Choosing A Valuation Firm

I have been extremely disappointed by the large general practice valuation consulting firms. In general, they will provide a nicely prepared, impressively thick report that will tell you exactly what you hired them to say. But you won't know how they accomplished their analysis, and you won't be able to assess the validity of the analysis.

Perhaps the most frustrating aspect is that such firms tend to prepare their analysis at a level of abstraction that virtually ignores the specifics of the patent claims. Instead of delving into the nitty gritty of: (a) how large a piece of the technology is being captured by the patent claims; and (b) the difficulties entailed in circumventing those claims, they focus on the marketplace and the technology as a whole. Yet knowing the size of the market for pencils only helps determine the value of a pencil patent if one understands how effective that specific patent will be in cornering the market on pencils. And to do that one has to focus on the verbatim language of the claims.

A second problem is that most valuation consulting firms tend to be very secretive about their methodology. Sure, the marketing person will provide a laundry list of the myriad steps they will take in performing their analysis. But at the end of the day, instead of explaining why the royalty rate should be this or that, the firm will simply divine the rate from their "proprietary database". That doesn't help very much because it forecloses any realistic scrutiny of the results or methodology. Clients deserve to know what goes on behind the curtain.

If you really want to secure a valid analysis, you need to understand and be comfortable with the methodology. You should ensure that the valuation firm will take a position on the scope and validity of the claims, and that it will evaluate the likelihood and costs of circumventing the claims. And it is the valuation firm that should perform and take responsibility for those tasks. Don't let them get away with the pabulum that they "can't analyze the scope of a patent because that would be practicing law". Analysis is precisely what you are paying them to do. Valuing a patent while ignoring the scope and validity of the specific patent claims makes about as much sense as appraising a diamond while ignoring the size, cut, color, clarity, and defects of that specific diamond. It can be done, but it can't be done well.