How to Invent and Protect Your Invention: A Guide to Patents for Scientists and Engineers

11.6 PATENT VALUATION

Prior to the 1980s, the total value of public companies, as evidenced by their stock prices, was approximately 80 percent tied to the companies’ tangible assets (such as buildings, inventory, cash, and equipment). In the 2010s, the reverse has occurred: The total value of companies is roughly 20 percent tied to tangible assets and 80 percent tied to intangible assets, like patents, copyrights, trade secrets, knowledge, and know-how. Effective company managers are careful to develop and manage intellectual property, because increasingly it is the asset that determines company performance and value.

Like any other form of property, a patent has a quantifiable monetary value. This value is reflected in the stock price of large companies and in the valuation of private enterprises. To be effective managers and to adequately provide metrics of performance, it is important to be able to have a reasonable assessment of the company's intellectual property value. Valuation of intellectual property may be even more important for small start-up companies seeking investment based on their patents. As people invest money in a start-up, the amount of stock they receive is determined by how much they invest relative to the start-up's current value. And how much the start-up is already worth is closely tied to how much the start-up's patents and other intellectual property are worth.

The valuation of patents is difficult, unless you have actually negotiated a transaction ...