PATENT AUCTIONS Another form of market-based valuation is to use comparable values derived from patent auctions. These became popular in the early 2000s, but the large public auctions have fallen into disuse because although there were plenty of patents offered, there were not many bids.
CAPITAL MARKET VALUE Yet another form of market valuation of patents comes from determining the fair capital market value of the intellectual property. This approach asserts that the market capitalizations of small or medium-sized pure-play technology companies are based solely on the value of their advantaged competitive position protected by their patents. As such the company value should be considered the value of the patent. The argument for using such approach is that incorporates the value effects of the target market value, the patent claims strength, the patent validity, and market entry costs. The major downside to this approach is that there are very few pure-play technology companies to use as a market comparable.
MONOPOLY VALUE Finally another way to establish the value of a patent is to consider the value of the monopoly it creates for the corporation. There are several rules of thumb that are derived from using this approach. First, a patent is worth four times the value of the annual monopoly it creates. This rule of thumb is derived from assuming that the patent term is 17 years and the discount rate is 25%. The second rule of thumb’s is that a patent is worth twice the annual profit generated by the patented product or process. This is assuming the product loses half of its market share upon patent expiration, which for most brand-name drugs is true.