Patent Valuation in Theory and Practice

Abstract: Background: Today, an increased need to value patents is expressed in several different situations. For example, banks more frequently accept patents as collateral for loans and patents are being exchanged more often between companies. It is argued that a hindrance for the recognition of the value of patents, and other assets lacking physical form, is that the current methods of valuation are not developed for this type of assets. Purpose: Our objective is to investigate the practical relevance of four theoretical valuation approaches in the context of patent valuation and to point out crucial factors affecting the choice of valuation approach. Procedure: Interviews were conducted with professionals working in the field of corporate finance and with an expert in the field of patents and intellectual property rights. Results: The respondents are not of the same opinion whether relevant approaches for patent valuation exist at all. Among the respondents who find it possible to value patents, the income approach is the dominating approach. The theoretical correctness of this approach, derived from the definition of value, is stressed as the primary argument for the use of it. Methods such as Decision Tree Analysis, within the income approach, and Relief from Royalty, a hybrid of the market- and income approach, are used as complements.