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The Management of Intellectual Property

Edited by Derek Bosworth and Elizabeth Webster

This book brings together innovative contributions on the management of intellectual property (IP) and intellectual property rights by an esteemed and multi-disciplinary group of economists, management scientists, accountants and lawyers.
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Chapter 14: Patent Valuations and Real Options

Robert Pitkethly


14. Patent valuation and real options Robert Pitkethly 1 1.1 INTRODUCTION Why Value Patents? Identifying the value of patent applications and patents1 enables good patent management decisions to be made about them, including whether to apply for or renew a patent and whether to continue with a pre-existing application. All such judgements involve at least an implicit valuation quite apart from the valuations needed in sale or licensing decisions. This chapter discusses methods for making these judgements explicit and thereby more objective. 1.2 In What Circumstances Should Patents be Valued? Early in an invention’s life, information about the eventual value of any related patent will be scarce. Those most likely to have such information are the inventor, who should know the invention’s technical significance, the patent agent, who should know the quality of patent protection obtainable, and marketing managers, who might predict the invention’s sales and licensing revenue and any benefits derivable from patents. Combining these people’s expertise with an objective valuation method should improve the quality of managerial decision-making. However, there are problems, first, in selecting a valuation method and, second, in ensuring that decisions are unbiased. For many managers, the potential career costs of not applying for a patent are so much greater than the immediate costs that the advice ‘When in doubt, file an application!’ (Grubb 1982, p. 48) seems prudent. But can the doubt which makes it seem the correct course of action be accounted for? Similar considerations apply to other decisions such...

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