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Patent Valuation
Courts and negotiators used to use the "25% Rule" when calculating royalties. Courts stopped formally using the method but it is still used to cross-check findings in Court, so they really still use it. The 25% Rule says that ALL of the patents that cover a product should not amount to greater than 25% of the product's gross margins. This method has been used for many years. It is a very good way to begin a negotiation.
At its core, the 25% Rule takes into account not just your patents, but all patents that cover a product. Not all patents have equal value, so it is not as easy as figuring out how many quality patents relate and how many are not yours. It requires an understanding of which patents have the greatest value as well. Many times early priority dates create higher value, but there are also times when an improvement patent is the one that caused the market adoption so it may be considered more valuable.
The analysis also involves understanding the market for the products that use the patented technologies.
Valuing your patents is a very good way to come to a reasonable royalty, which needs to be done in any licensing negotiation, patent purchase or patent sale.
Where do you want to fit?
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