So how exactly does industry value a patent or perhaps a patent application? Rapid response is it “depends”. This will depend on several factors for example which kind of industry your invention falls into (ie: a brand new drug patent is going to be valued inside a different manner than the usual new software patent). However, there are several fundamental valuation techniques which are used across all industries. Two of the most common are:

1. Believed future earnings (also known as discounted income or “DCF”)

2. Market comparables or “market comps”

Let us begin with the earnings approach or DCF becasue it is a bit more complicated. This valuation approach attempts to estimate just how much earnings your patent will generate over its existence (usually twenty years). There are lots of things that get into this calculation for example

-market size and rate of growth (the number of clients are there in a long time 1-20?)

-market transmission (the number of of those customer will from your product?)

-market transmission curve (will more customer purchase your product as the brand grows?)

-costs (just how much will it set you back to create your products?)

-taxes

-internet earnings (basically your profit each year)

-discount rate (this makes up about risk and also the time worth of money)

You are able to basically make use of the groups above to construct a spreadsheet that projects the quantity of profit (internet earnings) your invention will hopefully redesign the existence of the patent. After this you make use of the discount rate that is a percentage for example 10% that makes up about risk and also the time worth of money (since $ 1 earned twenty years from now’s less valuable than the usual dollar earned today). You utilize each one of these figures to calculate the believed worth of your invention in the current dollars. This really is known as the Internet Present Value or NPV and investors love to speak about NPVs.

Don’t be concerned! There’s an simpler method.

The marketplace comparable or “market comp” method ought to be familiar to many individuals since that is what is generally accustomed to cost your home or a bit of correctly. Exactly like you can value a home depending on how much an identical house locally offered for, that you can do the very same for any patent. When searching in a house you would need to take into account such things as sq footage, quantity of bedrooms, lot size, etc. When valuing a patent with different comparable, you would need to consider the actual deal or transaction that required place. Was the offer for world-wide legal rights? How lengthy could it have been for? Could it have been a unique deal or perhaps a non-exclusive deal?