The number of patents is increasing day by day covering multiple technology areas including some non-conventional areas like business methods, software patents and life-forms. Even sometimes patents have been granted for funny inventions like diapers for birds, beer with umbrella etc. Again, there are many patents available on the technologies which are simply based on minor modifications on existing technologies. In such a scenario it is very important for the companies to determine the value of a patent so that they can take business decisions like licensing, cross-collaborations, initiation of infringement suits, joint venture, mergers, acquisitions, advanced research and development programs etc.
Conventionally valuation of patent is carried out by the analysis of claimed invention by single or a group of specific subject experts. Sometimes along with the technological examination, the opinions of patent lawyers as well as accounts are taken into consideration. But these methods have many demerits such as consistency; opinion may vary depending on the level of understanding, biasness, and comparison of the patented technology with huge set of existing technologies.
Another important method of determining the strength and weakness of patents is citation analysis. A critical analysis of forward and backward citation analysis can predict the probability of the patent under examination to be entered into litigations. As a thumb rule, more number of backward citations leads to more litigations; but if these backward citations contains more self citations then there might be a chance that the particular company tries to put a fence around the patent in question and this provides maximum strength to the patent. When there are very few backward citations but more forward citations (greater citation velocity); that implies the technology is very new and not an improvement over the existing technology; so the chances of gaining better market value is more.
But the above mentioned methods independently can not predict the actual value of a patent. There are three basic parameters for complete patent evaluation such as technical, commercial and legal. The technical terms for evaluation may be degree of technical importance to business, difficulty of manufacturing, degree of technical solution of a problem, difficulty of designing around, number of existing alternative solutions etc.; some of the legal parameters are scope of claims, detectability for infringement purposes, chances of invalidity of patent document (based on lack of novelty and lack of support for claims), chances of infringing third party patents etc.; commercial or market value depends mainly on life cycle stage of patent document, size of the market to serve and required investments (initial investment as well as subsequent investments). Now-a-days many automated techniques are available to determine the patent assessment. Most of these methods are based on the above discussed three basic parameters. Logically speaking the method which can simulate more derived terms of there basic parameters can predict the better approximation.