Patent Valuation is the subject of many debate. With over a 100 methods of “valuing” patents, its difficult to find any good yardstick by which to measure the value of a patent. After all, like many other difficult questions its not only who you ask but also in which context the issue arises. I guess a lawyerish answer on “how much value has a patent?” probably is right on: “it depends”. From a defensive perspective if one considers patents to be crucial for freedom to operate, numbers count. So does quality. It depends on the situation. A party in the middle of patent litigation unable to countersue would pay well for a patent that creates such an opportunity for him.

If however the CFO wants the IP Chief to tell what the “value” is so as to inform the company’s accountants, than a valuation based on past performance or nett present value of the future licenses under the patents would be a method to think of. And so there are a large number of methods, clearly not a very attractive situation.

Many analyses still go for the numbers as a measure of patent value or quality. In this respect we came across a an article by Prof Hal Wegner on the different valuation methods for patents. He notes that if gross numbers of patents are a true indicator of patent strength and value, then the upper tier of the U.S.

American patent economy is dominated by Japanese industry which dominates the list of top ten patent owners in the United States (we would be interested to learn about similar figures and statistics for Europe).

Not surprisingly, prof Wegner finds that total patents granted as an indicator indicates that the most patent-profitable area of technology in the US is in the electronics field which dominates the top ten list of patentees. However what is surprising is that the top 10 pharmaceutical companies have far fewer patents granted than any of the overall top 10 companies, ranging from 516 patents for No. 1 Johnson & Johnson to 117 for Schering. Industry leader Pfizer obtained only 345 patents while Eli Lilly is not even found on the Top 300 list.

This is not because pharma does not value patents. They are among the industries spending the most in patent litigation to protect their assets, not only in the US. So how come the number of patents is so much lower than those applied for by the electronics industry? If it’s a sign of lower inventiveness, its worrying but we doubt that’s the reason. Maybe the pharmaceutical industry is more careful about what innovations and improvements should be patented? Also not very likely. Taking the long, cumbersome and expensive road from laboratory to approved drug, the industry may want to be much more careful what to patent and what not.

We heard also this view from an inside pharma source:

The Top Pharma companies are compared to e.g electronics or other companies like GE, Philips, Siemens who usually sell on one hand very complex technologies requiring many different components and thus many different patents. Just imagine a nuclear power plant, a new Porsche, or a new iPod. In contrast, pharma blockbusters like Lipitor are relatively simple and have only a few patents for market exclusivity like compound, formulation, indications, and manufacturing patents. By the way also mature technologies like polymers rely on incremental innovation and need much more patents for meaningful protection.

See on Valuation of IP also IP Finance.