An Ex Ante Method of Patent Valuation: Transforming Patent Quality into Patent Value
89 Pages Posted: 16 Apr 2013 Last revised: 20 May 2015
Date Written: February 7, 2013
This Article presents a novel, ex ante method of patent valuation for licensing purposes. It suggests that the value of patents should correlate with their technological contribution for our patent system to adequately reward innovation. The proposed method deviates from existing methods in at least four novel aspects. First, it adopts a social-normative perspective instead of a positive-economic one. Thus, it asks what should be the license value, from the standpoint of the patent system, and not what would be that value in a world with no regulatory intervention. Second, it is performed ex ante, upon the grant of patent protection, far before any licensing negotiations are initiated. Third, it recommends setting flexible limitations over the ultimate license value, rather than setting a single fixed price. Fourth, it suggests subjecting the process of patent valuation to external regulation, instead of leaving it to the exclusive control of free market powers.
Accordingly, this Article advances a two step, novel method of patent valuation: first, determining the quality of a given patent according to the proposed quality indicators, and then, assigning flexible price limitations that correlate with the patent’s quality. Such a social-normative method of patent valuation, this Article contends, would promote at least four significant objectives. First, by translating patent quality into patent value, it could encourage high quality innovation and improve patent quality. Second, by setting ex ante limitations over the licensing price the patentee may ultimately demand, it would downgrade patent trolling. Third, by determining the price of a patent upon issuance, it could neutralize the manipulative effect of external factors, such as the identity of negotiating parties and their respective bargaining powers, as well as the circumstances surrounding the licensing negotiations, which bears no relation to patent quality, over the patent’s value. The proposed ex ante method could hence limit the ability of patentees having strong bargaining power to obtain un-proportional licensing fees that fail to reflect the true value of their inventions. Consequently, it could hamper their ability to hold-up follow-on innovation and impede future research. Fourth, in the long term, the proposed method would also reduce litigation costs and decrease litigation rates for the benefit of the public as a whole.
Suggested Citation: Suggested Citation