What Makes Your Patent Valuable
by: Tyron Stading
The two February articles covered the concept of IP valuation – the benefits of understanding the value of your IP and the different models in use today for quantifying that value. There’s a missing piece to the equation though: exactly which attributes make your IP valuable?
First, it is important to understand that specific attributes of your IP don’t necessarily make it valuable, but you can look for indicators that are consistently correlated to types of value. There are multiple definitions of value depending on the focus of your organization. For example, maintenance, litigation, licensing, defense and strategy each have their own value that is unique to your team or company.
Within the context of that focus area, you should try to understand statistical patterns that are correlated to valuable outcomes, as you define them. Based on the desired outcome, you can leverage attributes of your IP to find other IP that also demonstrate those same patterns. The following example illustrates one outcome for litigation value that Innography can help you evaluate.
An academic paper produced by faculty members at University of California at Berkley, Stanford, University of Texas, and George Mason University School of Law entitled Valuable Patents analyzes key indicators that suggest the relative value of patents in a legal context. The authors argue that “…some patents are intrinsically more valuable than others.” and that the relative value can be objectively measured, litigation being a key indicator. They also determined that there are at least seven attributes that can suggest whether a patent is relatively valuable :
- They tend to be young, i.e. litigated soon after they are obtained.
- They tend to be owned by domestic rather than foreign companies.
- They tend to be issued to individuals or small companies, not large companies.
- They cite more prior art than non-litigated patents, and in turn are more likely to be cited by others.
- They spend longer in prosecution than ordinary patents.
- They contain more claims than ordinary patents.
- They come disproportionately from certain industries. Patents in the mechanical, computer and medical device industries are significantly more likely to be litigated than patents in the chemical and semiconductor industries.
The value of identifying these attributes is that they can be objectively measured. You can know, for example, how old a patent is and how many times it has been litigated. Likewise, a patent is either owned by an American company or it is not and you can know definitively how many times a patent is cited and how many patents it cites.
The authors acknowledge this fact as a breakthrough finding in the introduction:
“Finally, the existence of objectively verifiable predictors of the value of a patent should revolutionize the “black art” of patent valuation.”
At Innography, we refer to this type of relative valuation as patent strength, and we’ve built a patent strength rating feature into the Innography service. When people are introduced to the application, it’s common for them to ask what we mean by patent strength and how we go about deciding that one patent is stronger than another.
What we’ve done, which is unique in the industry, is to devise an algorithm inspired by the Valuable Patents scholarly paper for evaluating the relative strength of a patent. We have identified specific attributes, some of which are listed in the paper, and we objectively measure them for each patent. Innography then scores the patent based on the combined value of each attribute using this unique Innography algorithm. Patents with higher scores are ranked higher than patents with lower scores.
Innography then visually rank the patents, so that both the strongest and the weakest patents can be quickly identified. It also breaks the ranking down to indicate specific areas of strength or weakness within individual patents:
Innography provides legal strength indicators based on litigation patterns. There are other metrics that can also be leveraged for maintenance, licensing, product protection, and so on. The key takeaway is that regardless of the outcome you’re seeking, valuation metrics are much more mature than they once were and they can give you insights that are beyond human capabilities.
These statistical patterns can give way to new opportunities such as
- Increasing licensing rates — Picking the highest potential licensable patents.
- Decreasing litigation risk — Identifying risk and preemptively taking steps to avoid it.
- Decreasing maintenance fees — Pruning patents that should be dropped from maintenance.
Regardless of the outcome or valuation, the science has produced tremendous results and should become a core part of your business. Gauging the relative strength of a patent is no longer science fiction; it is science fact and it can enable significant ROI you wouldn’t have without it.
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