Valuation of patents?
A post on PatentBaristas points to a post on the 271 blog which points to an article by Dominique Patton, the editor of NutraIngredients.com, about valuation of patents.
Patton writes:
Yet the most striking fundamental of patent valuation, overall, is how few fundamentals there are. Companies themselves struggle to evaluate their own intellectual property.
And this problem at the level of book valuations is multiplied manyfold in market values. Specialists at the Inno-Tech institute in Munich's Ludwig Maximillian university have shown that the ratio of book value to market value for companies' intangible assets has declined dramatically from 1:1 in 1978 to 1:7 in 2000.
This means that any misplaced value on the books is now getting amplified by a factor of 7 in market valuation, and rising.
At the same time, more and more valuations are being built onto the same shaky foundations. A price tag on a biotech firm is derived from what other companies with this kind of intellectual property are trading at: and so the circus continues.
It is a dangerous situation, for companies and investors alike. Today's investor gambles not on whether a business will succeed but rather that its intellectual property will be considered as valuable as it is today in the long-term.
Companies also suffer. As mysterious as the financial benefits might be, the costs of intellectual property are real enough. Patents are not cheap to set up, or maintain, and with 958,000 issued last year, their creation is big business. Yet any real cost-benefit calculation is impossible.
Holding in mind Patton's statement (Companies themselves struggle to evaluate their own intellectual property.), one looks at Patently-O, which has a citation to the Lemley et al article, What to do about bad patents, which abstract suggests that applicants should be allowed to “gold-plate” their patents (with a presumption of validity following successful examination) by paying more for examination of applications that are likely to have economic significance. Those that did not choose to gold-plate would have merely a preponderance of the evidence standard afterwards.
Against the Lemley et al. proposal, one notes the patent "deal" between the public at large and the inventor is disclosure of an invention that meets the requirements of the patent law in return for the right to exclude for a limited period. If we end up with some caste of patents which are less likely to meet the requirements of patent law, it is the public that is getting short-changed.
The Lemley et al. proposal does not argue that a large number of "bad" patents are the problem, but rather a few bad patents which cause economic disruption. A patent on a "faster than light" spaceship is not really bad to Lemley because there is no such thing. However, critics of the patent system such as Bob Park and David Voss challenge just these patents because of the channeling issue: the imprimatur of the patent office will cause others to believe in them, and, more importantly, to invest in them. Similarly, the imprimatur of the journals Science and Nature on the work of Jan-Hendrik Schon caused the misallocation of tens of millions of dollars in research funds on systems which did not exist. The Lemley article trots out the patent to Smucker on the crustless [peanut butter and jelly] sandwich, but one should recall that Albie's was sued on this patent. Someone was hurt by the silly patent.
The Lemley et al. proposal tries to harness information of the patent applicant (in the case of the gold-plating proposal) and of the competitor (in the case of the opposition) to signal to the patent office which patent applications "really" are important and thus merit "real" examination. In Patton's world, wherein companies themselves struggle to evaluate their own intellectual property, it might be hard to make the gold-plating decision. In the real world, one suspects that the only effect of an opposition (which allows prior art and depositions) over a re-examination (which allows prior art) would be strategic behavior by competitors to hamper the patentee. This would become another mechanism for those with more resources to hinder those with fewer resources, and thus delay a proper economic evaluation of the patent. That hurts innovation.
And what might Professor Lemley say about:
Barokes Wines, the owners of the thriving Australian export, Wine-In-A-Can, welcomes the Australian Patent Office’s confirmation of the validity of the innovation patent for its Vinsafe technology, the Australian-developed technique that produces wine in a can.
**Patent citation. Chi. Narin **
Albert, M. B., D. Avery, F. Narin, and P. McAllister. 1991. "Direct Validation of Citation Counts as Indicators of Industrially Important Patents").
Patton writes:
Yet the most striking fundamental of patent valuation, overall, is how few fundamentals there are. Companies themselves struggle to evaluate their own intellectual property.
And this problem at the level of book valuations is multiplied manyfold in market values. Specialists at the Inno-Tech institute in Munich's Ludwig Maximillian university have shown that the ratio of book value to market value for companies' intangible assets has declined dramatically from 1:1 in 1978 to 1:7 in 2000.
This means that any misplaced value on the books is now getting amplified by a factor of 7 in market valuation, and rising.
At the same time, more and more valuations are being built onto the same shaky foundations. A price tag on a biotech firm is derived from what other companies with this kind of intellectual property are trading at: and so the circus continues.
It is a dangerous situation, for companies and investors alike. Today's investor gambles not on whether a business will succeed but rather that its intellectual property will be considered as valuable as it is today in the long-term.
Companies also suffer. As mysterious as the financial benefits might be, the costs of intellectual property are real enough. Patents are not cheap to set up, or maintain, and with 958,000 issued last year, their creation is big business. Yet any real cost-benefit calculation is impossible.
Holding in mind Patton's statement (Companies themselves struggle to evaluate their own intellectual property.), one looks at Patently-O, which has a citation to the Lemley et al article, What to do about bad patents, which abstract suggests that applicants should be allowed to “gold-plate” their patents (with a presumption of validity following successful examination) by paying more for examination of applications that are likely to have economic significance. Those that did not choose to gold-plate would have merely a preponderance of the evidence standard afterwards.
Against the Lemley et al. proposal, one notes the patent "deal" between the public at large and the inventor is disclosure of an invention that meets the requirements of the patent law in return for the right to exclude for a limited period. If we end up with some caste of patents which are less likely to meet the requirements of patent law, it is the public that is getting short-changed.
The Lemley et al. proposal does not argue that a large number of "bad" patents are the problem, but rather a few bad patents which cause economic disruption. A patent on a "faster than light" spaceship is not really bad to Lemley because there is no such thing. However, critics of the patent system such as Bob Park and David Voss challenge just these patents because of the channeling issue: the imprimatur of the patent office will cause others to believe in them, and, more importantly, to invest in them. Similarly, the imprimatur of the journals Science and Nature on the work of Jan-Hendrik Schon caused the misallocation of tens of millions of dollars in research funds on systems which did not exist. The Lemley article trots out the patent to Smucker on the crustless [peanut butter and jelly] sandwich, but one should recall that Albie's was sued on this patent. Someone was hurt by the silly patent.
The Lemley et al. proposal tries to harness information of the patent applicant (in the case of the gold-plating proposal) and of the competitor (in the case of the opposition) to signal to the patent office which patent applications "really" are important and thus merit "real" examination. In Patton's world, wherein companies themselves struggle to evaluate their own intellectual property, it might be hard to make the gold-plating decision. In the real world, one suspects that the only effect of an opposition (which allows prior art and depositions) over a re-examination (which allows prior art) would be strategic behavior by competitors to hamper the patentee. This would become another mechanism for those with more resources to hinder those with fewer resources, and thus delay a proper economic evaluation of the patent. That hurts innovation.
And what might Professor Lemley say about:
Barokes Wines, the owners of the thriving Australian export, Wine-In-A-Can, welcomes the Australian Patent Office’s confirmation of the validity of the innovation patent for its Vinsafe technology, the Australian-developed technique that produces wine in a can.
**Patent citation. Chi. Narin **
Albert, M. B., D. Avery, F. Narin, and P. McAllister. 1991. "Direct Validation of Citation Counts as Indicators of Industrially Important Patents").
posted by Lawrence B. Ebert at 7:33 AM
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