A Powerful New Tool for Patent Valuation
All inventors dream that they've patented the next million-dollar product. But even the sharpest ideas don't always turn into moneymakers. The fax machine, for example, was patented in 1843 in the early years of the telegraph. It took 140 years, however, before it became an office necessity. With 100,000 patents issued a year, how can anyone put a realistic value on something as inherently intangible as intellectual property?
The privately held Patent Board may have come up with a way. By tallying up how many times a patent is cited in various databases, the Chicago-based company says it can judge how much one is worth. This appraisal can then be used by the Patent Board's clientele—the owners and buyers of intellectual property (IP) who wonder whether or not they've got the next fax machine or iPod—to help negotiate deals. "The more we can create tangible value around intellectual property," notes Nicholas Stabinsky, managing consultant at the company, "the better people can make investment decisions."
Abbott Laboratories (ABT) is a repeat customer. Robert DeBerardine, Abbott's chief patent and trademark counsel, says Abbott's in-house lawyers are better at thorough analysis of single patents, but that takes a lot of time. So DeBarardine retained the 35-employee Patent Board three times to do first-cut rankings as the company reviewed assets of acquisition targets. The assessments were fast and, at $10,000 per contract, cost half what a patent lawyer typically would charge. "We had 3,000 patents to analyze in a month and they did a great job," he says. "They even had a PhD person give me an analysis on the quality of the patents."
The Patent Board's methodology is both simple and enormous. Each patent gets points for how often it is mentioned in patent filings by others as well as by respected publications such as The New England Journal of Medicine. Recent citations also earn higher scores, since these references imply that the idea is closer to technology's cutting edge. With potentially thousands of patents in a corporate portfolio and an average of 25 citations per patent, it would be daunting, if not impossible, for most parties to evaluate a company's IP holdings. But the Patent Board has automated this winnowing. Its computers are automatically fed every patent filed in the U.S. and the European Union. Its software then scores each new patent.
Since 2005, Christopher Ainsley has been chief executive. The British native, 49, knows the power of digitization. While CEO of Wolters Kluwer Health, an information and publishing company, Ainsley saw nurses lugging around hefty medical books they'd leaf through to check on interactions of prescribed drugs. He came up with a lighter, easier-to-access alternative: a PDA containing the same information.
Ainsley's challenge is to turn the Patent Board's wealth of numbers into profits. He hopes the company, owned 85% by Ritchie Capital Finance of Chicago, will break even in early 2008, with annual revenues rising to $3 million from $2 million in 2006. He thinks the Patent Board can get there by offering subscribers an online service that would allow users to analyze patents themselves. The service is still in beta phase, but clients think it could become the Bloomberg terminal of the patent world. "I'll be thrilled if we got to the Bloomberg and Morningstar (MORN).
The Patent Board isn't the only game in town. Chicago's Ocean Tomo goes head-to-head with it on rating patents; with three times the manpower, it also offers a wider array of services, from patent litigation to live patent auctions. Still, Managing Director Jonathan Barney wishes his smaller rival well, if only to help spread the word that there really are ways to analyze and value IP. Abbott's DeBarardine wants the Patent Board to flourish, too. "If their algorithm proves to be true and the software works, then they have a very bright future," he says.