What is the “true” value of something? It’s one of life’s questions. The market has different mechanisms to determine value, but not all of them are suitable for all situations.
For example, the value of an item can be the price you spent buying the item. Or the price of ingredients you bought to produce the item. Or the lowest price you would be willing to sell it to someone. Or the highest price someone else would be willing to buy it from you. All valid, all have weaknesses.
Intellectual Property portfolios may be particularly difficult to evaluate. If you are considering an investment round, or an M&A, how do you determine value?
A first mistake would be to count trade secrets and patent applications, thinking quantity translates to quality – the reasons why it’s false is covered in my prior pieces. A second mistake would be to ask your accountant for your external Patent Attorney firm bills – but that would only tell you how much you spent, not what you gained in return. A third mistake would be to ask interested third-parties how much they will be willing to pay – but they will 100% low-ball you.
However, if you look at an IP portfolio as key to exclusively enter a profitable market, then it becomes simple mathematics, it is the OVERLAP between the scope of protection and the product/service market that determines revenue, and thus determines value.
A portfolio which secures you 5% of a 100M USD market is worth more than a portfolio which secures you 20% of a 10M USD market – do the math.
Conclusion: how to determine true IP value
- Counting patents or relying on billing costs gives you quantity or spend, not value.
- Market value isn’t what someone is willing to pay; it’s what you can own and monetize.
- True IP value lies in the overlap between the portfolio’s scope and the market it protects.
If you need an IP professional to analyze the market, analyze the strength of the IP portfolio, and determine how they OVERLAP, let’s talk.
