 35 transactions identified, it is safe to assume these were primarily the most highly publicized transactions and so publicized because they were so expensive. The sale price of these patents is not going to inform the sale price of most patents.
It is worth noting that patents sold in bulk are not going to be reviewed with the same scrutiny that is available for the sale of one or two patents. If you are building/selling a portfolio, it is also worth considering that their smallest 2013 transaction to date for a portfolio (30+ patents in one transaction) was approximately $90,000/patent. Researching the matter on our own, we could not find a publicized sale of a patent portfolio sold for less than $73,000/patent. Again, these are the highly publicized transactions.
What about individual patents? We looked far and wide for a useful tool to provide our clients with a rule of thumb for patent sales and the table below is the best tool we could find. The table was generated by Tynax, Inc. and a full explanation of the table can be found here.
A couple caveats come with this information. First, both of the above sources are in the business of brokering IP sales, they earn a percentage of each brokered sale, and they have incentives to spur transaction volume and price, which can be done by inflating price expectations. Relative to the table, I would add that a patent can have no value ($0) without being invalidated or expired. Some patents seem like a good idea once initiated, but end up protecting a technology this is not commercially viable. If you are selling one or two patents and you have a buyer, it is safe to assume your patent covers technology that is commercially viable. If you are selling a portfolio, it is unlikely the buyer is going to do the work to identify if any of the patents is worth less than $10k. Instead, they will focus on which patents are special (worth more than $30k) and commoditize the rest between $10k and $30k.
Over the years, we have been involved with many IP transactions as both buyers and sellers. If you are purchasing or selling any IP rights, contact one of our attorneys for assistance.
