Valuation of Patented Product Features

49 Pages Posted: 4 Dec 2013 Last revised: 31 Dec 2014

Greg M. Allenby

Ohio State University (OSU) - Department of Marketing and Logistics

Jeff D. Brazell

The Modellers, LLC

John R. Howell

Pennsylvania State University - Department of Marketing

Peter E. Rossi

University of California, Los Angeles (UCLA) - Anderson School of Management

Date Written: April 2014

Abstract

Ultimately, patents have value to the extent to which the product features enabled by the patents have economic value in the marketplace. That is, products which are enhanced by inclusion of patented features should generate incremental profits to the firm offering the enhanced product. Measures of incremental profits should be at the heart of damage estimates in patent litigation. Incremental profits can only be assessed by considering demand for products with patented features and contrasting that demand to demand for the same product without the patent feature. Profit calculations must be based on valid estimates of demand as well as assumptions about how competitive forces affect demand. This requires a set of equilibrium calculations in which profits are measured by considering the competitive response to introduction of the product with the enhanced feature. A special variety of survey analysis called conjoint analysis can be used to estimate demand. Recently, conjoint methods have been applied in the patent setting but the measures of value used are not based on equilibrium profits. The Willingness To Pay and Willingness To Buy methods used by conjoint practitioners do not measure the economic value of a patented product feature. We illustrate our method using the market for digital cameras and show that current methods can overstate the value of the patent.

Keywords: patent valuation, patent damages, competitive equilibrium, conjoint surveys, Bayesian methods

JEL Classification: L1, L3, M3, K2

Suggested Citation

Allenby, Greg M. and Brazell, Jeff D. and Howell, John R. and Rossi , Peter E., Valuation of Patented Product Features (April 2014). Fisher College of Business Working Paper No. 2013-05-02. Available at SSRN: https://ssrn.com/abstract=2359003 or http://dx.doi.org/10.2139/ssrn.2359003

Greg M. Allenby

Ohio State University (OSU) - Department of Marketing and Logistics ( email )

Fisher Hall 524
2100 Neil Ave
Columbus, OH 43210
United States

Jeff D. Brazell

The Modellers, LLC ( email )

6995 Union Park Center
Ste 300
Salt Lake City, UT 84047
United States
8018846688 (Phone)

HOME PAGE: http://www.themodellers.com

John R. Howell

Pennsylvania State University - Department of Marketing ( email )

University Park, PA 16802-3306
United States

Peter E. Rossi (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States
773-294-8616 (Phone)

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