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Patent Valuation Methods

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Patent Valuation Methods

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  1. PATENT VALUATION METHODS www.consor.com

  2. Generally, there are four patent valuation methods: Cost Method - This method states that the value of an object or piece of intellectual property is no greater than the cost to acquire that asset elsewhere, whether the cost of obtaining the asset is measured by purchasing it today or replacing it with a substitute asset of equal strength and utility.

  3. Income Method - The income approach calculates the present value of future income streams specifically attributable to the intellectual property asset. This method utilizes forecasted financial results based on factors such as historical financial results, industry trends, and the competitive environment.

  4. Market Approach - The market approach values intellectual properties by comparing the subject asset to publicly available transactions involving similar assets with similar uses. This provides a reasonable indication of value if an active market exists that can provide examples of recent arm’s-length transactions, with adequate information regarding terms and conditions.

  5. Relief-from-Royalty Approach - This method is a hybrid between the income approach for its use of future cash flows, and the market approach for its use of comparable royalty rates. In the relief from royalty approach, a hypothetical situation is created to estimate what a business would pay to license its intellectual property assets in an arm’s- length transaction. The value is then calculated as the present value of the avoided hypothetical royalty charges.

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