Getting a patent for your idea, is it worth it?
The patent monopoly consists of protecting inventors from competition for a period long enough to extract from people a reward vastly excessive in relation to the measure of the work of their services.
- Benjamin Tucker
First, let's talk about the definition of a patent. A patent is a legal document that grants an exclusive territorial right over the patented invention, which consists of a product or a process that provides, in general terms, a new way of doing something or a new technical solution to a problem, the purpose of which is to provide a certain type of protection to technological advances. The duration of the protection granted on the invention is at least 20 years from the priority date.
Figure 1. Patent filling process.
The effect of the grant of a patent is that the patented invention cannot be exploited (made, used, sold, or imported) by persons other than the patent holder without his authorization for limited period of time and in the country where it has been granted, giving the holder the legitimate right to assign or license his patent.
Therefore, it allows innovators and creators to secure their right to receive economic returns on their investments, assuming risks and uncertainties, and in the process recover the costs incurred in the creative process.
Thus contributing to investment in new research and development (R&D) and ensuring to some extent that this process will result in new and better products that adequately meet the needs of the market.
One of the inherent purposes of the patentability method is to contribute to the dissemination of new technological knowledge among the general public, which makes it possible to lay the foundations for new technology developed on the basis of technical heritage that exists among the patents whose rights have vanished and belong to the public domain.
The cumulative effect given by the diffusion of inventions is decisive for the increase of knowledge and productive activity of companies, as well as research institutions, promoting innovation through free access to relevant technologies, materializing them and providing the ability to control the use of these to take them to other sectors or to carry out research on them.
Encouraging innovation allows ideas to be transformed into patents and these into products that through this cumulative effect provide new or different characteristics, offering additional benefits that satisfy the needs of a customer segment.
Since there is no patent that covers all the countries in the world, not even a significant number of them, it is important to properly determine our customer segment and select the territoriality of the right for the product to be spearhead in the market, improving its chances of success and leaving out or at least delaying the arrival of potential competitors.
Both territotiality and time of protection in the patent legal model are characteristics that are being surprassed due to the speed and scope of the dissemination of information, as well as the emergence of new user needs and constant changes in them.
As time goes by, it is more likely that someone somewhere else in the world will achieve the same advances as the invention, even better results than the invention, rendering the patented technology obsolete.
Taking into account the globalization process and how innovation assumes a dynamic role in in inventions, we cannot help but wonder why, if there are so many variables at play, what is value of a patent?
The value will depend on the amount someone is willing to pay for a patent or the net economic benefits to be derived from the patent in the future.
The following is a list of points to consider in the valuation of a patent:
Degree of Innovation: Patents for breakthrough innovations are more valuable than patents for the improvement of existing inventions.
Market size: The greater the patentee's ability to dominate the market for the patented technology, the greater the value of the patent; if there are viable substitutes, the value of the patent decreases.
Duration of the right: Patents that have just come into force and are likely to preserve that exclusivity situation in the market tend to have more value.
Based on these determining points in the valuation of patents, we can perform the following valuation methods with three general approaches:
The cost-based approach: This approach is governed by the principle that there is a direct relationship between the costs incurred in the development of a patent and its economic value.
Historical costs: The costs involved in the development are quantified.
Replacement costs: The value is calculated based on the amount of money that would be paid today in order to recreate the functionality or utility of the patent.
Duplication costs: Calculated from the amount of money required to build an exact replica of the patent.
2. The market-based approach: This approach assumes the efficiency of the free market between interested buyers and sellers in determining the value of patents.
The value is calculated by analogy to the market price of similar patents, finding analogous examples that have been commercialized.
3. The income-based approach: The value of a patent is determined by discounting the future economic impact with the discount rate over the life of the patent, focusing on assessing future cash flows, applying a discount rate to reach a present value.
Discounted cash flow: Determined by calculating the present value of the future cash flows of the patent over its expected useful life during the patent term.
Compensation for the collection of license or usage fees: The royalties that the company would have to pay to a third party to obtain the IP license are calculated.
The valuation of a patent is a process that depends on multiple variables, which requires a high level of expertise, as well as knowledge of the market, sector, technology, development cost and alternatives that provide a solution to the need of the protected invention.
To determine whether it is worth protecting your invention through a patent, it is recommended that the value of the patent at least exceeds its cost. The cost of a patent will depend primarily on the territory where the process was carried out, together with the costs of technological development on which the legal document offers protection, as well as the level of protection of the same.
We will analyze the cost of filling and mantaining a patent. See Table 1. Estimated cost of patent prosecution in México.
Table 1. Estimated cost of patent prosecution in México.
One of the recommendations to increase the chances of patentability of the invention in question is to consult the technical information, which corresponds to the first concept in Table 1.
After the technical search, the patent application is filed (see figure 1. patent filling process), however, 30 pages are not usually enough as the average length of a patent, therefore the value of the average length of a patent, was estimated with 20 more pages.
One of the concepts that are not usually contemplated in the process is legal advice, even though we know how to draft the technical report, it is advisable to have a lawyer specialized in intellectual property matters to draft the proper wording of the patent filing and as a support in the resolution of situations that may arise before the IMPI. Table 1 shows an average cost of advice, which will depend on the field of the invention, the length of technical memory and the inventive description time.
Finally, in order to minimize the risk that the invention already patented will not be revoked, it is necessary to renew the rights annually by paying the fee for the conservation of rights, which depends on the year that elapses.
In conclusion, patent protection should be determined based on the value of the patent and should at least exceed the cost of technological development and the cost of the legal model which, as we have seen previously, will depend on multiple factors, starting with the contry where the protection will be granted.
If you are interested in learning more about the protection of inventions or the value of your invention, contact us and we can guide you through to get the best strategy for your project.