Lawyers and Settlements

Intellectual Property: Patents

How To Evaluate An Invention

Normally, evaluation of an invention is rather speculative. One important start is to try to look at the invention as unemotionally as possible, keeping in mind other alternatives (and there are almost always alternatives) that may be available to solve the same need. A patent search by a professional searcher and an opinion by a registered patent attorney of the search results are useful to objectively evaluate the patentability of the invention and locate alternatives previously patented. This opinion can often dispel over-enthusiasm of the inventor who is naturally excited about having coming up with something the inventor thinks is new and great.

A few tests can be applied to an invention (patented or not) to determine whether to seriously pursue it further. Careful study should be given to the
required investment for supplies for making the product,
necessary factory changes to produce the product,
advertising budget that will be required to change public buying habits to accept the new product,
market size, in worst case, in most likely case and in best case and
profit margin needed for the product, considering each step in the distribution process needs to profit.

So, to determine the potential value of a patent, it is necessary to make a comprehensive business evaluation of the resulting product. Both a thorough Marketing Evaluation of the invention and a Business Plan for the business to which the invention relates are usually very important to commercial success, and are almost always required by investors. There are organizations that specialize in making objective evaluations of the marketability of an invention. For example, the World Innovation Network (also known as the “Innovation Institute”) at www.innovationinstitute.com provides a computer-based marketability analysis (“invention evaluation”) with personal review by a University of Southwestern Missouri business professor, for $175 (as of Jan. 2002) using their PIES software (which has been in use for over a decade). PatentCafe (www.patentcafe.com ) sells a reusable marketability software program called “Invention Assessment Program” for $69.95. These are two good ones, but there are many others.

Although the value of a patent depends primarily on the commercial importance of the invention or discovery, there are other important considerations.

The credibility associated with a discovery is a primary factor in attracting investors. A successful inventor acquires credibility in the same fashion as a successful painter or writer. When Thomas Edison brought an invention to a company for potential licensing, the company took notice. If John Doe came with the same invention, he would be treated with lots less respect. Obtaining a patent gives some credibility. However, in the absence of prior success, an inventor must still build credibility by proving the likelihood of commercial success of the product of his invention or discovery. For example, a certain amount of credibility may result from the completion of an operating model, since that shows the invention at least works. Usually, more credibility is gained with a production prototype, since that shows that the product can be made in production. A manufacturing plan or production quotes from a reliable manufacturer give credibility, by showing that the invention can be made commercially and what commercial production costs might be. A favorable marketing plan gives additional credibility by showing that marketing experts consider the invention should be a market success. A favorable sales history for patented product is usually the best indicator of commercial value since it shows the product has already been selling well. In other words, any step that concretely bridges the gap between a conceived idea and actual commercial exploitation tends to build credibility and the closer the product is to a going commercial success, the more likely a buyer is to be in the rights to the invention.

Timing is another element that affects the value of an invention. The public may not be ready for the invention (bar coding was invented and a patent applied for in the 1950s but was not widely used until nearly 1980, although there the inventor, Jerome Lemelson, was able to delay issuance of patents for nearly 23 years and became rich from royalties.) The life of utility and plant patents in the United States is 20 years from filing of the application for the patent, and it is effective starting with the date of issuance, although once issued it may (if voluntarily published after Nov. 29, 2000) be enforceable back to an earlier date of official publication by the Patent Office. At the end of that 20 year period (or earlier if maintenance fees are not paid), patent rights in the invention end. Usually, the invention can thereafter be freely used or worked by anyone, unless covered by another patent or other rights. A variety of economic production, and management factors may come into play to take the period of patent protection away from the period when an invention is commercially important. For example, the marketing period for a faddish toy is often short-lived and may have passed even before a patent is granted. In those industries where change is expensive and time consuming, e.g., the pharmaceutical industry or assembly line productions, actual approvals for production, development of production lines and development of a sales network may take a period that is longer than the life of a patent. Thus, the value of a patent can be greatly influenced by the patterns for change that exist for specific products and industries.

Unfortunately, many inventors often grossly underestimate the cost and difficulty of commercializing their inventions and overestimate market size and the chances of purchaser acceptance.

Information on this page was supplied with permission of Bruce E. Burdick.


Patents | What a Patent is NOT