Paper proposes a simple method for evaluating patent value

June 3, 2019


At the most basic level, a patent is a statutory, time-limited monopoly on the right to make, use, and sell a particular invention. In providing an advantage over competitors operating in the same market, patents can carry enormous value, and thus serve as a “reward” and “incentive” for inventors to engage in research and development efforts.

A study published in The International Journal of the Economics of Business proposes a simple method for evaluating the value of the protection granted by a given patent.

Researcher Neil Thompson, of the MIT Computer Science and Artificial Intelligence Lab and the Laboratory for Innovation Science at Harvard, published the article with Jeffrey M. Kuhn of the University of North Carolina at Chapel Hill.

The paper, entitled “How to Measure and Draw Causal Inferences with Patent Scope,” proposes the hypothesis that, when there are fewer words in a patent claim (the operative section of a patent which defines the limits of the protected invention), the protection is greater and the patent is accordingly more valuable.

The authors’ reasoning is that more wordy patent claims generally tend to include more specificity and qualifications – in other words, more elements which tend to limit the scope of the claim’s protection. The authors point out that the typical first claim in a patent tends to be around 120 words, and 95% of first claims are less than 375 words.

In addition to the quantitative method proposed by Thompson and Kuhn, other researchers and commentators have proposed qualitative approaches. For example, one article analyzes various patent “value streams” along a continuum of “defensive” and “offensive” uses. For example, a patent’s value in allowing the patentee to extract licensing fees from competitors is an example of an “offensive use.” Conversely, the ability of a patentee facing an infringement allegation relating to a completely different patent to threaten the plaintiff with a counterclaim based on one of the patentee’s own patents is an example of a “defensive use.”

Similarly, a World Intellectual Property Organization commentator has suggested a multi-factor analysis focusing on considerations such as the importance of the patent (i.e., whether it is a technological breakthrough or not), the market size, average unit cost of the patented invention, patent term, and the amount of related prior art.

The stakes of patent valuation are growing as technology companies frequently build and sell IP portfolios worth hundreds of millions of dollars. In light of the enormous sums in play, observers in the market have begun to develop tools for predicting and quantifying IP value over time.

Authors: Jaclyn Tilak and Wes Dutcher-Walls

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