The Value of a Patent Portfolio

Patent Valuation

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’ll 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 detract from it. So, what makes a patent portfolio valuable?

Value in Numbers

A patent portfolio has more value than the sum of its individual patents. With enough effort and expense, it’s often possible to invalidate a single patent through methods such as finding prior art unknown to the patent examiner or asserting that the patent claims are indefinite. Once invalidated, a patent loses all value.

However, invalidating every patent in a large portfolio is nearly impossible and prohibitively expensive. Potential buyers can be certain that value will remain even after a concerted legal attack. Additionally, a portfolio provides more diversity through a “patent thicket” of different claims that are difficult to avoid.

Reinforcement and redundancy only occur when the portfolio has coherence – when its patents address related technical problems or product types. If not, it’s best to split it into smaller, more coherent portfolios. While different buyers may have their own preferences for portfolio size, 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?

By breaking the portfolio down into a hierarchy:

  1. Group patents by technological or scientific fields or application areas.
  2. Identify patent families.
  3. And identify the best patents and claims.
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Patent Portfolio Hierarchy

Patent Portfolio Hierarchy

Grouping patents by field provides insight into their likely use and allows buyers to focus on areas of interest. Patent families consist of all patents originating from one original application and may include multiple patents from one country and foreign counterparts. When buying or selling a patent, all family members should be included in the transaction.
Identifying the best patents and claims is a complex task and will be the subject of our next blog post.

Geographical Scope

Having patents from different countries adds value to a portfolio. A patent only provides protection in the country where it was awarded, so obtaining foreign counterparts offers wider protection. 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. In China, obtaining an injunction is easier, but damage awards are relatively low. Thus, US and Chinese patents can complement each other.

In which countries should you obtain patents? There’s 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, primarily the US, Europe, and China – major markets for products and manufacturing locations.

In the biological, chemicals, and pharmaceuticals (BCP) industries, just one or a few patents can define a valuable product. Companies apply for just a few patent families and obtain foreign counterparts in all large and medium-sized markets for that product. Other industries fall between the extremes of the ICT and BCP industries.

Granted Patents and Pending Applications

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

Pending applications have potential but don’t yet provide legal protection. They could be rejected or require modification before being granted. Patent Cooperation Treaty (PCT) applications also don’t provide legal protection but give applicants the right to make patent applications in individual countries or regions. 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 ones 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 registered with the national patent office. A mistake in any of the assignment registrations can affect the chain of title and make ownership unclear, rendering the patent worthless.

Patents can also be pledged as loan collateral or subject to other encumbrances, which must be discharged before a patent can be sold. 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.

Commercial Use

Most 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 with a large market – our rule of thumb is annual worldwide revenues of at least $100m.

To sell or license a patent, you must provide evidence of its use. For some products and patents, this is easy to find, but for others it can be extremely difficult and expensive. Even if a patent is being used, if you can’t prove that it is used, it is hard to sell or license.

Conclusion

In this blog post, we’ve discussed the value of a patent portfolio in terms of ownership, licenses, and commercial use. In our next post, we’ll delve into the value of individual patents and their claims.

Patent Valuation: Big Picture Trends

Patent Valuation

Patent valuation is a complex topic that often leaves patent owners wondering, “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.

Macro-Economics

Following the global financial crisis of 2008, patent intermediaries like our company struggled to sell any patents for two years. Operating companies were facing insolvency or bankruptcy; they needed to conserve cash, making purchasing patents a low priority. Consequently, the sale value of patents plummeted to near zero. However, in the subsequent years of economic growth, there was a rebound in the patent market; companies were 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, many companies will face financial difficulties, resulting we believe in lower demand and pricing for patents.

Business and Technology Trends

The emergence of smartphones and mobile internet services has been the greatest business trend in the past 15 years. Apple, Google/Alphabet, Facebook/Meta, Samsung, Huawei, and other successful companies in this field have generated enormous revenues. And patents in this field have become increasingly valuable. Patents are most in demand when the market for a technology is large and growing. Once the market has saturated, constant product revenues lead to a decline in patent purchases from practicing entities. With fewer companies jostling for market share, there is less need to purchase patents. And after a market starts to decline, it is nearly impossible to sell patents.

Legal and Regulatory Trends

The legal and regulatory environment for patents is continually evolving. Notably in the past two decades, China has implemented a world-class patent system, introducing modern patent laws and hiring and training armies of patent examiners. This has contributed to increasing in patent value 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, generally reducing their value. In Europe, the current introduction of the Unitary Patent and the Unified Patent Court should increase the value of patents by reducing the cost and complexity of obtaining patent protection in up to 25 countries.

Geopolitical Trends

Globalization over the past 50 years has meant that many companies now operate and compete globally, using patents to protect their innovations. However, rising protectionism and an effort to decouple the US economy from the Chinese economy may lead to lower competition, reduced innovation, and ultimately, lower patent values.

Summary

In 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, technology, legal, and geopolitical trends. In future blogs, we will explore the value of individual patents in more detail.