Watson IP Group

Watson IP Group

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Why Is a Patent Important? How Does It Create Value for an Invention?

A patent provides the legal right to exclude from making, using, selling or offering to sell (often called “practicing”) the patented invention in the United States for a set period of time. This right can be very valuable as it can be used to keep potential competitors being able to effectively compete with the patented good, and, indeed, with a well written patent, the scope of exclusion can be quite broad. Additionally, a patent owner can sell and/or license the patent to others.

As a comparison, if there was no patent covering a particular product, then the market could freely copy the product and sell the product. By having multiple sellers and the like, the price of the product will likely be reduced. And, the inventor of the product was not able to enjoy the fruits of his or her labors. Keeping these others out through the patent rights can have a very substantial valuation.

For example, certain pharmaceutical patents can provide millions of dollars of sales daily, and the only thing standing in the way of those sales figures is the patent that keeps others from making the same product and competing.

Patents can also have value where they are not being practiced. For example, if a company figures out four different and patentable ways to solve a problem, the company can obtain four separate patents. The company may only practice one of the patents, but the ability to keep others out of the market by keeping others from practicing any of the four patents can greatly enhance the value of the portfolio, well beyond the value of any one of the patents individually. There is group of patents may have value that exceeds the sum of the different parts.

How is that value recognized through patents and patent portfolios?

The value can be recognized by producing the component or item that is patented and keeping others out of the marked. This can result in greater margins and more profits as competitors do not exist. Similarly, the value can be recognized by selling the patent to someone else so that someone else can enjoy the greater margins and the exclusionary effects. In still other situations, the value can be recognized by licensing someone to make and sell the component or item that is patented. In such a case, the additional profits and margin can be shared. The different options and combinations to monetize and to recognize value are limited only by the imagination.

There may be value in the invention and non-pursuit of the patent. That is, in some circumstances, one may be paid a fee not to practice the invention that is patented. While these are substantially rare occurrences, they nevertheless can happen.

Contrast all of this to not having a patent on an idea. By not protecting the idea with a patent, there is no value in the invention. That is, no one can be excluded, nor is there anything that can be sold, licensed or otherwise used.

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