Schools of Thought: IP Strength and Value

When it comes to IP Strength and Value, there two schools of thought. Left or right. Up or down. More distinct than two points of view, they are “chalk and cheese”. In patent valuation there are the adherents of the “Expert View” and the “Metricationists”. The older and therefore more established approach is the “Expert View”. Subjective, akin to valuation of an old master by art expert, the patent expert view based on long experience, insight led assessments of quality, relevance, and strength are combined with external measures, such as technology costs, product prices and market size to derive an indicative value. While experts can, and do, disagree, aligned professionally based analysis is likely to lead to more commonality of view than divergence.

The “Metricationists” look at the inherent subjectivity of the “Expert View” and yearn for a more systematic, repeatable approach, where the process leads, unavoidable to the same value, for the same piece of IP, for example the same patent, something the “Expert view” cannot guarantee. So, fixed immutable criteria applied rigidly to give an unequivocal answer. Which star to pick and how to steer by it? That is the art, and art favours such criteria as citation analysis, where the number of later patents referencing the valued patents is multiplied by a fixed base multiple, eg $1M, so 5 citations $5M, 10 is $10M and so on. Now, to be clear, there is no suggestion of some psychic link between forward citation count and market size or product price, rather the citation count is seen a determinative reference of quality or value of the innovation in space of citation count. Better inventions will get a higher citation count and be worth more, and so on. What is created is a self referenced valuation system which is more consistent, the “Metricationists” assert, than the “Expert view” and therefore more useful, particularly for financial purposes, and of course all valuation is relative anyway so as long as the system is consistent then all well and good.

Necessarily for a 300 word piece both approaches are simplified, the proponents might say caricatured, to emphasise the key differences: subjective v objective, context driven v content agnostic, variable v reproducible. Which is better? That would depend on your purpose and perspective. Horses for courses then? No. More like cheese and chalk and you choose which is which, and which you prefer.

Bon appetite.