5 Things Every Investor Should Know About Patents

An innovation has been worked on and developed as something new for the markets. Now, the inventor needs investment to bring that idea to market in order to make a return. If you want to invest in a patent, there can be great rewards but also great risks. The patent value is also important to businesses in transactions involving mergers and acquisitions, business dissolution, bankruptcy and infringement analysis.

1.Value of the invention

value-of-the-inventionA key part of valuing a patent is to obtain a value of the invention. The patent’s value is the value of similar patents that have been sold and purchased before. Two things must be in place for this approach to be used. First, the existence of an active market for the patent, or a similar one and second, past transactions of comparable property. Comparable patents should share the same industry characteristics, market share or market share potential and growth prospects.

If there are no comparable markets, the value of the invention could be the amount that would be necessary to replace the protection right on the invention or a look to future cash flows in determining valuation, as the underlying hope is that the patented product will increase sales or at least be a cost-saving measure.


2.Breakthrough patents

Many investors fund start-ups who take control of an untapped market (Uber for example). These patents offer great returns, but check for patent protection, feasibility of technology and disruptive potential (whether patent represents a foundational shift in an industry or is merely an incremental improvement on an existing standard).

3.Understand the risks involved in investing in patents

the-risk-involved-in-investingA primary risk in investing in patents is patent-right infringement. If the patent investor does not have exclusive rights to the patent, then other interests can flood the market with similar products that devalue the investment. Another risk is whether the patent is commercially viable, and if it is, what value to put on the patent.




4.Subscribe to a patent evaluation firm

subscribe-to-a-patent-evaluation-firmYou can outsource the economic analysis to evaluation firms who will search through the thousands of patents issued each year and give their members access to research. A patent evaluation firm will also evaluate the strength of a patent to stand up to legal challenges.




5.Unscrupulous patent investors

Be aware that there are unscrupulous patent investors who can affect the legitimate investment in a patent. Some companies invest in broad patents and wait for someone else to develop a product than can be construed to fit within the parameters of that broad patent. Then they sue the entity that actually brought the product to market. Being prepared for this possibility can eliminate the surprise if and when it happens, and the patent investor may be better able to safeguard his investment.