A U.S. patent is a contract between an inventor and the government. The inventor discloses an invention to the public, and in return the government gives the patent owner (usually the inventor’s assignee) the right to exclude others from practicing the invention for a limited period oftime (currently 20 years after the first effective filing date of the application for patent).

The benefit to the public from the patent system is the knowledge gained from the disclosure of an invention, which provides a base for additional innovation. The benefit to the patent owner is in owning a piece of intellectual property that can be exploited in a number of ways.

But to be quite clear, “exploitation” of a patent has its limits – the grant of a patent does not give the patent owner the right to actually practice the patented invention. Instead, a patent only gives the patent owner the right to exclude others from practicing the invention. As an example, if an inventor improves a previously-patented machine and gets a patent on the improvement, that later inventor can prevent the earlier patent owner of the original machine from using the improvement. However, the later inventor may not be able to practice the improvement itself, because such practice may infringe the original patent.

So if a patent does not give the owner the right to actually practice the patented invention, what real value does a patent confer upon the patent owner? There are at least four valuable aspects to a patent:

1. Product Protection: A patent can be used to prevent others from copying a patent owner’s products. Competitors can be forced to design around a patented product, or they can be excluded from the market if a design-around is not possible. Thus, the “product protection” value of a patent depends mostly on the commercial importance of products covered by the patent.
2. Marketing Tool: Patents can be a marketing tool – and, notably, the “market” includes potential investors in a company. A patent portfolio in general, as well as patents on specific products, can enhance a company’s image as a “high-tech” enterprise.
3. Licensable Asset: A patent can be used to generate license revenue. Licensing a patent generally makes sense when the licensed products are not in direct competition with the patent owner, but can also make sense even in directly competitive situations, such as where the patent owner cannot supply market demand.
4. Bargaining Chip: Patents can be used defensively in negotiating a cross-license with another company making a claim of infringement.

The patenting process can be expensive, time-consuming, and span several years in most cases. Resources – in terms of money and the time of inventors and management – directed to that process may show little or no apparent return on investment for many years, if ever. Knowing that a patent may be valuable intellectual property does not answer the question of how to determine whether to pursue a patent on a particular invention and invest present resources for some future potential reward. Some inventions are fundamental advances in science or technology sufficient to launch a product, a company, or even an entire industry, and their value is quite apparent. However, most inventions are incremental improvements to existing technology, and it isthese latter cases that may be difficult to sort out.

While there is no simple formula or process for precisely making a filing determination, there are a number of factors that can be considered to help guide such a decision. Following are common factors that apply to many technical fields – noting that the factors may not be relevant to some inventions, and that the weighting given to the factors is subjective and often is a function of the type of technology.

1. State of Commercial Use. Patenting is more strongly favored if the invention will be commercialized in the near future. If the invention is unlikely to be used, or is likely to be commercialized only after significantly more research and development, patenting may be unnecessary or premature unless a patent would have value as a licensable asset or defensively against a patent infringement claim.
2. Product Characteristics of the Invention: Patent protection is more strongly favored if the invention is a product itself, or a process that could be licensed, as opposed to (for example) a component that does not significantly enhance the value of a product.
3. Market Barrier Value: Patent protection is more strongly favored if the invention would be difficult to design around. If numerous ways exist for a accomplishing the same function at approximately the same cost, then any patent granted on an invention will be of limited value since competitors can adopt one of the alternative schemes for accomplishing the same function.
4. Potential Market Size for the Invention: Revenue attributable to the invention should probably exceed the cost of the patent by at least a factor of 10. Thus, an invention by itself should account for at least $100,000 of added revenue if the patent application costs $10,000. Of course, when the invention is directed to a small component of a larger system, evaluating the incremental monetary value of the invention as a portion of sales income may be difficult.
5. Market Life of the Invention: The overall commercial life-span of the invention should be considered. Obtaining patent protection on a product that will have a short product life may be wasteful. For example, if the invention is designed to engineer around a shortcoming of another product, the probability of eliminating the original problem by a redesign of the other product should be taken into account.
6. Uniqueness of the Inventive Solution: If the invention solves a long-term, recurrent problem, or if the invention provides a unique advantage in terms of functionality or cost effectiveness, then a patent may protect a market niche by preventing competitors from adopting the same product or process. Further, the more unique the invention, the more likely that it will have value as a licensable asset.
7. Alternative Uses of the Invention: Patenting is more strongly favored if an invention can be used in a wide-range of products and/or industries than if the invention can only be used in the type of product for which it was originally designed. The broader the applicability of the invention, the more likely that it will have value as a licensable asset.
8. Use of Similar Technology by Others: If similar technology is now in use or will be in use by others in the near future, a patent may help protect a specific design and provide for a defensive “bargaining chip” if the competition is patenting their similar technology.

These factors – as well as other factors pertinent to a particular industry or technology – can be formalized in many cases by allocating weights to possible answers, assigning weighted scores to each patent candidate, and then ranking the weighted scores. While not necessarily determinative in all cases, such a process may make it easier to distinguish close cases and decide where to expend valuable resources among a number of invention candidates.

John Land is a Partner in Jaquez, Land, Greenhaus & McFarland. He is a graduate of Caltech (BS with Honors 1975) and USC (JD 1978). He practices in the area of patents, copyright law, licensing, and the business problems of technologically-oriented clients.