How to Value a Patent

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Jane Lambert

On Thursday 9 May 2024 I attended the Finance and Innovation Conference which took place at the Menai Science Park on Anglesey.  I wrote about my visit in M-SParc's Finance and Innovation Conference on 10 May 2024 in NIPC Wales.  Two of the most interesting conversations were Gwenllian Owen's discussion with a group of business angels and Edward Thomas's discussion with Steve Livingston and representatives of several local financial institutions.  All of those angels and institutions offered funding of various kinds to early-stage enterprises whose assets were likely to consist of little more than a patent or patent application or sometimes just an idea for an invention or business,  A question that I was bursting to ask them was how do you value the assets of such a business?

Because of the very full programme, there was not enough time for me to ask that question to either group of speakers so I decided to research it for myself.  This is what I have come up with.   The short answer is that a patent (or any other intellectual property right for that matter) is what a willing and informed assignee would pay a willing and informed assignor bargaining at arms' length.  I reached that conclusion after reading Valuing Your Intellectual Property which was published by the UK Intellectual Property Office on 12 Dec 2014 and last updated on 4 Jan 2022, How do you measure patent value? published by the European Patent Office and Valuing Intellectual Property Assets published by the World Intellectual Property Organization, the United Nations specialist agency for intellectual property.   The IPO's guidance incorporated the above animation.

Each of those publications refers to three methods of valuations:

• the cost method
• the market value method, and
• the income or economic benefit method.

The "cost method" is the owner's expenditure on developing the intellectual asset and is likely to include such costs as labour, cost or hire of premises, plant and equipment, raw materials, consultancy fees, prototyping and testing and patent prosecution.  The attraction of this method is that the purchaser does not have to incur those costs but the drawback is that the assignor may well have gone about his or her research and development work in the most efficient way.  Also, the IP right may not protect the asset as well as it might.   Expect a lot of horse-trading between the owner and his or her buyer, investor or lender. 

The "market value" method is to compare the proposed transaction with similar transactions relating to similar intellectual assets.   That is likely to be more accurate than the cost method where the relevant information is available because it is about transactions that have actually taken place.  One problem is that the parties may not wish to publish information about their deals.  Another is that the times may have been different.  A transaction that makes sense when interest rates or low or market demand is strong may be unviable now.  Yet another problem is that there may be significant differences between the invention in one transaction and the invention in another.   Also, newly formed businesses or businesses operating in a new technology or market may not be able to point to comparable data,

The "income" or "economic benefit" is the deduction of past and anticipated costs of developing the asset from the past and anticipated revenues that it may have and may continue to generate.  The problem with this method is that it requires a lot of crystal ball gazing and is likely to be subject to a lot of wishful thinking. However, if there are some licensing deals producing verifiable royalties or an income-generating invention it may be the most accurate method yet.   According to the WIPO, the income method is the most commonly used method of valuation.

There are businesses like Ocean Tomo that hold IP auctions from time to time.  I have no personal experience of them so I can neither recommend nor not recommend them. Readers contemplating such services should make their own enquiries, take their own advice and form their own views as to whether an auction would benefit them.

There are also businesses like Inngot which offer valuation services.  Inngot was co-founded by a distinguished academic lawyer who has recently retired as Principal of Bangor University.  I have shared a platform with one of its former employees on two occasions very successfully and have high regard for its publications.  However, I have no experience of its valuation services.

A first step for any business which wishes to value its IP would be an IP audit.  Readers may wish to consult How to Use an IP Audit which I wrote in NIPC News on 13 Jan 2022.  They may also wish to use the IPO's handy IPR Valuation Checklist.   While I do not carry out IP audits myself I can certainly address legal issues that may arise in the course of such exercises such as construing patent claims.   Anyone wishing to discuss this article may call me during office hours on 020 7404 5252 or send me a message through my contact form.

Saving Money on IP at a Time of Rising Prices

 

Jane Lambert

At a time of rising production costs and weakening demand for their products and services, businesses are tempted to reduce or even curtail their spending on intellectual property services.  That will often prove to be a mistake because brands, designs, technology and creative output are rather like the golden eggs in Aesop's fable and the laws that protect them the goose   The reality is that many businesses will take that risk because savings have to be made somewhere.  There are, however, steps that can be taken that will save money but not increase risk excessively.  Those steps are suggestions and not recommendations. There will be occasions when only the most expensive option will do.  That will depend entirely on the circumstances. 

Ascertaining Intellectual Assets

Before any decision can be taken as to what intellectual assets are to be protected a business needs to know what it holds.  A patent or trade mark attorney or solicitor specializing in IP will carry out an IP audit for a fee and there are some schemes that will pay for such audits (see How to use an IP Audit 13 Jan 2022 NIPC News).  However, for businesses that do not qualify for such funding and do not want to pay such fees, there are two very useful diagnostic tools from the WIPO and the IPO that will do much of the work for nothing.   

The WIPO IP Diagnostics generates a customized report with recommendations.  There is more information in WIPO IP DiagnosticsAn IP self-assessment tool for SMEs and the WIPO IP Diagnostics Frequently Asked Questions.  The only caveat is that the WIPO tool is not designed specifically for British users though most of the information will apply to users in the UK. 

The IPO's IP Health Check is designed for users in this country.   It will also generate a report covering

• "a personalised list of actions to take
• an explanation of why we have made each recommendation
• guidance on how to put each course of action into practice
• links to useful information, websites and other resources."

Both tools have their strengths and as they are both free there is nothing to stop users from trying both.

Not all Intellectual Property Rights Cost Money

Patents provide the most comprehensive protection but they are not cheap.  An applicant can pay up to £5,000 or more for searches, office charges and attorneys fees just for this country.  Afterwards,there are periodic renewal fees which increase over time in some countries.  One of the conditions for the grant of a patent is that you have to disclose  "the invention in a manner which is clear enough and complete enough for the invention to be performed by a person skilled in the art." As anyone in the world can read a patent specification once it is published it is often necessary to patent the invention in every country where there is a market as well as every country where there could be a competitor.  The Patent Cooperation Treaty has reduced some of those costs but patenting in more than one country can still cost many tens of thousands of pounds.  Also, if a court or the Comptoller-General of Patents, Designs and Trade Marks ("the Comptroller") finds that a patent should never have been granted, the grant can be revoked.

If the invention cannot easily be reverse-engineered the inventor may decide to keep the invention secret and disclose it in confidence only to people who need to know about it.  Some product information such as the way to make Coca-Cola or Chartreuse can be kept secret for centuries.   Even where an invention can be reverse-engineered but its competitive advantage is unlikely to last more than a few years, it may be sufficient to rely on unregistered design rights, copyright in the software that actuates the invention or some other non-registrable IP right.

Supplementary unregistered designs which provide up to 3 years protection from copying for designs that could be registered under the 1949 Act may be all that is required for toys, novelties and fashion goods  Unregistered design rights, which last up to 10 years (though licences of right are available in the last 5 years of a design right term) are another alternative to design registration. 

Passing off is a less obvious substitute for trade mark registration as goodwill by reference to a mark, sign or get-up has to be built up but the cause of action is sometimes available in circumstances where a trade mark would not be registrable.  Having said that, an action  for passing off is usually more expensive than a claim for trade mark infringement,

Before the Event Insurance

For many small and medium enterprises, the costs of litigation are an existential threat.  Such a threat can be mitigated by legal expenses insurance.  Cover against IP claims is available before a claim arises and afterwards.  As is to be expected, the premiums for before-the-event insurance are considerably less expensive than for after-the-event cover,   The IPO has provided some useful guidance on IP insurance.  The Chartered Institute of Patent Attorneys publishes a list of specialist IP insurance brokers as do the Chartered Institute of Trade Mark Attorneys.

Examiners' Opinions

A dispute over whether a patent is valid or whether it has been infringed can often be resolved by referring the dispute to a patent examiner for an opinion pursuant to s.74A of the Patents Act 1977.  The advantage of the opinion is that it will be based on evidence and argument from both sides.  It is also inexpensive.  The IPO charges £200 for the service.  While the opinion of an examiner is non-binding it can often facilitate settlement through mediation or negotiation.

Domain Name Disputes

Although the Court of Appeal held in  British Telecommunications Plc and others v One In A Million Ltd and others [1998] EWCA Civ 1272, [2001] EBLR 2, [1999] WLR 903, [1999] ETMR 61, [1999] 1 WLR 903, [1998] Masons CLR 165, [1999] FSR 1, [1997-98] Info TLR 423, [1998] ITCLR 146, [1999] 1 ETMR 61, [1998] 4 All ER 476 that unauthorized registration of a trade mark as a domain name is actionable, the Internet Corporation for Assigned Names and Numbers ("ICANN") has devised the Uniform Domain Name Dispute Resolution Policy for resolving disputes between trade mark owners and domain name registrants. For US$1,500, a dispute over entitlement to a domain name ending in ".com", ".org", ".net" or other generic top-level domain can be referred to a tribunal of one or three panellists who will deliver a decision within days of the referral.  Registrars are bound by their agreements with ICANN to give effect to such decisions.  That is considerably easier, cheaper and quicker than seeking to enforce the judgment of a UK court abroad.  There are similar schemes in national or regional domain name authorities such as Nominet for the ".uk" domain or EurID for the ".eu" domain,

Proceedings in the Intellectual Property Office

The Comptroller has jurisdiction to decide many kinds of patent, trade mark, registered and unregistered design disputes.  The procedure of his tribunals is simpler and less formal than that of the courts.  It is often possible to dispose of disputes without a hearing.  Unless a party behaves unreasonably the maximum costs that can be awarded against it are limited to a published scale.  In trade mark and design cases, it is possible to appeal to an appointed person who will award costs on the same scale,

The IPEC Small Claims Track

If the owner of an IP right other than a patent, registered design, plant variety or semiconductor topography has a straightforward claim that can be decided in a day and seeks primarily an injunction and damages of £10,000 or less, he or she should consider an action in the small claims track of the Intellectual Property Enterprise Court (see Small IP Claims last updated 19 Jan 2018 in NIPC News).  The procedure is simpler and shorter than claims in the multitrack and recoverable. costs are limited to a few hundred pounds in most cases.

Other Forums

All other IP claims for damages of £500.000 or less that can be tried in 2 days could be brought in the Intellectual Property Enterprise Court where recoverable costs are also limited.    For slightly higher-value and more complex cases, there is the shorter trials scheme (see IPEC and the Shorter Trials Scheme Compared  28 May 2022).

Conclusion

These suggestions are by no means comprehensive.  Other practitioners will suggest other possible cost savings or disagree with mine.   It would nevertheless be useful to start a conversation on the topic.   Anyone wishing to discuss this article can call me on 020 7404 5252 during office hours or send a message through my contact form.

Essential Reading for Inventors and Entrepreneurs

Jane Lambert

IP really can make or break a business.  Get it right and you can control entry to your markets or generate substantial amounts of licensing revenue. Get it wrong and you can be ensnared suddenly in complex litigation with draconian remedies and ruinous legal fees. You can try to ignore it but every business in the world has goodwill, some trade secrets, a website with text and photos all of which are likely to be copyright works. 

Problems can be avoided and opportunities seized by spotting them in advance.  By and large, that is what big companies do.  Their executives will have learnt something about IP at business school.   They will have attended conferences or read about IP in business journalists.  They will also be supported by in-house lawyers and patent and trade mark attorneys with ready access to the specialist bar and law firms. But inventors, designers and business owners rarely have the time, expertise or funds for any of that.  

Those who are aware of the problem have often asked me in the past to recommend a manual on IP for startups.  I wrote one on IP enforcement in 2009 but it needs updating and it does not cover non-contentious issues such as patent prosecution, design or trade mark registration or licensing.  But one book that I can recommend is Enterprising Ideas A Guide to Intellectual Property for Startups which was written by Omer Hiziroglu and published this year by the WIPO (World Intellectual Property Organization), the UN agency for intellectual property.

The publication is only 78 pages long and can be downloaded free of charge from the WIPO's website.  It consists of the following chapters:

• Introduction 
• Protecting your innovation
• Distinguishing your product in the market
• Going international
• Other strategic ways to exploit IP
• Managing risks
• Using IP databases, and
• IP audit

There are also two annexes.

The Introduction contains an overview of IP.  The IP office for the UK is the Intellectual Property Office in Newport.  We do not have utility models in this country but we do have unregistered design rights which protect the shape or configuration of articles from copying for up to 10 tears from the first marketing of the articles. Our industrial design law is also complicated because we have overlapping protection by copyright and design registration and now a new supplementary unregistered design right. Product designs that are new and have individual character can be registered with the Intellectual Property Office for 5 consecutive terms of 5 years each.   Also in the Introduction is a section on IP generating as opposed to IP consuming startups and a paragraph of technology readiness rating which is "a technique for assessing how close a technology or product is to commercialization".   Scattered throughout the book are case studies, and the one in the Introduction is about the Turkish company. Arçelik A.Ş.

The next chapter discusses patents, trade secrecy and copyright.  The third covers trade mark registration, domain names and design registration.  Going International introduces the Patent Cooperation Agreement, the Madrid Protocol and the Hague Agreement.  There is a discussion about licences and assignments of IP rights and funding, the scientific, technical and marketing information that can be obtained from patent, trade mark and design databases and an overview of IP audits.   The only area that could be improved is on managing risks.   In the UK there are watch services that warn of applications for possibly conflicting IP rights and there is a developing IP insurance market.

Anyone wishing to discuss this article may call me on +44 (0)20 7494 5252 during normal office hours or send me a message through my contact form. 

Patent Cooperation Treaty

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Jane Lambert

Two of the problems of applying for a patent are:

• Patent protection is territorial: that is to say, a patent enables an owner to prevent others from making, using, offering for sale, selling, or importing his or her invention in the country, group of countries or territory for which the patent is granted and not beyond; and
• In order to get a patent, an applicant has to disclose the invention in a manner sufficiently clear and complete for the invention to be carried out by a person with the relevant skill and knowledge.

Thus, if an inventor gets a patent for the United Kingdom but nowhere else, there is nothing to stop an entrepreneur in India, China, Continental Europe or even the Republic of Ireland from making and selling your product everywhere in the world except the UK.

The only way to prevent that from happening was to seek patents in all the markets in which the applicant intends to market his or her invention as well as every country in which a competing product can be made.  As a patent will be granted only for an invention that is new, that used to mean simultaneous applications to every patent office from which a patent was required. 

Life became a lot easier for applicants in 1883 when the UK and other leading countries established the 
Paris Convention for the Protection of Industrial Property ("Paris Convention").  Art 4A (1) and art 4C (1) of the Convention gave a person who had duly filed an application for a patent in any of the contracting countries 12 months priority over anyone else who might file a patent for the same invention.  So long as an application was made within a year of the first application in the first country applications in all other countries were backdated to the first filing.

As more and more countries industrialized the task of filing multiple applications even over the period of a year became increasingly burdensome. The solution was the Paris Cooperation Treaty ("PCT") which made it possible to seek patent one' protection for an invention simultaneously in every country that is a party to the PCT by filing an "international" patent application with the applicant's home intellectual property office or, ins some cases, with the World Intellectual Property Organization ("WIPO").

The WIPO made the video that appears at the beginning of this article on 17 Dev 2020.  More useful introductory information is available from PCT FAQ on the WIPO website,   There are now 153 countries that are party to the PCT.  They include China, the USA, Japan, India, Germany and France.   Big countries that are not yet party to the PCT include Argentina, Bangladesh, Pakistan and Venezuela.   The UK Intellectual Property Office has published a useful booklet entitled Patent Cooperation Treaty (PCT) for Private Applicants which was last updated on 1 July 2020.  I reviewed a previous edition of the booklet in 

Applying for Patent Protection through the Patent Co-operation Treaty without a Patent Attorney on 1 Nov 2016.

Anyone wishing to discuss this article or the PCT generally may call me on 020 7404 5252 during office hours or send me a message through my contact form.

Inventor Assistance Programme

The Inventor Assistance Programme (IAP) matches inventors and small businesses in developing countries with patent attorneys who are willing to offer their services to such clients pro bono. This is a joint initiative of the World Intellectual Property Organization and the World Economic Forum. So far, Colombia is the only developing country in the programme but other countries are expected to join shortly.

A brochure explaining the IAP can be downloaded here and frequently asked questions can be found here.

This scheme is likely to benefit both inventors and attorneys. The inventors will have a chance of protecting their inventions in their potential markets with robust patents. Attorneys will get a chance to cultivate some of the multinationals of the future. All we benefit from the growth of the developing country's economy

I already offer up to 4 thirty minute slots for free legal  on all sorts of intellectual property issues to individuals and small businesses in the UK. I am very happy to provide a similar service to inventors, designers, software developers and other creative or innovative individuals from other countries if they care to get in touch. I may not know all the answers but I do know a lot of IP lawyers and patent and trade mark attorneys around the world who can probably help. If you want to discuss any IP issue give me a call on +44 (0) 207 404 5252 between 08:30 and 19:30 London time or send me a message through my contact form.