Methods and Applications
New Horizons in Intellectual Property series
Edited by Federico Munari and Raffaele Oriani
Chapter 7: Valuing Patents through Indicators
Nils Omland 7.1 INTRODUCTION Various fundamentally different approaches to patent valuation exist, as described in Chapter 5. One approach (the income approach) is to analyse the future benefits of the patent to its owner. This approach generally builds on expert knowledge of the technology, markets, production facilities, legal effectiveness of the patents, and so on. Most of this information is not easily available: different experts, possibly even from different organizations, have to be asked and market research might have to be done. These valuations are expensive, they cannot be reproduced by third parties and they cannot be performed by computers. A different approach is to use indicators of patent value such as, for example, historical prices (market approach) or cost (cost approach). These indicators may not determine the value of a patent in any way, but they have been found to exhibit a high statistical correlation to value and can thus be used to estimate it (see Chapter 3 for a broad review of the empirical literature and Chapter 13 on the relationship between patent indicators and stock market values). All of us use indicator-based valuation in our daily lives. For example, we assume that the value of our car can be approximated by the prices of similar cars sold recently. We also expect its value to be related to its manufacturing cost, age, mileage, horsepower and other indicators. The main advantage of indicator-based valuation methods is their lower cost (both in terms of time and money) and the higher...
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