The value of a patent is one of the most fundamentally important concepts for a patent-seeker to understand. Many who read this will know enough to regurgitate the common mantra that patents prevent others from copying your idea. That is correct in a sense, but there is so much more to it. This article discussing the value of a patent is part of a series on patent strategy.
A Patent Is An Asset
In order to fully appreciate the value of a patent, it is helpful to think of patents as assets. Assets come in two flavors: tangible and intangible. An asset is anything that can be used to produce economic value, and patents are the quintessential intangible asset. Although intangible assets are notoriously difficult to define, tangible assets (such as construction equipment, fleet vehicles, inventory, etc.) are easy to conceptualize. The overlap between the two provides a good starting point for understanding patent value.
Various accounting definitions exist for an asset, but they generally have in common that an asset must: (1) be owned and controlled, (2) result from a previous transaction and (3) produce some future economic benefit. United States patent laws provide inventors with a means for ownership and control, and also create various processes through which patent ownership may result. As with most assets, however, the value of a patent lies predominately in the future economic benefit it endows.
As With Any Intangible Asset, Quantifying The Value Of A Patent Is Difficult
A patent is an intangible asset that proffers a future economic benefit upon its owner. The value of a patent can be quantified as the magnitude of that benefit. Quantifying the value of a patent is no easy task.
By one measure, patent value may be quantified by the degree of economic benefit favorable judgment in an infringement suit may confer. By another, value of a patent may be quantified as the amount spent to obtain it. By yet another, the amount of income attributable to a patent might determine the quantity of its value. And so on.
Fortunately, none of this is necessary for understanding the value of a patent in the broader sense this article advocates.
The Value Of A Patent Is Different From The Quantity Of Its Value
Think of the distinction as a two-step test:
- What is the value of a patent?
- What is the quantity of the value of that patent (for example, in dollars)?
The “value of a patent” addressed here is the first, much broader question. This distinction is important for reasons that will become apparent below.
The Value of a Patent Stems From the Legal Rights Proffered by Its Ownership
Most everyone knows that if you own a patent and someone tries to copy the idea that patent protects, you can sue them. This knowledge is so common, however, that it is often taken for granted. Given the litigious state of today, it is easy to assume that Anybody can sue Anyone for anything and win provided Anyone is legitimately in the wrong. While this is true to an extent, it is also the intentional result of our very thorough code of law.
Contrary to common belief, not every issue can be resolved in court. The scope of what issues Federal Courts may decide is set forth by Article III, Section 2 of the United States Constitution. The area of law surrounding whether a court can decide an issue is called “justiciability.” One way that a case may not be justiciable is if no law authorizes suit to be brought.
Protection By Patent Provides An Authorizing Statute Upon Which To Bring Suit
Patent protection avoids the issue of non-justiciability by providing an authorizing statute through which a patent owner may bring suit against infringers. Without any sort of patent system, such a suit may not exist. For one thing, it would be incredibly difficult to even describe to a court what particularly an alleged infringer had allegedly infringed. For another, even if an inventor were successfully able to describe the abstract manner of his wronging, the court could potentially still be forced to decline adjudication for lack of justiciability in the absence of an authorizing statute.
The value of a patent lies in the fact that it gives its owner the right to bring a lawsuit to protect an abstraction. Had he not owned a patent, he would not have had this right. Further, because patents are assets, they can be transferred from one person to another. Doing so confers this otherwise-nonexistent right to file suit upon the new owner.
The Right To Bring Suit Is Not The Only Right Proffered By Patent Protection; Regarding Those Other Rights, The Same Principle Holds True
Not surprisingly, patents provide additional rights beyond just that to bring suit against infringers. These additional rights are numerous and often complex. As such, we will not delve into them here individually. Instead, we will emphasize that none of these rights would exist in the patent owner but-for his patent ownership. Many businesses use these patent rights strategically and in combination with others. The ability they gain to do so is the value of a patent.
The Legal Rights Proffered By Patent Ownership Vary Depending On The Patent Itself
Not every patent is created equal. The legal rights proffered by patent ownership can vary drastically based on the contents of the patent. In addition to the intrinsics of the actual invention, the way a patent is drafted can have a huge impact on the value of a patent. Both can have an impact on whether an issued patent adequately covers the alleged infringement.
A Patent Is Only As Valuable As What It Protects
If an invention is bad, nobody will want to use it and the value of the patent will suffer. If an invention is good, everybody will want to use it and the value of the patent will increase. Take this a step further. If an invention is good and everybody wants to use it, the likelihood that somebody might copy it will also increase. A poorly drafted patent that does not claim the specific elements of the invention that people would want to copy is going to be a lot less valuable than a well drafted patent that does. A patent is only as valuable as what it protects (patent drafting is important!).
Closing Summary On The Value Of A Patent
Patents are assets, and the value of a patent is the future economic benefit proffered by the legal rights that patent ownership provides. More specifically, a patent is an intangible asset that endows its owner with a set of rights that he would not otherwise have, but-for his patent ownership.