Patent valuation

Intellectual property assets such as patents are the core of many organizations and transactions related to technology. Licenses and assignments of intellectual property rights are common operations in the technology markets, as well as the use of these types of assets as loan security. These uses give rise to the growing importance of financial valuation of intellectual property, since knowing the economic value of patents is a critical factor in order to define their trading conditions.

Valuation of patent rights is one of the main activities related to intellectual property management within an organization or company. Indeed, knowing the economic value and importance of the intellectual property rights assists in the strategic decisions to be taken on the company's assets, but also facilitates the commercialization and transactions concerning intellectual property rights.

There are several business situations where valuation is required:

Most of the technological companies are highly based on intangible assets and investment in knowledge, research and innovation. According to studies, expenditures on knowledge, through investments in R&D or software, have grown at a higher rate than expenditures in tangible assets. This change in investments has consequently been reflected by a heavy importance of intangible assets and patents in companies. Therefore, to know the value of companies it is essential to know the value of their intellectual property.

As in other business transactions, organizations negotiating agreements to sell or license intellectual property and patent rights commonly have to agree on a price. Knowing the value of the intellectual property rights is essential to reach such an agreement, but also to make sure the parties are engaging in a good deal.

In scenarios of patent conflict, such as patent infringement proceedings or alternative dispute resolution mechanisms, quantification of damages is often a necessary step of the process. The correct valuation of the intellectual property right at stake is therefore essential to guarantee a fair recovery of the damages.

Valuation of the intellectual property to be used as security for bank loans or to attract venture capital and investors is essential. Several studies reveal that, in particular, owning patents and a proper intellectual property management play a crucial role in the decision of venture capitalists.

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