Valuing patents on cost-reducing technology: A case study

We present an approach for valuing patents on production process improvements. Specifically, we focus on valuing a patent on cost-reducing process improvements from the viewpoint of the patent holding firm. We do this by considering the relevant cash flows that result from owning the patent. The patent value is determined by (1) licensing fees and royalty income, (2) competitive advantage resulting from the patent, (3) patent maintenance costs. We discuss a case study that presents the difficulties and challenges in finding the relevant information that is needed to estimate the cash flows. We show that valuation of patents on production process improvements cannot be done without good knowledge of technology, markets and competitors.