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Experts in business and intangible asset valuation

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Valuing Patents

A patent is an important practical component of intellectual property / IP rights, intangible assets and brands. In general, a patent relates to an invention or process which is disclosed and registered with an authority. In return for this disclosure, an exclusive right is then conferred for the patent owner to prevent others from using or exploiting the patent in a territory for a specific period of years.

When valuing patents, Intangible Business adopts a rigorous process to uncover the links between a patent’s rights and their true commercial application in business and in the markets. This needs to reflect the commercial reasons for owning and transacting in patents and patent portfolios. Patent rights do not necessarily have direct application, in that they prevent others from using the patents (as opposed to permitting the owner to do so). Also, in practice some patent portfolios are used defensively, to discourage claims.

Patent valuations are required for a number of reasons, including licensing, sale, acquisition, joint ventures, IP management and patent litigation.

Widely adopted patent valuation approaches

When carrying out a patent valuation Intangible Business adopts widely accepted approaches based on a combination of the income, market and cost approaches.

  • The income approach uses estimates of future estimated economic benefits or cash flows and discounts them, for the associated time and risks involved, to a present value.
  • The market approach uses market based indicators of value. For a patent this can be transactions involving selling, buying, franchising or licensing patents and related IP rights, which are often in practice bundled together.
  • There are two general considerations to the cost approach: 1) the historic cost of creating a patent and the estimated cost; and 2) time that would be required to create an equivalent or replacement patent.

Patent royalties and the relief from royalty method

For patents an important analysis for a valuation is the assessment of reasonable royalties that would be payable under a licence agreement. Intangible Business assesses this in the context of the licensing strategy being employed and analysing complex elements including the inclusion of other commercial rights and obligations. The relief from royalty method has the advantage that it is based on the income approach, the fundemantal premise of commercial value, and also uses components which can be benchmarked or compared, under the market approach, with licence agreements. It is therefore a rounded and commercial method. 

Focus of Intangible Business

The application of these approaches benefits from Intangible Business’s specific focus on forecasts, with research and analysis of market transactions for different but comparable assets where relevant information is difficult to obtain. Intangible Business adopts a thorough approach based on a good knowledge and experience of how to find, analyse and present information in a way which better informs a patent valuation.

Intangible Business also ensures that the approaches used, and conclusions reached, are commercially balanced, realistic and consistent with analyses required for all the different reasons patent valuations are required and carried out in practice.

Support to legal services

If patent value is at stake, it will be a significant issue. Intangible Business is experienced in providing expert independent patent valuation services for IP management, owners and their legal or other advisers in particular for: dispute resolution; corporate deals; IP management; and supporting other legal services.

Example Cases