Patent valuation and assessment of damages

A patent takes on a figure at only three moments, and two of them are contentious. When the loss caused by infringement has to be assessed, when the rate of a licence the parties cannot agree on has to be set, and when a title changes hands in an assignment or a financing transaction.

Those three exercises follow different rules. The first is judicial and is argued under Article L. 615-7 of the French Intellectual Property Code. The second belongs to contract and, for standard essential patents, to the undertaking given to the standards body. The third is financial, and means nothing unless it rests on an examination of how solid the title is.

Article L. 615-7 requires the court to take separate account of three heads: the negative economic consequences suffered by the injured party, including lost profits and the loss sustained, moral prejudice, and the profits made by the infringer, including the savings in intellectual, material and promotional investment derived from the infringement.

As an alternative, and at the request of the injured party, the court may award a lump sum higher than the royalties that would have been due had the infringer sought authorisation to work the invention. That lump sum does not exclude compensation for moral prejudice.

The difficulty is almost never legal. It lies in building the base: which sales infringe, over what period, at what margin, and what share of the price attaches to the patented function. It is the droit d’information of Article L. 615-5-2 that yields the quantities produced, delivered and received and the prices obtained. We run that exercise with financial experts, in parallel with proving infringement.

Where the licence is the battleground, the question becomes the rate. Two methods frame the discussion. Comparison with existing licences, which means obtaining their production and neutralising portfolio and bundling effects. And the top down approach, which starts from a cumulative rate for the whole technology and then allocates it according to the share the portfolio in issue represents.

The debate then moves to the royalty base, to the geographic scope of the licence and to the treatment of past sales. For standard essential patents, it is compounded by the FRAND undertaking given to the standards body, which frames what the proprietor may demand.

Outside litigation, three families of method coexist, and their results often differ by a wide margin. The choice of method is therefore itself a point of negotiation.

• The cost approach takes the outlay incurred to obtain and maintain the title: filing, extensions, renewal fees, research. It gives a floor, rarely a value.
• The market approach relies on comparable transactions covering neighbouring titles. Its limit is the scarcity of genuinely public comparables.
• The income approach discounts the flows expected from working the invention or from royalties over the remaining term. It is the most used, and the most sensitive to the assumptions adopted.

Option-based methods, which treat the patent as an option to work the invention later, are relevant to early-stage life sciences portfolios, where the uncertainty bears as much on marketing authorisation as on the title itself.

No method makes up for a fragile title. The preliminary examination covers the same points an opponent would raise:

• The scope of the claims, and the gap between what is claimed and what is actually worked.
• Resistance to the closest prior art, and the prosecution history, which reveals the concessions made by the applicant.
• Territorial coverage and remaining term, including any supplementary protection certificate.
• Dependence on other titles, and freedom to operate.
• Existing licences, security interests or unsettled copropriété ownership.
• Litigation risk, that is, the likelihood that a revocation action will be brought and succeed.

A loss to quantify, a rate to defend, a portfolio to examine before an assignment or a fundraising: valuation is prepared with the same tools as the trial, because it is before the court that it will be argued. Tell us about your situation.

Voir aussi nos offres : due diligence en propriété intellectuelle, accès au financement du contentieux de brevets and portefeuille de brevets défendable.