Why only some patents are valuable

May 13th, 2015

By: Fernando Torres, MSc


What is a Patent, really?   and   Why can it have economic value?  

These are some key questions we come across in our practice analyzing and testifying about the value of intellectual property such as Patents.  Based on our experience, it has been very important to first clarify all parties about what a patent really is and why it can, potentially, have measurable economic value.

(1) A patent gives its owner the right to sue for infringement if others make, use, sell, offer, import, or offer to import the covered invention into the USA.[1] It is in this sense that patents grant a legal monopoly on an invention.  This right is limited to a period of, normally, 20 years from the earliest application claiming a priority date.[2]

(2) Among the requirements to obtain a patent, the subject matter sought to be patented must be sufficiently different from what has been used or described before that it may be said to be non-obvious to a person having ordinary skill in the area of technology related to the invention.[3] Moreover, interpretations of the statute by the courts have defined the limits of the field of subject matter that can be patented.[4]

(3) On this basis, a distinction must be drawn in that a patent covering novel and non-obvious aspects of a technological solution is not the technology itself, nor the business implementing such solution. As a right to keep others from implementing the innovation, its usefulness is limited to the extent entering that market during the patent term is an economically attractive strategy for competitors. Regardless of the technical merits or the degree of innovation of the disclosed invention, the economic value of a patent is contingent on the prospective profitability of reducing it to practice in the country issuing the patent.

(4) Therefore, to determine the economic value of a patent, the likelihood of profitable implementation, the size of the market, the likelihood of competitors, and the costs of litigation to enforce the patent rights are important considerations.

(5) In this context, it bears noting that the potential for a patent portfolio to have any reliably determined economic value depends on significant external factors; not only does the technology disclosed be effective in achieving its objectives, it must be economically and technologically possible to put in practice and competitors must be attracted to enter the market. Furthermore, if competitors enter the protected market, in the sense of infringing the patented innovation, the onus is still on the patent owner to enforce the patent rights by undertaking litigation.  Thus, the value of patents is further reduced in practice by the costs of enforcing those rights.  The most authoritative source on this issue has found that the median inclusive patent infringement litigation cost, in 2013, stands at $2 million dollars.[5]   In other words, if the direct value of a patent portfolio does not exceed $2 million dollars, its net economic value is negative as it would be cost prohibitive to enforce the rights it entails.  The profitability of monopolizing that type of market is not sufficient and the patent owner is left to profit only from the potentially reduced market share once the infringing competitor enters the market.

(6) Thus, given the relatively low cost of obtaining a patent, it is not surprising that many more patents are issued than would be economically viable to enforce. According to peer-reviewed studies on the subject, only 2% of patents are expected to be commercialized with a high probability of success, and 75% of patents have virtually no likelihood of being commercialized.[6] Moreover, about 50% of pending patent applications is abandoned at some point during the examination process at the USPTO,[7] and a further substantial percentage of issued patents are abandoned years after issue as maintenance fees are due.[8]

In conclusion, therefore, only those patents that are issued and meet the economic requirements of protecting a profitable business attractive to third parties can have any reliably-measurable value.  In reality, it turns out that only relatively few patents are worth significant amounts.

Business owners, legal counsel, or inventors often see the need to evaluate the economic value of their or their competitors’ patent portfolios.  This type of analysis is needed even before any enforcement litigation is contemplated, and is often times a useful part of the decision-making process in that regard.  If your company relies on patents for competitive reasons, it will surely be worth analyzing their economic value.  This is one of the core services we provide at IPmetrics.

For further information:



[1] See: 35 USC §154.

[2] See: 35 USC §154(a)(2).

[3] See: 35 USC §101-103.

[4] Most recently, the patent eligibility of software has come under scrutiny with the Supreme Court holding that merely requiring generic computer implementation fails to transform an abstract idea into a patent-eligible invention. [Alice Corporation Pty. Ltd. v. CLS Bank International, et al., 573 U.S. __ 134 S. Ct. 2347 (2014)].

[5] For damages at issue between $1 and $10 million dollars.  American Intellectual Property Law Association (AIPLA), Report of the Economic Survey 2013, p 34.

[6] See, inter alia, Thomas Åstebro, The Return to Independent Invention: Evidence of Unrealistic Optimism, Risk Seeking or Skewness Loving? in: The Economic Journal, Vol. 113, No. 484 (Jan., 2003), pp. 226-239.

[7] M. Carley, et al., What is the probability of receiving a US Patent? USPTO Working Paper 2013-2, p 13.

[8] Estimations vary, but some studies suggest that, by year 7, up to three quarters of issued patents are abandoned.

Article of the Month – Georgia-Pacific Royalties in Trademark Cases – les Nouvelles

January 9th, 2015

The highly regarded les Nouvelles journal has designated the most recent article by David Drews, IPmetrics’ founder and president, as the article of the month for January 2015.

D Drews at LESI 2013The article, Determining An Appropriate Royalty Rate For Reasonable Royalty Trademark Damages A Modified Georgia-Pacific Framework, discusses the concepts and nuances of the application of the well-established analytical framework for determining reasonable royalties in the context of patent infringement to the determination of similarly reasonable royalties to compensate trademarks owners in infringement cases.  Since its publication in the print edition of the journal, the article has been the subject of keen interest on the part of practitioners and litigators in trademark law.

les Nouvelles, the journal of the Licensing Executives Society International (LESI), is published quarterly and is designed to further the knowledge of the societies members and others in improving their skills, techniques and knowledge in licensing and protecting Intellectual Property (more information here).

International Business Plan Competition Winners

October 8th, 2014

IPmetrics congratulates the winners of the LES Foundation 2014 International Graduate Student Business Plan Competition.

IPmetrics is a proud sponsor of this international competition aimed at promoting innovative business start-ups.  The finalists were introduced to the attendees of the Licensing Executives Society (USA & Canada) 2014 Annual Meeting in San Francisco earlier this week.  The grand prize was awarded to Disease Diagnostic Group, a pre-commercial medical device company envisioned by students at Case Western University.  Their winning proposal featured the development of low-cost diagnostic tools that are easy to use, accurate and provide results quickly.

The International Graduate Student Business Plan Competition is in its eleventh year.  The event serves to highlight business plans that emphasize ground-breaking technologies and services that are highly dependent upon intellectual property.  The LES Foundation received 74 business plan submissions from throughout the United States and Canada, as well as from Australia, Belgium, France, Great Britain, India, Kenya and Sweden. Six finalist teams received cash and in-kind prizes worth over $170,000, including expense-paid trips to attend the LES (USA & Canada) Mid-Year Meeting in New York.

LES USA & Canada


Read the LES (USA&CANADA) Press Release.