The valuation of patent assets is rarely straightforward. While clients often ask, “What is my patent worth?”, the underlying question is, “What is my patent worth for this specific purpose and to this specific party?”
Unlike tangible assets, patents derive value from economic potential, which involves broader considerations than solely the inherent qualities of the patent assets. That economic potential may vary significantly depending on who is assessing the asset and why.
Value to the Owner and Value to Others
For existing owners, patents may be valued in relation to their ability to support a commercial strategy such as protecting market share, enabling higher margins, licensing opportunities, or deterring competitors, and the impact these various factors have on their potential to generate future revenues. A patent covering a core technology may be worth many times the cost of its development if it preserves exclusivity in a key market segment.
However, to a potential acquirer or licensee, the same patent may hold a very different value. A buyer with a complementary product line may see far greater commercial synergies than the current owner, translating into a higher valuation. Conversely, an acquirer lacking manufacturing capability, distribution channels or market presence may attribute less value, even to a robust patent family. Put simply, context shapes utility, and utility drives value.
Valuation Purposes
Patent valuations are commonly required for transactions, fundraising, litigation, tax planning, financial reporting and internal strategy. Each of these contexts calls for different methodologies and assumptions:
- Transactional valuations often emphasise the price a willing buyer would pay today, incorporating competitive dynamics, freedom-to-operate considerations, and the acquirer’s potential use cases.
- Litigation valuations focus on quantifying lost profits, possibly an account of the defendants profits, reasonable royalties or damage apportionment, resulting in values tied to infringement scenarios.
- Accounting valuations for IFRS reporting or transfer pricing must follow strict standards and tend to be more conservative.
- Internal strategic valuations may prioritise long-term value, including future applications of the technology or defensive benefits.
The resulting figures can differ dramatically, even for the same patent portfolio.
Key Drivers of Patent Value
Across contexts, certain core factors consistently influence value:
- Legal strength: claim scope, validity, jurisdictional coverage and remaining term.
- Commercial relevance: size of the addressable market, competitive landscape and stage of product adoption/technology readiness level.
- Enforceability and risk: likelihood of detecting infringement, cost of enforcement and availability of alternatives.
- Strategic utility: whether the patent blocks competitors, enables licensing revenue or forms part of a wider IP strategy.
As each stakeholder may assess each of these drivers differently, valuations often diverge, sometimes significantly.
A Practical Takeaway
Businesses should avoid treating patent valuation as a one-time, one-number exercise. Instead, it is an evolving economic assessment shaped by the interests and capabilities of each party involved. As companies consider licensing, investment or sale, understanding how different stakeholders perceive value can make the difference between capturing full commercial potential and leaving money on the table.
For clients preparing for transactions or strategic planning, a well-reasoned, context-specific valuation is one of the most powerful tools for informed decision-making and in understanding the drivers underpinning the value of patent assets in the relevant context.
In commercial negotiations, the articulation of a valuation calculation and the factors driving it can be as important as the valuation figure.
Having acted for a broad range of clients from SMEs to large international companies, and across a range of technologies and contexts, the team at Mathys & Squire Consulting would welcome the opportunity to discuss how best to support your valuation needs.
You can reach out to our team here.
