Powerful New Tool For Patent Valuation

BusinessWeek:

All inventors dream that they’ve patented the next million-dollar product. But even the sharpest ideas don’t always turn into moneymakers. The fax machine, for example, was patented in 1843 in the early years of the telegraph. It took 140 years, however, before it became an office necessity. With 100,000 patents issued a year, how can anyone put a realistic value on something as inherently intangible as intellectual property?

The privately held Patent Board may have come up with a way. By tallying up how many times a patent is cited in various databases, the Chicago-based company says it can judge how much one is worth. This appraisal can then be used by the Patent Board’s clientele—the owners and buyers of intellectual property who wonder whether or not they’ve got the next fax machine or iPod—to help negotiate deals. “The more we can create tangible value around intellectual property,” notes Nicholas Stabinsky, managing consultant at the company, “the better people can make investment decisions.”

The Patent Board’s methodology is both simple and enormous. Each patent gets points for how often it is mentioned in patent filings by others as well as by respected publications such as The New England Journal of Medicine. Recent citations also earn higher scores, since these references imply that the idea is closer to technology’s cutting edge. With potentially thousands of patents in a corporate portfolio and an average of 25 citations per patent, it would be daunting, if not impossible, for most parties to evaluate a company’s IP holdings. But the Patent Board has automated this winnowing. Its computers are automatically fed every patent filed in the U.S. and the European Union. Its software then scores each new patent.

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Photo by Patent Board.

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