The Valuation of Intangible Assets: An Exploration of Patent and Trademark Portfolios


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An Exploration of Patent and Trademark Portfolios

Patent litigation is also treated as an important strategic tool, and whether a lawsuit will be filed or not largely depends on patent value [ 1 ]. There are two options for patentees to deal with infringement: one is to settle out of court, another is to bring a lawsuit.

The cost of litigation is typically much higher than the cost of reaching a settlement. Litigation in general involves not only high legal expense but also lengthy trials. Therefore, patent litigation can have a negative effect on company operations. For these reasons, patent litigation is not considered if a patent does not offer substantial payoff. This is why patent litigation is a useful standard for measuring patent value [ 2 ]. Prior to litigation, patentee and non-patentee hold different expectations on the potential outcomes.

A win for the patentee could mean continued profits and payment for damages stemming from the patent being upheld.

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If the patentee loses in court, the loss of exclusive rights to the patent technology could result in lower profitability and subsequent legal fees. In order to avoid such infringement litigation, patentees can authorize competitors to use a patented technology through license. Both patentees and non-patentees independently evaluate whether a lawsuit is worthwhile. Expectations of winning determine whether litigation takes place or not.

When the expectation of winning on both sides tends to be very close, the sides are more likely to reach a settlement [ 3 ]. As profit margins are highly correlated to patent value, a patent with higher value can bring larger profits to a company. Patent value has a positive impact on the incentive to pursue patent litigation [ 4 , 5 ]. Higher patent value means higher probability of infringement and litigation, as opposed to settlement. Patent litigation can, in turn, have an additional impact on patent value.

If patent litigation is likely to fail, the prospect of losing can minimize patent value. From a legal perspective, patent litigation becomes a measurement of patent value [ 6 ]. In prior literature, patent value has often been measured in terms of the number of patent claims and number of backward citations.

How to value intangible assets?

Patents with more claims and backward citations generally have a higher value than those with fewer claims and backwards citations [ 2 , 7 ]. However, patent value can also be reflected in company strategy as indicated by the patent family approach. Patent family refers to a cluster of applications for the same patent in different countries, including applications for its continuation, continuation-in-part and divisional applications.

A patent often cited by others implicates that the technological knowledge involved in it is the foundation or core technology of the following patents, which has contributed to many later innovations [ 8 ]. Thus, patents with a high level of patent citations have greater appeal and greater market value.

The structure of this paper is as follows: Section 2 would outline the literature review and hypothesis development; Section 3 described the methodology and measurement of this paper; Section 4 would discuss the empirical results; the final section was conclusions and implications of this study.


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Aiming at identifying the determinants of patent value and finding the most valuable patents, former researchers have developed various models, mainly categorizing independent variables into four different classes, including patent characteristics number of forward citations, backward patent citations, International Patent Classifications IPCs and inventors etc. From these variables, we can extract much valuable information about patents such as the technological importance [ 10 ], the existing technological background, the linkage between the innovation and basic research [ 11 ], the technological scope [ 12 ], the legal breadth of the protection [ 13 ] and so on.

As for the indicators of patent value, they can be divided into two categories: market-based indicators and patent-based indicators [ 9 ]. Patent-based indicators are much more diverse and can be clustered into five categories: technological importance forward citations , geographical importance family size , length renewals , grant decisions patent granted and legal disputes litigation incidences, opposition incidences.

These five categories of indicators are found positively relevant to patent value [ 9 ]. Based on the different selections of patent value indicators and patent value determinants, various empirical studies have been conducted to predict the potential patent value. Forward citation counts, patent families, renewals, legal disputes and filing strategy indicators are consistently found positive related to patent value, nevertheless, the relationship of other determinants and patent value are ambiguous [ 9 ].

The phenomenon calls forth the need for further study into the determinants of patent value from a new perspective.

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To evaluate patent value, patent documents can provide some basic indicators such as patent claims, backward citations, and forward citations. Allison, Lemley [ 2 ] found that valuable patents have more patent claims, forward citations, and backward citations than others. Most define patent family as a set of either patent applications or publications taken in multiple countries to protect a single invention by a common inventor s and then patented in more than one country. By applying for protections of the same patent technology across several countries, companies are able to obtain sufficient protection and prevent their competitive advantages and market share from being eroded.

Nevertheless, for the reason of the huge costs of apply and maintain a patent and the rigid Principle of Territory, only when a country has a huge market with big potential and wide prospect will companies apply for patents in that country. Thus whatever industry a patent belongs to, a company will not invest in a patent family unless it can surely receive a return on that investment.

The more countries that have applied, the greater the value of the family [ 15 — 17 ]. Allison, Lemley [ 2 ] showed positively relationships between patent family and litigation possibility. Chang, Yang [ 18 ] suggested the deployment of patent family reveals potential markets; thus the size of patent family represents the importance of a technology and direction of future markets.

It measures the knowledge spillover effect and company market value. A large number of forward citations indicate that the patented technology is unique enough to influence innovators that follow and a high level of appeal to competitors. The more times a patent is cited by others, the higher the innovative value of the patent [ 19 , 20 ]. Allison, Lemley [ 2 ], Marco [ 21 ] and Su, Chen [ 1 ] showed positive relation of forward citations and litigation possibility. Chang, Yang [ 18 ] suggested that patent forward citation is an important indicator to inspect in judging whether a technology is important and appealing to competitors.

According to the function of patent family and patent forward citations, this study derives two indicators to measure company strategic deployment.


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The first one is patent family depth, defined as the ratio of patent family size to the number of countries that a patent family is applied in. It shows the average patent family size of each patent family country, reflecting the degree to which certain fields and markets are valued by company. The greater the patent family depth, the more a company has valued the patent in question, which implies a high expected return from investing in the fields and markets included in the family.

Hence, this study proposes the following hypothesis:. Hypothesis 1 H 1 : The patent family depth is positively associated with the probability of patent litigation.

Valuation of intangible assets

The second indicator is earn plan ratio, defined as the ratio of the number of patent forward citations to patent family size. It shows the degree to which a patent family could be cited by later innovators and competitors. A higher earn plan ratio implies increased confidence in company strategy, as it is an indication of rational capital allocation by investing in patents with greater competitiveness and value. Hypothesis 2 H 2 : The earn plan ratio is positively associated with the probability of patent litigation. The patent data used in this study were collected from the Thomson Innovation database.

It includes US authorized patent information up to May 31, The technologies retrieved in this study include epitaxy, LED chip, and LED encapsulation technologies, excluding applications of end products.

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Primary searches obtained 40, patents, and 7, patents fell within the scope of this study after careful manual screening. We used the Westlaw patent litigation database to verify litigated patents.


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  4. Finally, we obtained a sample set of 7, total patents 64 litigated patents S1 Table. Independent variables: Patent family depth: the ratio of patent family size to the number of countries that the patent family has applied in. Family size of the patent can be referred to as the number of jurisdictions in which patent protection was sought for the same invention. The variable is a continuous variable, which is defined greater than or equal to 1. Earn Plan Ratio: the ratio of the number of patent forward citations to patent family size.

    The variable is a continuous variable, which is defined greater than or equal to 0. Control variables: this study included a number of control variables in the empirical model that may influence probability of patent litigation: number of patent claims and number of backward citations. Number of patent claims: Patent claim refers to an individual or set of claims proposed under certain conditions, describing the technological characteristics of a patent and stating the patent protection based on the form of patent application.

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    It functions as criteria to clarify the protection range and judge infringement. For patentees, more patent claims mean a wider range of patent protections.

    However, maximizing patent protections means more than protection to patentees and motivation for invention and creation, but so acts as an obstacle to technology spread and application, which in turn leads to more infringement cases. Nerkar, Paruchuri [ 22 ] suggested that the more claims the greater the value of the intellectual property.

    Number of patent claims can be referred to as the sum of independent claims and dependent claims. The variable is a discrete variable, which is defined as an integer greater than or equal to 1. Allison, Lemley [ 2 ] showed that litigated patents contain more backward citations and are more likely to be cited by others compared to non-litigated patents. Generally, citation patterns reveal the diversity of technology sources.

    The more complicated a citation pattern, the more diversified the sources of a given technology. Therefore, patents which contain a great number of backward citations are those which are developed upon or improve existing technology, namely substantial technologies of great market value that entail a high possibility of litigation. Moreover, backward citations reveal the activeness of a company in certain technology fields. Narrow technology fields entail a high rate of infringements and litigations. This can also happen when competing companies recombine existing technologies and thus simulate an invention by studying the patented technology.

    The Valuation of Intangible Assets: An Exploration of Patent and Trademark Portfolios The Valuation of Intangible Assets: An Exploration of Patent and Trademark Portfolios
    The Valuation of Intangible Assets: An Exploration of Patent and Trademark Portfolios The Valuation of Intangible Assets: An Exploration of Patent and Trademark Portfolios
    The Valuation of Intangible Assets: An Exploration of Patent and Trademark Portfolios The Valuation of Intangible Assets: An Exploration of Patent and Trademark Portfolios
    The Valuation of Intangible Assets: An Exploration of Patent and Trademark Portfolios The Valuation of Intangible Assets: An Exploration of Patent and Trademark Portfolios
    The Valuation of Intangible Assets: An Exploration of Patent and Trademark Portfolios The Valuation of Intangible Assets: An Exploration of Patent and Trademark Portfolios
    The Valuation of Intangible Assets: An Exploration of Patent and Trademark Portfolios The Valuation of Intangible Assets: An Exploration of Patent and Trademark Portfolios
    The Valuation of Intangible Assets: An Exploration of Patent and Trademark Portfolios The Valuation of Intangible Assets: An Exploration of Patent and Trademark Portfolios

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