In response to my earlier blog, I received several comments suggesting to “get patents as cheaply as possible” and to not “worry about the quality.” The comments were based on the assumption that holding a patent, although has little protection for a small company, still offers great value to fend off potential suits, and increase a company’s appeal to potential acquirers. Although I agree with the assumptions, however, I have to warn my readers about the dangers of their conclusion.
Often amateur valuation specialists overlook the strength of a patent and simply assume all patents, regardless of quality, contribute equally to business value generation. However, that is not the case.
The key test I employ when considering the value of a patent is its contribution to the true business value of a company. Will your company be worth more when you file for a patent? That’s when quality plays a key role.
A patent that has been litigated and has been sustained in court is more valuable than a patent that has not. That is because many patents are found to be invalid by the courts. An invalid patent, not only is useless, but harmful. It is harmful because when filing for patent protection, you disclosed to the world your technology; an invalid patent will allow your competitors to legally copy your technology, and compete for market share.
A poorly written patent, even when held valid by the courts, may still offer you no value enhancement. When key design elements are omitted, or worded poorly, it may render your patent useless. Whether in an acquisition or a potential lawsuit, experienced patent attorneys are hired to provide the due diligence on your patent portfolio. If of poor quality, potential acquirers will back away when your patent is the centerpiece of your business. The quality of the patent will also influence the decision to proceed with potential lawsuits by your competitors, as your negotiating chip will be eroded by a poorly written patent.
The quality of the patent influences the probability of negative outcomes. A weak patent will have higher probability of being subjected to litigation by competitors, and lower probability of finding an acquirer. Both of these negatively influence your business value. For those with valuation background, these probability of events will increase the discount rate applied to a business’s earnings potential, thus depressing its value.
This all assumes that the USPTO will grant you a patent on a poorly written application. Many applications have to be resubmitted several times, costing the entrepreneur time and money.
It may be worth investing in your patent application. After all, if patent attorneys did not add value, there would not be so many of them. However, it is important to have a careful strategy to optimize the value your investment. For more information see When Is It A Good Idea to Patent Your Invention?
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