I get a lot of questions how we do evaluate royalties for patents or the value of a patent as VC funds.
here is our approach:
ChainBLX SPC – ART Fund licensing offer calculation - Points we consider
Provisional/Pending/Office Actions/Allowed/Granted: The stage of the patent application can. significantly impact its value. A granted patent offers more certainty, making it more valuable than a provisional or pending one, which carries the risk of rejection.
Prior Ethical Conduct: Ensures that the patent and inventors have no history of unethical behavior (e.g., plagiarism or lawsuits), which could affect the patent’s credibility, marketability, and overall value.
Contracts and Assignee: Clear ownership and contract agreements ensure there are no disputes regarding who controls the patent, avoiding legal complications that can affect licensing value.
Prior Litigation Results: Previous litigation could either enhance the patent’s reputation or diminish its value depending on the outcome, influencing its licensing potential.
Type of Licensing: Whether the licensing is exclusive or non-exclusive, and revocable or irrevocable, impacts the cost, as exclusivity typically commands higher fees due to limited competition.
Infringement Status (inside and outside licensing scope): The existence of infringements could increase enforcement costs or diminish the patent’s value, which affects the overall licensing strategy. International Applications and Prior Art: The quality of prior art cited internationally provides insight into how robust the patent protection is in global markets, directly impacting its market potential and value.
Inventor’s Experience in Depositions: Experienced inventors familiar with legal challenges increase the likelihood of successful defense in potential future litigation, making the patent more secure and valuable.
Reputation of the Attorney Filing Patents:
Number of Patents Granted: Attorneys with a high success rate in obtaining granted patents provide credibility to the application and reduce the risk of rejection, increasing the patent’s value. Years in Profession and Law Firm Reputation: Experienced and reputable attorneys are more likely to navigate the complex patent filing process effectively, minimizing errors or delays, which can impact the
timing and value of the licensing offer.
Reputation of the Patent Examiner Handling the Application:
Prior Art Findings and Non-Disclosure: If an examiner frequently finds undisclosed prior art, this could affect the patent’s scope and enforceability, reducing its value.
Years in Profession: A seasoned examiner may provide more thorough and accurate examinations, leading to stronger and more enforceable patents.
Academic Relevance: If the examiner has expertise in the relevant field, the patent is likely to undergo more rigorous scrutiny, potentially enhancing its robustness and, therefore, its value.
Firm-Specific Elements:
Royalties Received by the Patentee: Historical royalties help establish the market value and potential earning power of the patent, directly informing the licensing cost.
Rates Paid by Licensee for Comparable Patents: Understanding comparable licensing agreements helps ensure that the ART Fund stays competitive and fair in its licensing structure.
Profitability and Commercial Success of the Patent Product: A patent tied to a successful and profitable product is likely to have higher licensing value due to proven market demand and profitability.
Market-Specific Elements:
Necessity of Patent for ART Fund’s Goals: If the patent is essential for the ART Fund’s specific technological or business objectives, it may justify a higher licensing cost as it provides strategic value.
Alternative Methodologies: If alternatives exist to achieve the same goals, the cost may be lower, as the ART Fund would not be fully dependent on this particular patent.
Patents in the ART Fund Portfolio: If other patents in the portfolio are needed to fully utilize the patent, it affects the overall licensing cost, taking into account potential dependencies and synergies.
External Patents Needed: Similar to internal dependencies, if patents outside the portfolio are required, it increases the complexity and costs for full implementation.
Profit Share Customary in Business: Assessing what portion of profits or sales price is standard in the relevant industry helps align the licensing fee with market expectations.
Timeline for Implementation: If the patent fits into the ART Fund’s near-future plans, it may warrant a higher fee due to its immediate utility and return on investment.
Defending the Patent from Infringements: If substantial resources are needed to defend the patent, this affects the risk and therefore the cost of licensing.
Financing Continuing Applications: The need for additional legal filings, such as continuation-in-part applications, adds to the overall cost of maintaining and leveraging the patent.
International Patents: Filing international patents can increase global protection and the potential market size, thus affecting the licensing value.
For Granted Patents:
Expiration Date: The remaining duration of the patent impacts its long-term value, as a patent nearing expiration may have limited future utility and therefore a lower licensing cost.
Other Patents in the Same Family: If there are other related patents pending, it could enhance the overall value by strengthening the IP portfolio and offering extended protection.
International Applications Pending or Granted: The ability to secure international rights enhances the global reach and value of the patent.
Office Actions Limiting Scope: Office actions that narrow the scope of claims can reduce the patent’s enforceability and market potential, thus lowering its licensing cost.
For Pending Patents:
Office Actions Received: The nature and frequency of office actions can indicate the strength or weaknesses of a pending patent, affecting its value and licensing potential.
Prior Art Disclosed: Adequate disclosure of prior art by inventors reduces the risk of invalidation and enhances the strength of the patent, impacting its value.
Track Record of Inventors/Assignees: Inventors or companies with a strong history of securing granted patents are more likely to succeed with future applications, increasing confidence and the potential value of the patent for licensing.