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What's a patent worth?

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Indiana Lawyer Focus

The question of “What is my patent worth?” is never an easy one to answer, according to intellectual property attorneys and others who specialize in helping patent holders determine what they should expect for a patent – whether that’s determining the value of filing a patent, what a patent is worth when doing a business transaction, or the patent’s value when it is the focus of a lawsuit.

Starting with the filing process, an attorney who always explains the different factors of patent valuations to clients is Vic Indiano, of Indiano & Vaughn in Indianapolis. He said he will let clients and potential clients know how expensive it will be just to file a patent and try to be as honest as possible.

Vic Indiano Indiano

“Every conversation I have with clients starts with a lie,” he said. “When a client says, ‘Vic, I want to file for a patent,’ they’re really saying, ‘Vic, I want to make money.’”

He compared the way inventors think of their inventions as the way parents care for their children, which makes it difficult for inventors to take a step back and realize the real value beyond what the inventor thinks his invention is worth.

While not all attorneys will tell clients exactly how expensive a patent can be, Indiano said he’ll give his clients an estimate of $10,000 to $20,000 just to file the patent. That doesn’t include the cost of a prototype, marketing and advertising, research and development, and any other business costs. So sometimes in the beginning, the client will decide the cost of the patent might be better spent on something else.

“A patent is a capital investment you make to make money,” he said.

In other words, if a patent makes money, that’s good; if it loses money, that’s bad, especially for his clients who are individuals or small businesses.

He also tells clients to consider other costs, the potential profit margin, how many people will want to buy the product, and competing products that already exist.

In one case, he had a client who was making a product that was for large-scale grocery-pallet producers. That client decided not to get a patent because he knew his market was only about a dozen potential customers, and if he could get enough of them to buy the product and therefore saturate the market, a patent wasn’t worth the expense.

Another client who invented a particular kind of cardboard box wanted a patent because he planned to sell the box to large box stores like Wal-Mart and K-Mart. He knew that if he showed the idea to those stores and if they liked it, they would find someone else to manufacture the same box or something remarkably similar.

That wouldn’t happen or be as likely to happen if he had a patent.

“Or at least he wouldn’t get beat up too bad by larger manufacturers,” Indiano said, adding in the end, the client got the patent and made some money.

A value of a patent also can’t be easily calculated if it’s part of a transaction.

“In a lot of cases, patents are the foundations for a deal,” said Mike Pellegrino, president of Pellegrino and Associates in Indianapolis. “They are often given little consideration in the deal itself, yet it can be remarkable how valuable a seemingly small thing can be.”

One patent that was physically small but extremely valuable was the 11-page, 4,400-word patent for Lipitor. He described it as the most profitable kind of patent ever created.

While not a lawyer, Pellegrino is an engineer whose company specializes in patent valuations. He recently organized a CLE for ICLEF regarding patent valuations.

He said he sometimes sees some “horrible deals” by the time they get to him, whether it’s an under- or over-valued patent, depending on which side he’s looking at.

While it’s not always too late to fix a deal gone bad, he said a few minutes on the phone with an expert can save a lot of time and money in the long run, especially for attorneys whose time is valuable to them and their clients.

Dustin Dubois Dubois

Dustin Dubois, a partner at Ice Miller, also considers the value of patents in transactions and for companies looking for investors.

“For example, fairly large successful software company A had a lot of product development dollars they were spending at the beginning. While IP was a focus, it wasn’t a critical focus at first. As time passed, the company wanted to take a more aggressive approach to its IP because 1, more dollars were available, and 2, it’s expected by the investment community.”

He said patents also have different values to the companies that have them.

“Some companies are looking to build their portfolios to exclude the competition from doing what they do,” he said. “Some have the belief they’ll never use their patent as something to sue someone on, but they will use it as a defense if they are ever sued.”

He added different industries approach this in different ways.

Another issue companies and investors look at is the likelihood they’ll be sued over a patent.

However, decisions of the Federal Circuit are also showing signs that the judges are taking a more scrutinizing look at evidence and testimony when determining royalties, according to Trevor Carter of Baker & Daniels.

Trevor Carter Carter

He discussed recent Federal Circuit decisions as part of the same CLE Pellegrino organized. He added that Congress is also working on patent reform legislation. Efforts by both branches could mean significant changes for how much patents are worth, but there is still no defined way to definitively calculate the value of a patent.

Among the cases that have had significant outcomes for IP valuations, Carter said, as the April 2009 case Cornell University v. Hewlett-Packard Co. In that case, the Federal Circuit reduced a $186 million verdict to $53 million. He also mentioned two other cases: a September 2009 case, Lucent Techs. Inc. v. Gateway Inc., where the Federal Circuit vacated a $357 million damages award; and a February 2010 case, where the Federal Circuit vacated a damages award in ResQNet.com Inc. v. Lansa Inc.

Because there’s no cut and dry way to value a patent, those who specialize in the area strongly suggest attorneys without expertise in either IP or the type of technology their client is dealing with should hire an expert as soon as they realize they might need more help.

“You don’t know what you don’t know,” Pellegrino said.•

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  1. Call it unauthorized law if you must, a regulatory wrong, but it was fraud and theft well beyond that, a seeming crime! "In three specific cases, the hearing officer found that Westerfield did little to no work for her clients but only issued a partial refund or no refund at all." That is theft by deception, folks. "In its decision to suspend Westerfield, the Supreme Court noted that she already had a long disciplinary history dating back to 1996 and had previously been suspended in 2004 and indefinitely suspended in 2005. She was reinstated in 2009 after finally giving the commission a response to the grievance for which she was suspended in 2004." WOW -- was the Indiana Supreme Court complicit in her fraud? Talk about being on notice of a real bad actor .... "Further, the justices noted that during her testimony, Westerfield was “disingenuous and evasive” about her relationship with Tope and attempted to distance herself from him. They also wrote that other aggravating factors existed in Westerfield’s case, such as her lack of remorse." WOW, and yet she only got 18 months on the bench, and if she shows up and cries for them in a year and a half, and pays money to JLAP for group therapy ... back in to ride roughshod over hapless clients (or are they "marks") once again! Aint Hoosier lawyering a great money making adventure!!! Just live for the bucks, even if filthy lucre, and come out a-ok. ME on the other hand??? Lifetime banishment for blowing the whistle on unconstitutional governance. Yes, had I ripped off clients or had ANY disciplinary history for doing that I would have fared better, most likely, as that it would have revealed me motivated by Mammon and not Faith. Check it out if you doubt my reading of this, compare and contrast the above 18 months with my lifetime banishment from court, see appendix for Bar Examiners report which the ISC adopted without substantive review: https://www.scribd.com/doc/299040839/2016Petitionforcert-to-SCOTUS

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  4. I'm the poor soul who spent over 10 years in prison with many many other prisoners trying to kill me for being charged with a sex offense THAT I DID NOT COMMIT i was in jail for a battery charge for helping a friend leave a boyfriend who beat her I've been saying for over 28 years that i did not and would never hurt a child like that mine or anybody's child but NOBODY wants to believe that i might not be guilty of this horrible crime or think that when i say that ALL the paperwork concerning my conviction has strangely DISAPPEARED or even when the long beach judge re-sentenced me over 14 months on a already filed plea bargain out of another districts court then had it filed under a fake name so i could not find while trying to fight my conviction on appeal in a nut shell people are ALWAYS quick to believe the worst about some one well I DID NOT HURT ANY CHILD EVER IN MY LIFE AND HAVE SAID THIS FOR ALMOST 30 YEARS please if anybody can me get some kind of justice it would be greatly appreciated respectfully written wrongly accused Brian Valenti

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