How to Value a Patent in Australia?
The “Raising the Bar” Act of 2012 holds significant relevance in the realm of patent valuation in Australia. This law introduces major changes and reduces the likelihood of Australian patents being broader in scope compared to international equivalents.
The statistics show that Australia is experiencing a major surge in patent filings, which reached record levels in 2023 despite economic challenges.
The scope of Patent Valuation in Australia is thriving, with record filings, growing participation in SMEs, and increased specialization in technology and semiconductors. Let’s delve deeply into the Patent Valuation in Australia.
Patent valuation in Australia
You will need a patent valuation during various business transactions, such as M&A, licensing, litigation, financial reporting, etc. This will also help make strategic business decisions when the company plans for investments.
The Australian government agency “IP Australia” oversees the country’s patent administration. If you want to patent an invention in multiple countries, you must file for it in each country and a patent can protect devices, materials, procedures, and processes.
Valuing a patent in Australia requires a careful analysis of various factors, including valuation methods, context of the valuation and economic benefits derived from the patent. In order to get a more accurate valuation we suggest engaging the professionals and conducting market research can lead to more accurate valuation.
Factors that influence patent valuation in Australia
Several key factors influence the patent valuation in Australia, understanding these factors is essential for accurate valuation, even for licensing, sale or investment purposes.
- Law Strength and Enforcement: A strong patent with clear enforceability can command a higher price, while those who are valued lower may face legal challenges or they are in a complex regulatory environment in Australia.
- Market competition: Presence of competing technology can have an impact and if there are more alternatives available in market the value might decrease due to competition. Same time the patent is unique and has no competitors and can be valued more.
- Patent Applications: When you have an invention to patent, do it at the right time. It depends on the development stage and your market’s readiness. If you file it too early, you may underestimate the potential. Filing it too late can cause you to lose the opportunity to hold the patent, as your competitor can use your ideas.
- Technology Relevance: Technological aspects mostly determine the value of patents in Australia. Valuation procedures always give developing technologies with bright future markets a high value. However, the valuation of patents covering outdated technologies could fall because of their little or no use.
- Life span: Your patent’s remaining lifespan influences its value. If it has a longer lifespan, it will have more time to generate revenue, dominate the market, and have a higher value.
- Potential for Commercialization: Valuation can be higher for patents that have clear pathways and established business models for revenue generation.
How to value patents in Australia?
Patent valuation in Australia will generally have the following steps:
Step 1: Determine the commercial potential and importance
Before conducting a patent valuation in Australia, look for its market demand. This includes assessing the market size, growth potential, and current trends. Then comes the competitors’ evaluation; you need to know your rivals and any alternative technologies. Doing this will give you a fair idea of your patent’s market status and Unique Selling Point (USP).
Step 2: Select the most appropriate valuation approach:
There are three approaches to conducting patent valuation in Australia.
- Cost method
- Income Method
- Market method
Each of these methods have it’s own strength and weakness,and the choice of these methods depends on the specific context of the valuation,including the purpose and characteristics .
Step 3: Determine the key benefits
Finding the patent’s possible advantages comes after selecting the suitable valuation method. That involves identifying the direct source of income, royalties ,licensing or sales. Consider how the patent will give your business a competitive edge, strengthening its position.
Step 4: Create effective marketing materials to communicate
You should communicate the patent’s value. How to do it effectively? Use presentations, videos, and documents. You can explain the benefits, market potential, and real-world applications using this.It is also important to document everything in the process, including: Valuation report, summary , Market analysis
Step 5: Identify relevant industries and businesses
The most common way is to license or sell it. Once you know your patent’s worth, look for businesses that can benefit from the invention. Research the list of companies who may buy or license and use professional networks to reach them.
Step 6: Negotiate with interested parties
While contacting the prospective buyers or licensee, present them with your patent valuation and allow for due diligence. Discuss the terms and conditions, duration of licensing, etc.
Examples For Patent Valuation In Australia
The Income approach, Cost approach, and Market approach are the three methods most frequently employed in Australia for patent valuation.
Let’s examine these methods using the following example for better understanding:
Recently, a small Australian firm produced a new and revolutionary bike wheel. We have estimated the Value for the same using the Cost Approach, Market Approach and Income Approach below:
Cost Approach
The Cost Approach is a Valuation Approach for patents that addresses the expenses that have been incurred to create, file, and uphold the patent. It may consist of the direct costs like the cost of research, development costs, filing cost, legal expenses, costs and many more, and the indirect costs that include the opportunity costs along with other risks, premiums, overhead expenses, etc.
| Category | Description | Cost (AUD) |
|---|---|---|
| R&D Expertise | 200 hours spent by specialized engineers | 40,000 |
| Prototyping Costs | New materials and advanced fabrication methods | 10,000 |
| Patent Filing and Legal Fees | Filing and legal fees for patent application | 5,000 |
| Total Cost Estimate | 55,000 |
Cost Estimate: AUD 40,000 (R&D) + AUD 10,000 (Prototyping) + AUD 5,000 (Legal) = AUD 55,000
The Value of the Patent using the Cost Approach is AUD 55,000.
Market Approach
- For applying this method under Market Approach, it is necessary to find similar patents that were bought or sold recently. This should be similar in technology, market and other factors which may influence their value or significance.
- Following this, we need to gather data on the selling prices of these similar patents.
Considering further details for the above mentioned example:
| Comparable Patent | Selling Price (AUD) | Technology Used | Estimated Market Size |
|---|---|---|---|
| A | 70,000 | Similar | Smaller |
| B | 90,000 | Similar | Similar |
| C | 100,000 | More advanced | Medium |
Calculation:
Average Market Value of Comparable Patents:
Average Value = 70,000 + 90,000 + 100,000 = AUD 86,667
Using the Market Approach, the Value of the Patent is AUD 86,667.
Note: This type of market approach is used as a litmus test on the other methods, as its normally difficult to find similar enough patents and their transactions to compare to.
Income Approach
The Income Approach measures the value of the patent based on the income expected from it in the future, but this is then brought down to the present value.
Following are the further details for the above mentioned example about a company in Australia:
Patent: New bicycle wheel design
- Estimated Annual Revenue from Patent: AUD 50,000
- Estimated Operating Costs: AUD 20,000
- Expected Life of Patent: 5 years
- Discount Rate: 10%
Calculation
Net Annual Cash Flow:
| Description | Amount (AUD) |
|---|---|
| Annual Revenue | 50,000 |
| Annual Expenses | 20,000 |
| Net Cash Flow | 30,000 |
Net Present Value (NPV) of Patent:
| Year | NPV Calculation | Present Value (AUD) |
|---|---|---|
| 1 | 30,000 / (1+0.10)^1 | 27,273 |
| 2 | 30,000 / (1+0.10)^2 | 24,793 |
| 3 | 30,000 / (1+0.10)^3 | 22,539 |
| 4 | 30,000 / (1+0.10)^4 | 20,490 |
| 5 | 30,000 / (1+0.10)^5 | 18,628 |
| Total NPV | 113,723 |
Using the Income Approach, the patent is valued at approximately AUD 113,723
Summary of Patent Valuation:
- Cost Approach Value: AUD 55,000
- Market Approach Value: AUD 86,667
- Income Approach Value: AUD 113,723
Facilitate Your Patent Valuation Needs with Eqvista
Intangible assets greatly enhance a company’s value. Valuing them at the right time helps companies make planned business decisions and prepare for the future. Because of their nature, valuing intangible assets can be tricky, so seek professional support.
Our experienced professionals provide accurate, comprehensive valuations tailored to your needs using advanced technology and industry insights. Eqvista’s efficient process delivers detailed reports swiftly, giving you a competitive edge.
Don’t let your patents’ value remain hidden—schedule a consultation today and unlock their full potential with Eqvista. Contact us now to get started!
