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We receive many inquiries from organizations and individuals asking if we can sell their patents. In many cases, we can. However, for some patents, there are no buyers. The market for patents depends largely on the following factors:

• Commercial use of the patents
• Patent portfolio size
• Patent quality
• Country coverage
• Existing licenses and other encumbrance

Below, we explain each of these factors.

Commercial Use of the Patents

Many first-time inventors believe that any patent is worth a lot of money. This is not true. To have value, a patent must provide some protection to a commercial product. If there are no current or future commercial products that fall within the scope of the patent’s claims, then the patent will have no value.

For a patent to have sale or licensing value, it should be aimed at an industry with large revenues, preferably more than $1 billion worldwide revenues.

Patent Portfolio Size

In the high-tech industries—semiconductors, electronics, IT, and telecommunications—products are very complex, and each product makes use of thousands of patents, even hundreds of thousands of patents. It is impossible to make a new product that does not infringe on other companies’ products. Therefore, companies typically cross-license patents with their competitors, and companies buy patents prior to cross-license negotiations. For cross-licensing, the number of patents (and their quality) is important. One or two patents is not very useful; a portfolio of 10 to 20 patent families is usually the minimum size for a sale.

At the opposite extreme, in the pharmaceuticals and chemicals industries, it is possible to protect a product with a single chemical composition patent. Therefore, single patents or single patent families are readily sold or licensed.

Other industries fall between these two extremes.

Patent Quality

A patent’s quality will depend on:

• Ability to withstand challenges to its validity
• The clarity and scope of its claims, and how well those claims are supported in the patent’s written description
• The remaining life of the patent
• Which products the patent reads on
• How easy it is to design around a patent so that a product no longer infringes it
• How easy it is to detect use of the patent by the product and prepare evidence of use

Country Coverage

To have good value, the patent should be granted in at least one of these regions: USA, China, or Europe (and registered in Germany or Great Britain). If the patent is not granted in one of these, even if there is a pending patent application, it probably has no sale or license value.

In the high-tech industry, obtaining a patent in more than the above countries adds, at best, incremental value. By contrast, in the pharmaceuticals industry, a patent should be obtained in all countries that have large populations of potential patients. In addition to the preceding countries, it is common to obtain patent coverage in other major European nations, Russia, Canada, Mexico, Japan, Korea, India, Indonesia, and Australia.

Other industries fall between these extremes of the high-tech industry and the pharmaceutical industry.

Existing Licenses

Each license granted to a patent reduces that patent’s value for sale or subsequent licensing. Previously, companies granted licenses for their entire patent portfolios for very wide ranges of products, needlessly reducing the value. These days, most licenses are usually granted for specific types of products or specific technologies. However, imprecise definitions in the scope of license can lead to uncertainty as to whether certain products or technologies are licensed, reducing the value of the patents. Therefore, we recommend that companies define the scope of patent licenses precisely and as narrowly as possible. Imprecise or unnecessarily broad licenses can reduce the value of a company’s entire patent portfolio.

Many patent sales are relatively simple transactions: a transfer of patent rights in return for a cash payment. Often, this limited transaction scope is best for both buyer and seller. However, in other cases, patent sales can be used to structure a transaction with wider benefit to both seller and buyer. Here we offer some suggestions for broadening the transaction scope.

Additional Patent Licenses

Consider licensing some patents in addition to the patents being sold. The seller can grant a license to additional patents to increase the transaction value. The buyer can grant a license to some of its patents to reduce the price of the sale transaction. Often, patent licensing negotiations are long and tortuous, thus incurring a high transaction cost. However, in our experience, adding patent licenses to a patent sale transaction can be a quick negotiation. If the buyer and seller operate in different industries or in different parts of the value chain, there may be limited impact on the business from these additional licenses, making the negotiations especially easy.

Product Sales

Consider selling product together with the patents. In one of our brokered transactions, the patent seller was an existing supplier of components to the patent buyer. As part of the transaction, the buyer also agreed to purchase a large quantity of components from the seller over a period of several years. Given that this was a highly competitive industry, the sale of these products greatly benefited the seller.

Strategic Alliances

Consider forming a strategic alliance between the two parties. Startup companies often need to buy patents to strengthen their portfolios but do not have a lot of cash. They may offer equity in their company as payment for the patents. Alternatively, one party to the transaction can gain manufacturing, distribution, marketing, or sales channels from the other party. A patent transaction can also be the catalyst for forming a broader research and development relationship.

Think Broadly

When structuring a patent transaction, intellectual property professionals often only consider intellectual property rights. However, by looking at the broader business context, patents can be leveraged for a much greater strategic advantage. This can be highly rewarding for both patent sellers and buyers.

Patent Applications

Northeast Asia, comprising China, Japan, Korea, and Taiwan, has become the dominant region in the world for patent applications. In 2019, Patent Cooperation Treaty (PCT) applications from China, Japan, and Korea accounted for 49% of the worldwide total. This exceeded applications from North America and Europe.

Within the region, domestic patent applications have also ballooned. In 2019, there were 1.4 million invention patent applications in China, compared to 620,000 utility patent applications in the USA. Given the size of the Chinese population and its economic growth rate, as well as the strong, manufacturing-intensive economies of Japan, South Korea, and Taiwan, we expect that Northeast Asia will increasingly dominate worldwide patent applications over the coming 20 years.

Large Japanese and South Korean companies have had some of the world’s largest patent portfolios for many years. They are increasingly being joined by China’s large technology companies.

Patent Litigation

Nowadays, China has more patent litigations than any other country. In 2019, it had 22,000 patent infringement litigations accepted by first-instance courts. In the USA, by contrast, there were only 3,347 district court patent litigations filed. While patent infringement damages awarded in China are still significantly below those in the USA, the amounts awarded have been increasing steadily in recent years. Proposed legislative changes in China will increase both statutory and punitive damages.

Patent Transactions

The USA remains the largest market for secondary patent transactions — buying, selling, and licensing patents — a result of its economic size and the large damages awards available. However, secondary market patent transactions are now growing in Northeast Asia.

Large, well-established technology companies in the region are increasingly willing to sell some of their patents.

High-growth tech companies in Northeast Asia are becoming significant patent buyers. These companies’ business growth often outpaces their patent portfolio growth, leaving them exposed to demands for license fees and litigation from competitors. Purchasing patents is the quickest way to redress this imbalance. Since these companies are practicing entities, they value both current and future technologies. This contrasts with Non-Practicing Entity buyers, which primarily value patents based on current infringement, and which have recently been the largest purchasers of patents in North America.

Implications For Companies Doing Patent Transactions

For companies wanting to buy, sell, or license patents, it is now essential to include Northeast Asia as part of any transaction activity. For buyers, Northeast Asia is a great source of patents. For sellers, it is the location of many practicing-entity buyers. And for licensing entities, the region already accounts for a large share of revenues.

Doing patent transactions in Northeast Asia does bring challenges. Companies’ experience in patent transactions is often limited. Concluding transactions with these companies requires an effort to educate them about normal contractual terms and conditions and the transaction process. This can slow down negotiations.

Offering additional benefits to a counterparty can smooth transactions. If selling patents, consider giving a license to some additional patents; if licensing patents, consider also transferring some patents to the other party. Adding a tangible benefit, such as the sale or purchase of products, providing a distribution channel, or manufacturing capability, can also help smooth a transaction. For executive teams not used to the intangible nature of intellectual property, it can be much easier to approve a transaction with some tangible benefits.

Finally, English language skills can be limited, and the business culture is very different from that in western countries. The transaction will proceed more quickly and smoothly if you have someone on your team who can communicate in the language of the other party and who understands their business culture.

In our previous blog post, we discussed the external trends affecting patent value, including macroeconomics, business trends, technology trends, legal and regulatory changes, and geopolitical trends. In this post, we will delve into the value of a patent portfolio – that is, a collection of patents marketed together.

A patent portfolio can range from just a few patents to thousands. The patents within the portfolio can either reinforce each other, increasing its value, or they can detract from the portfolio’s value.

Value in Numbers

A patent portfolio can have greater value than the sum of constituent patents’ values.

With enough effort and expense, it is often possible to invalidate a single patent. And once invalidated, a patent has no value. However, invalidating every patent in a large portfolio is nearly impossible and would be prohibitively expensive. Potential buyers can be confident that a good proportion of the patents will remain valid even after a concerted legal attack.

The larger the portfolio, the harder it is for competitors to avoid patent infringement. To avoid infringing one patent, it is often possible to redesign a product. However, it is much harder to avoid infringing all the claims in a large patent portfolio. A redesign to avoid one claim can cause a product to infringe a different patent claim. This is a so-called “patent thicket”.

In other words, a large patent portfolio has diversity and redundancy, making it much more robust and more valuable to sell.

However, diversity and redundancy only emerge when a portfolio has coherence: the patents must address related technical problems or product types. If a portfolio does not have coherence, when selling the portfolio, it is better to split it into smaller, more coherent portfolios. In our experience, portfolios ranging from 10 to 1000 patents are generally easiest to sell.

Portfolio Hierarchy

With many patents in a portfolio, how do you make sense of them all? It is unlikely that you have time to read and understand every patent.

When selling or licensing patent portfolios, we make the portfolio easier to understand by organizing the patents into a hierarchy:

1. Grouping patents by field provides insight into their likely use and allows buyers to focus on areas of interest.
2. Identify patent families.
3. Identify the best patents and their best claims.

Grouping patents by field provides insight into their likely use and allows buyers to focus on areas of interest.

A patent family consists of all patents originating from one original application (the “priority application”). A family may include multiple patents from one country and foreign counterparts from multiple countries. Since the different members of a patent family contain much duplicated information, by grouping the patents into families, you can help the reader avoid reading duplicate information and just focus on the differences within the family. As an aside, when buying or selling a patent, all family members should be included in the transaction.

Identify the Best Patents and Claims

Identifying the best patents and claims within a portfolio is a complex process, which we will address in a subsequent blog.

Geographical Scope

Having patents from different countries adds value to a portfolio. Differences in patent law between countries also provide diverse options for using patents.

For example, in the US, it can be difficult to obtain an injunction against an alleged infringing product, but courts can award high damages. By contrast, in China, obtaining a temporary injunction is relatively easy, but liquidated damages awards are relatively low. Thus, a patent owner can use US and Chinese patents to complement each other. Use the Chinese patents to obtain an injunction to bring the other party to the negotiating table; use the US patents to increase the value the portfolio.

In which countries should you obtain patents? There is a tradeoff between cost and breadth of protection. In the information and communication technologies (ICT) industries, products are complex and potentially covered by thousands of relevant patents. Companies usually obtain patents in just a few jurisdictions, mainly the US, Europe, and China, major markets for products and the major manufacturing locations.

In the biological, chemicals, and pharmaceuticals (BCP) industries, just one patent family or a few patent families can define a valuable product. Companies can apply for relatively few patent families, but they obtain foreign counterparts in many countries. Other industries fall between the extremes of the ICT and BCP industries.

Granted Patents and Pending Applications

Granted, active, valid patents provide legal protection. A portfolio needs at least some granted patents in major jurisdictions such as the US, Europe, or China to have value.

Pending applications have potential for providing future legal protection, but do not yet provide legal protection because they could be rejected or could require modification before being granted. Patent Cooperation Treaty (PCT) applications give applicants the right to make patent applications in individual countries or regions, but do not provide legal protection of products. Therefore, a portfolio with only pending applications rarely has value.

However, having both granted patents and pending applications in a portfolio has value. Granted patents define current intellectual property rights while pending applications allow for modifying claims or filing new claims to reflect recent technological trends. A portfolio with both granted patents and pending applications is potentially more valuable than one with only granted patents.

Ownership, Encumbrances, and Existing Licenses

Incorrect recording of patent ownership is surprisingly common. Each time a patent changes hands or the owner’s name changes, an assignment document should be registered with the national patent office. A mistake in any of the assignment registrations can affect the entire chain of title and make ownership unclear. This can take time and expense to correct. In some cases, it can render the patent worthless.

Patents can also be subject to existing licenses. Understanding and documenting existing licenses is essential – if patents are already licensed to key competitors, and particularly if a license grants sub-license rights to third parties, the patents’ value may be diminished or even zero. Patents may also be subject to other encumbrances, such as being pledged as security for a loan. It is almost always necessary to discharge any such encumbrances before selling a patent.

Commercial Use

Many patents have no sale or licensing value, while others have very high value. Commercial use determines patent value. For a portfolio to have value, at least some of its patents must be in current or imminent use by a commercial product. And the market for those products should be large – our rule of thumb is annual worldwide revenues of at least $100m.

To convince others of a patent’s sale or licensing value, it is necessary to provide evidence of its use by commercial products. For some combinations of products and patents, this is easy to prepare, but for others it can be extremely difficult and expensive. If you cannot provide evidence of use, it is hard to sell or license a patent.

Conclusion

In this blog post, we’ve discussed the factors that affect a patent portfolio’s value: the number of granted patents and applications, portfolio hierarchy, best patent claims, geographical scope, ownership, licenses, and commercial use. In a subsequent post, we’ll delve into the value of individual patents and patent claims.

Patent owners often wonder, “What are my patents worth?”

Unfortunately, there is no straightforward answer to this question: many factors can impact patent value. In this series of blogs, we will explore the factors that affect the value of patents. This first blog will examine the big-picture trends that impact the values of all patents, including macro-economics, business and technology, legal and regulatory, and geopolitical trends. Subsequent blogs will delve into the specific factors that determine the value of individual patents or patent portfolios.

Macroeconomics

Macroeconomics affects patent values. Following the global financial crisis of 2008, operating companies were facing insolvency or bankruptcy and needed to conserve cash. Purchasing patents became a low priority. Consequently, the demand for purchasing patents plummeted and the value of patents reduced. However, in subsequent years, there has been a rebound in the patent market; companies are again willing to purchase patents to reduce the risk of patent infringement, gain an advantage over competitors, and generate income from patent licensing. Now we are in a period of rising interest rates in which many companies will face financial difficulties. This may once again lower demand and pricing for patents.

Economic globalization over the past 50 years means that companies increasingly operate and compete globally. In addition to patent protection in their home countries, they need protection in other countries in which they operate. This has raised the value of patents.

Recently, rising protectionism and concerns about security are leading to countries seeking to decouple their economies from strategic rivals. This may lead to lower competition, reduced innovation, and lower patent values.

Business and Technology Trends

The emergence of smartphones and mobile internet services has been one of the greatest global business trends in the past 15 years. Apple, Google/Alphabet, Facebook/Meta, Samsung, Huawei, and other successful companies in this field have generated enormous revenues. Consequently, patents in this field have become valuable.

The product lifecycle curve – introduction, growth, maturity, and decline – affects the value of related patents. Patents are in high demand when the market for related products is already large and is still growing. When revenue growth slows, the market shares of competitors become more stable. Since companies are no longer jostling for market share, they see less need to purchase patents and patent values decline. And when sales of a product category start to decline, it becomes nearly impossible to sell patents related to these products.

Legal Trends

The legal environment for patents is continually evolving.

In the past two decades, China has implemented a world-class patent system by revising patent laws, hiring many patent examiners, and introducing specialized courts for hearing intellectual property cases. Consequently, Chinese companies now place greater focus on having strong patent portfolios. This has increased the value of patents in China. Since China’s economy is huge, this has influenced patent values worldwide.

Major legal changes have also occurred in other countries. In the United States, the Leahy–Smith America Invents Act (AIA) introduced the Inter Partes Review (IPR), which made it easier to invalidate patents, has in general reduced patent value. In Europe, the recent introduction of the Unitary Patent and the Unified Patent Court should reduce the cost and complexity of obtaining patent protection in multiple countries, hence increasing the value of patents. A number of landmark patent cases have produced judgments that have reduced the scope of patent eligible subject matter and the ability to enforce patents.

In summary, patent law continues to evolve, and this affects patent values.

Summary

The value of a patent depends on many factors that are continually changing. In this blog, we have described the macro trends that affect a patent’s value, including macro-economics, business and technology trends, and legal changes. In future blogs, we will explore the factors that affect the value of patent portfolios and individual patents.