Why IP valuation can miss the mark for your business

You’ve created a portfolio of patents to protect your technology, but do you know their value? Do you know why you should care? There are many situations where valuation is required: mergers, acquisitions, licensing IP rights, fundraising, and litigation. IP valuation is also important for any company making strategic business decisions.

The actual IP valuation process may include quantitative and/or qualitative valuations. The quantitative valuation takes into consideration the economic value of the IP whereas the qualitative approach focuses on analyzing the uses and legal strengths of the IP. The first four quantitative methods are used when considering the economic value of one’s IP. Whether it be cost, market, income, or option-based, the economic value of your IP assumes that you are able to license it and/or can attach a real tangible value to it, including the cost to replace and develop it.

The qualitative valuation, or evaluation method, revolves around the rating of the IP, eg. determining its importance, or commonly known as its ‘patent score.’ This method focuses on the legal aspects — the technology level of the innovation, market details and company organization. Some simple questions when using this approach include: How would you define the IP innovation compared to the relative state of the art? Which level of its life cycle has the patent reached? And most importantly, where does this patent fall in the market and how much of it does it dominate?

Both qualitative and quantitative have strengths and weaknesses, but the number one issue is that they don’t demonstrate how well a patent protects the value proposition of the business. Patents are handled in a vacuum as if they are designed to protect technology, and the business reasoning is often lost in the process.

The Multi-Innovation approach address a key question first: “How does this patent protect your business?”

The key question we don’t always ask is, “how does this patent protect your business?” We focus so much on patenting specific designs or technologies we can lose sight of the bigger picture. Answering this question is critical when evaluating the value of the IP and provides the necessary context for the valuation to be truly meaningful. When we consider whether a given patent truly protects a business, we need to look at the overall value proposition that a given technology is solving for. What is the overall business opportunity? How many other solutions are addressing the same opportunity? How easy would it be to circumvent this particular idea and still enter the same marketplace?

The Multi-Innovation approach to valuation starts with a clear understanding of the overall use case and how protectable it truly is. The patent strategy is then founded upon that information. It aims to create a strategic “moat” around the business opportunity so that the business value potential can shift exponentially — literally to the power of the IP. Using IP strategically, a company can make it difficult for others to be successful in the same space without needing to share their returns in one way or another. This means that a well protected company can enjoy the fruits of their competitors rather than spending lots of energy trying to squelch them from the market.

While it is optimal to implement an IP strategy early in a company’s launch, it can also be effective when executed after the fact. Whether your organization is just starting or it holds a full portfolio of patents, be sure to step back and evaluate how well your business can truly be protected through patents. It will be a small investment that could reap huge rewards for you and your business. And who wouldn’t want that?