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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. I have been on this program while on parole from 2011-2013. No person should be forced mentally to share private details of their personal life with total strangers. Also giving permission for a mental therapist to report to your parole agent that your not participating in group therapy because you don't have the financial mean to be in the group therapy. I was personally singled out and sent back three times for not having money and also sent back within the six month when you aren't to be sent according to state law. I will work to het this INSOMM's removed from this state. I also had twelve or thirteen parole agents with a fifteen month period. Thanks for your time.

  2. Our nation produces very few jurists of the caliber of Justice DOUGLAS and his peers these days. Here is that great civil libertarian, who recognized government as both a blessing and, when corrupted by ideological interests, a curse: "Once the investigator has only the conscience of government as a guide, the conscience can become ‘ravenous,’ as Cromwell, bent on destroying Thomas More, said in Bolt, A Man For All Seasons (1960), p. 120. The First Amendment mirrors many episodes where men, harried and harassed by government, sought refuge in their conscience, as these lines of Thomas More show: ‘MORE: And when we stand before God, and you are sent to Paradise for doing according to your conscience, *575 and I am damned for not doing according to mine, will you come with me, for fellowship? ‘CRANMER: So those of us whose names are there are damned, Sir Thomas? ‘MORE: I don't know, Your Grace. I have no window to look into another man's conscience. I condemn no one. ‘CRANMER: Then the matter is capable of question? ‘MORE: Certainly. ‘CRANMER: But that you owe obedience to your King is not capable of question. So weigh a doubt against a certainty—and sign. ‘MORE: Some men think the Earth is round, others think it flat; it is a matter capable of question. But if it is flat, will the King's command make it round? And if it is round, will the King's command flatten it? No, I will not sign.’ Id., pp. 132—133. DOUGLAS THEN WROTE: Where government is the Big Brother,11 privacy gives way to surveillance. **909 But our commitment is otherwise. *576 By the First Amendment we have staked our security on freedom to promote a multiplicity of ideas, to associate at will with kindred spirits, and to defy governmental intrusion into these precincts" Gibson v. Florida Legislative Investigation Comm., 372 U.S. 539, 574-76, 83 S. Ct. 889, 908-09, 9 L. Ed. 2d 929 (1963) Mr. Justice DOUGLAS, concurring. I write: Happy Memorial Day to all -- God please bless our fallen who lived and died to preserve constitutional governance in our wonderful series of Republics. And God open the eyes of those government officials who denounce the constitutions of these Republics by arbitrary actions arising out capricious motives.

  3. From back in the day before secularism got a stranglehold on Hoosier jurists comes this great excerpt via Indiana federal court judge Allan Sharp, dedicated to those many Indiana government attorneys (with whom I have dealt) who count the law as a mere tool, an optional tool that is not to be used when political correctness compels a more acceptable result than merely following the path that the law directs: ALLEN SHARP, District Judge. I. In a scene following a visit by Henry VIII to the home of Sir Thomas More, playwriter Robert Bolt puts the following words into the mouths of his characters: Margaret: Father, that man's bad. MORE: There is no law against that. ROPER: There is! God's law! MORE: Then God can arrest him. ROPER: Sophistication upon sophistication! MORE: No, sheer simplicity. The law, Roper, the law. I know what's legal not what's right. And I'll stick to what's legal. ROPER: Then you set man's law above God's! MORE: No, far below; but let me draw your attention to a fact I'm not God. The currents and eddies of right and wrong, which you find such plain sailing, I can't navigate. I'm no voyager. But in the thickets of law, oh, there I'm a forester. I doubt if there's a man alive who could follow me there, thank God... ALICE: (Exasperated, pointing after Rich) While you talk, he's gone! MORE: And go he should, if he was the Devil himself, until he broke the law! ROPER: So now you'd give the Devil benefit of law! MORE: Yes. What would you do? Cut a great road through the law to get after the Devil? ROPER: I'd cut down every law in England to do that! MORE: (Roused and excited) Oh? (Advances on Roper) And when the last law was down, and the Devil turned round on you where would you hide, Roper, the laws being flat? (He leaves *1257 him) This country's planted thick with laws from coast to coast man's laws, not God's and if you cut them down and you're just the man to do it d'you really think you would stand upright in the winds that would blow then? (Quietly) Yes, I'd give the Devil benefit of law, for my own safety's sake. ROPER: I have long suspected this; this is the golden calf; the law's your god. MORE: (Wearily) Oh, Roper, you're a fool, God's my god... (Rather bitterly) But I find him rather too (Very bitterly) subtle... I don't know where he is nor what he wants. ROPER: My God wants service, to the end and unremitting; nothing else! MORE: (Dryly) Are you sure that's God! He sounds like Moloch. But indeed it may be God And whoever hunts for me, Roper, God or Devil, will find me hiding in the thickets of the law! And I'll hide my daughter with me! Not hoist her up the mainmast of your seagoing principles! They put about too nimbly! (Exit More. They all look after him). Pgs. 65-67, A MAN FOR ALL SEASONS A Play in Two Acts, Robert Bolt, Random House, New York, 1960. Linley E. Pearson, Atty. Gen. of Indiana, Indianapolis, for defendants. Childs v. Duckworth, 509 F. Supp. 1254, 1256 (N.D. Ind. 1981) aff'd, 705 F.2d 915 (7th Cir. 1983)

  4. "Meanwhile small- and mid-size firms are getting squeezed and likely will not survive unless they become a boutique firm." I've been a business attorney in small, and now mid-size firm for over 30 years, and for over 30 years legal consultants have been preaching this exact same mantra of impending doom for small and mid-sized firms -- verbatim. This claim apparently helps them gin up merger opportunities from smaller firms who become convinced that they need to become larger overnight. The claim that large corporations are interested in cost-saving and efficiency has likewise been preached for decades, and is likewise bunk. If large corporations had any real interest in saving money they wouldn't use large law firms whose rates are substantially higher than those of high-quality mid-sized firms.

  5. The family is the foundation of all human government. That is the Grand Design. Modern governments throw off this Design and make bureaucratic war against the family, as does Hollywood and cultural elitists such as third wave feminists. Since WWII we have been on a ship of fools that way, with both the elite and government and their social engineering hacks relentlessly attacking the very foundation of social order. And their success? See it in the streets of Fergusson, on the food stamp doles (mostly broken families)and in the above article. Reject the Grand Design for true social function, enter the Glorious State to manage social dysfunction. Our Brave New World will be a prison camp, and we will welcome it as the only way to manage given the anarchy without it.

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