Last month, a discussion started at my home that we should buy a new house. We were generally planning that our current house is already 30 years old, and would need repairs often and seeing the future we should start investing in a new house now itself.
So the first obvious question that came is how much money do we need to buy a new house? If we sell our old house, how much of the cost can it cover for a new house?
We started contacting brokers to know which houses are available for sale. Then on a Sunday we planned to visit different sites where houses are available for sale, and a broker accompanied us.
He showed us around, we explored different societies which are under construction, others which are already fully developed, we shortlisted a few and then sat down to discuss the cost.
The broker explained that in the society where we have shortlisted, the recent purchase was of 1.5Cr INR (this is 2023!), so the cost for the shortlisted house would be nearly the same.
We also asked him what would be the value of our current house if we want to sell it. He did some market research and got back with the information that in this society somebody recently sold a house for 1Cr, so we can value our house at nearly the same price for selling.
As an amateur, I got to know how the market works for tangible assets like a house. You compare the prices with the recent purchases, factor in different aspects like location, type of construction, how old it is, etc. and then calculate a price of a house.
Well, for the valuation of Intellectual property i.e. the patent or intangible asset, there are many known techniques to identify value. For example, cost based (considering costs incurred during development of a patent) or income based (considering the income streams the patent can generate when commercially used). Though I may have over- simplified these techniques above for basic understanding, however, ultimately it all boils down to why I should pay more when a similar patent was sold at, say, 1 million.
If you have a patent and have no idea whether it can be sold for 10 million or 100 million, you can follow this methodology I implemented in one of the analysis.
One of my clients wanted to know how much he can quote for his patent when he takes it to market? He wasn’t sure if 50 million would be a reasonable ask or is it too much or too less. This is where the below shared methodology comes in, it at least helps you understand the bracket if not the exact price –
His patent technology was related to a gadget which can be worn on the body that generates vibration signals (like a watch or a shoe).
The first step in identifying patent value is to perform market research [similar to research done for a house].
This step involves technology specific market research on patent value. The research is carried based on web-search in order to identify value based on –
● past patent transactions,
● licensing costs,
● litigation settlements/damages in the same technology.
For example, for client’s patent we identified Immersion Corp. has filed litigation in a similar technology patent against Sony targeting Playstation DualShock controllers with tactile feedback. In this case, the license ruling is expected to cost Sony up to $27 million per annum.
Immersion also targeted other companies like Microsoft – Microsoft will pay Immersion $26 million for licensing rights and for a stake in the company.
Now we know the patent can be valued around $20 million. Then the factors related to specific patent come in – is the claim potential that infringement can be proven? Are there actually big companies like Sony, Microsoft developing products similar to the patent we are valuating?
So you have to search and identify which companies are implementing similar technology in their products.
In my case, the search revealed that companies like Subpac, Woojer are developing similar products.
Let me show you how I concluded that Woojer is developing similar products.
The patent is related to a device that can be worn on body, and it generates vibrations in sync with music.
On researching on Woojer online, I found this –
Same goes for SubPac –
Based on our research on existing litigation, licensing and identification of companies, the client can now put an estimated value on his patent as –
Potential $ Value for the Patents from market research * target companies developing similar products
For my client’s patent, I dropped the value pin at 40 million based on the above logic. (20 million based on past litigation * 2 target companies implementing similar technology in their products)
Contd…..
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