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The problem with counting on IP

Published on 20 Jan 2022 | 2 minute read

Applying for a patent is not cheap and most people quickly realize that the cost of the application process must be weighed against potential income. This raises the question as to what the best approach is. If you have listened to us in recent years, you can easily get the impression that it is about making a simple DCF model and comparing two large numbers with each other.

Unfortunately, this is the wrong approach in many cases, especially for smaller companies.

A prerequisite for a company to be able to create value in the long term is that it must have established control over the assets that interact in value creation. It is often more complicated than you may think. First, you have to identify what it is that creates value, and then you have to decide how much this process, technology or method is worth. The problem is that this assessment can easily become one-sided, partly because it is difficult to create credible models to calculate "value", and partly because many people forget to count on many of the more subtle values ​​of IP.

A patent is a time-limited monopoly. To own a patent is to have the right to go to court over something that is perceived as an infringement, but it is also much more than that. It is a form of security and a confirmation that you are creating something of value, and most important of all: a form of communication.

By applying for a patent, you communicate a long-term perspective and a belief in your idea just by paying for the one-time application cost. An approved patent is often a prerequisite for gaining access to reasonably cheap financing, which is often the biggest challenge for small companies. To only make a DCF model with costs and expenses is therefore often very misleading. In order for the model to be applicable, it needs to take into account all other values ​​that patents (or other IP) contribute, which can be difficult. This means, for example, that the value of a first patent may be greater than the value of a second, or that several patents in widely differing fields may not contribute as much value at all. Actually, there is no limit to how many strategic considerations you can make, but of course the marginal benefit decreases with each new parameter.

The fact that it is difficult does not mean that one should not try to quantify the value of a patent application. On the contrary, it is almost always a good idea. It just means that there are many more aspects of an issue than it may seem at first glance. By taking into account more aspects, you can adjust the value of a potential patent application up or down and therefore make better decisions in the long run.

Through our long experience of IP issues, we at Rouse have an in-depth understanding of what challenges and opportunities IP can entail. This means that we can provide strategy advice that creates real value, no matter where you are on your business.

Do you want to learn more about what is most cost effective for you? Please contact Erik Oskarsson for a quick consultation.

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Principal, Rouse Consultancy
+46 734 304 824
Principal, Rouse Consultancy
+46 734 304 824