How Much Is A Patent Worth?

You are an inventor and are thinking about obtaining patent protection for your invention.  You understand that patents are a form of legally recognized property, known as intellectual property, and that they can be very valuable.  But you are also well aware that obtaining patent protection will cost money.  How do you determine the potential value of a patent you hope to get in order to gauge that value against the costs of obtaining the patent?

Several high profile transactions in this decade, demonstrate just how valuable patents can be.  Back in 2013, Kodak sold about 1000 of its patents in the field of digital photography at an average price tag of about $500K a piece.  A couple of years earlier, Google purchased 17,000 patents from Motorola for about the same price per patent.  In 2012, Microsoft paid more than $1.2M for each of the 800 patents from AOL.  That same year, Microsoft sold several hundred patents to Facebook for $1M each.

A review of available data shows that, as of 2016, the median price paid for issued U.S. patents was about U.S.$ 225,000, while the average price paid hovered around U.S.$ 360,000.

In general, the value of a patent depends on several factors, including the field/area of the patent; the scope and strength of the patent claims; and efforts by patent owner(s) to extract value from the patent.

First, the value of a patent is directly tied to the field/area covered by the patent.  Some areas, like high tech and bio-tech are in high demand and can expect to receive a higher valuation.  “Breakthrough patents” are likely to be valued higher than “improvement patents.”  Finally, patents covering products/services, which are inexpensive to manufacture and thus don’t cost a lot of money to consumers, are more likely to extract a higher price.

The second factor bearing on the value of a patent is how well the claims are written and how broad their coverage is.  The claims of a patent define the “invention,” which the law protects.  The claims, in turn, need to find support in the specification of the patent, which includes the description of the invention, and the drawings, which depict the elements of the claims.  If you think of patent claims as the structure of a building, then the specification is the foundation upon which the structure (claims) are built.  In this analogy, the structure should be as tall and wide as the foundation can support.  In other words, the claims need to be written in a way that cover the maximum space in the field of the invention.

The final factor in determining the value of a patent is the extent and quality of efforts made by patent owner(s) to extract value from it.  A common strategy for patent owners to monetize their invention is to try to license the patent to manufacturers in the field of the invention.  This effort often includes submitting the patent application or the issued patent, to the manufacturers of the product covered by the patent.  Inventors who seek to attract venture capital often introduce their invention to potential investors by submitting a detailed “Business Plan,” which explains the invention, its advantage over the prior art (what has come before the invention), the potential markets for the invention, and anticipated yearly revenue to potential investors.  Another option for patent owners seeking to monetize their patent is to sell them outright in auction houses.  Finally, invention expos and trade shows are fertile grounds for marketing inventions.

If you think you have an idea, which may be worth protecting, feel free to contact ADLI Law Group to get a free consultation about your options.


© 2017 Dr. Dariush Adli