October 26, 2014  
 
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Intellectual Property Advice

 

Investing in Patents

Buying patents? Accumulating a patent portfolio? Investing in patents and other intellectual property can be a great investment, but it can also be a complete waste of money.

Investment in intellectual property seems simple enough.
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An investor sees the economic potential of an idea and provides the capital resources needed to bring it to the marketplace. But in reality, patent investment is a lot more complicated than it seems. In a nutshell, here's the information you need to attract the right investors to your idea.

From an inventor's perspective, attracting investors to a newly patented idea is a no-brainer. Presumably, the invention was designed with marketability in mind, so all that's left is for the investor to show up, drop some coin, and reap the financial benefits. However, investments in intellectual property are not as straightforward as other investment options. To increase the odds of success, inventors need to learn how to mitigate the investor's ambivalence and risk.

The Risk of Investing in Intellectual Property

Patent investment is inherently riskier than other forms of investment largely due to the risk of patent infringement. The value of the investment rests almost entirely on the investor's exclusive rights to the idea and its marketplace applications. If the patent is weak, outside interests can easily steal the idea and clutter the market with competing products.

Another investment concern has to do with whether or not the idea is commercial viable in the first place. A patent only speaks to the unique nature of an invention or idea. It has nothing to say about the invention's potential success as a commercial product or its ability to enhance existing products. At some point, the investor needs to be reasonably assured that the patented concept is capable of yielding an acceptable return on investment.

But even after the investor is convinced that an idea has potential in the marketplace, they still have to overcome the hurdle of valuing the patent. Unlike other investments (e.g. real estate or stocks), intellectual property presents special challenges for valuation. If the investor overestimates the patent's worth, it will be difficult, if not impossible to earn a profit or possibly even recoup the initial investment.

Overcoming Hurdles to Patent Investment

Fortunately, there are several ways inventors can minimize the objections of potential investors. Throughout the patenting process, inventors need to rely on the expertise of patent professionals to ensure the strength of their patent. Although your patent may appear secure to you, there is no substitute for the advice of an experienced patent attorney or consultant. If nothing else, investors will feel more secure knowing that professionals have worked to position the patent against infringement.

Commercial application is critical for investors and inventors should be extremely wary of pursuing a patent until they have thoroughly considered the marketability of the invention. In a perfect world, a patent should be just one part of a larger commercialization process. Consider enlisting the help of university-based resources and fully document the commercialization process to convince investors of the inventions market potential.

Finally, it is impossible to reach a deal unless you are familiar with the valuation of intellectual property. Although investors will probably value your patent for less than you think it is worth, you will still need to consult your patent professional to establish a reasonable gauge of your invention's worth.

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A World Without Copyright Laws
Is a Patent Application Confidential?


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