maandag 2 november 2015

Patent tip: Tricky stuff in patent valuation

In patent valuation, the value of a patent much depends on paying customers, persons who are willing to give money in exchange of the products or the services that are covered by the patent in question.

However, when there is another very important factor at stake: that factor is the diffusion coefficient of innovation.

Diffusion coefficient of innovation 

The diffusion coefficient of innovation is an indicator of the speed at which an innovation "diffuses" through the market. The best to explain the diffusion coefficient of innovation is by the following two quite famous examples:

Steam engine

If you look at the face of James Watt, he appears to be a man with concerns or a troubled mind, well he has reason to be concerned! In the following image the diffusion of the steam engine in the USA is presented, where the arrows indicate the time span his patents were in force.

The patent protection covered a time span in which a marketshare of less than one thousandth of the total market had been reached. Watt had all reasons to be deeply concerned!


How else did the following inventor preform! Zworykin was one of the inventors who essentially contributed to the development of the television. His contribution mainly was related to the development of the cathode ray tube.

Looking at the face of mr. Zworykin, he appears to be quite content, and yes he had all reasons to be a happy man! If we look again at the USA market, and the diffusion of the number of television sets, we see why Zworykin had all reasons to be a happy person:

In this figure the first arrow indicates the date of grant of the patent and the second arrow the date of expiry of the patent. During the time span the patent was in force, more than 60% of the entire market had been reached.

Patent value

When looking at the value of both patents, well it is needless to say, that Zworykin's patent was worth a lot more than Watt's patent.

In the above examples, the diffusion coefficient is not quantified. Yet, it is clear enough that ground breaking inventions, which both inventions are for sure,  still must be given an entirely different value from a business point of view.

Concluding: It is wise to integrate some educated guesses about the coefficient of diffusion of your innovation into the decision to pursue patent protection or not.

In future patent tips there will be more information about the quantification of the innovation diffusion coefficient. Stay tuned!

Hendrik de Lange
Dutch and European patent attorney

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