The Ugly Truth – Most Patents Are Worthless
This is a reproduction of Investing in Patents by Russ Krajec. For the complete book, get it on Amazon.
Most patents are worthless, and for startup companies, this author’s estimate is that at least 95% are worthless.
A survey of several large patent holders revealed that they believe that less than 10% of their portfolio has high or medium-high value. Remember that these are professionally managed patent portfolios from companies with lots of resources. How much worse will the startups be, when they do not have the focus, expertise, experience, or management tools to professionally curate and manage their patents?
Patents become worthless for many reasons, most of which can be avoided, and some of which cannot.
As with stock options, there is a possibility that the market may not come to the invention and that the initial guess was wrong. To some extent, this can be avoided through better due diligence in the marketplace, but in reality, this is part of the overall risk of any enterprise.
When the startup company is successful, it forces the market to come to the invention. This is when a patent has value.
Most patents are worthless for reasons that can be avoided. Techniques for avoiding worthless patents are found throughout this book, and many of them are discussed on Chapter 4 on Due Diligence.
The biggest factor, however, is alignment between the patent and the business. When the patent properly captures the core elements of a (successful) business, the patent has real value, provided none of the other common mistakes are made in the process.
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