Return on Investment of Patent Portfolios
Return on Investment (ROI) is a widely used measure of the efficiency or profitability of an investment. It identifies which parts of your portfolio are delivering value to your organization and which are not.
$40 billion is spent on patent portfolios each year.
How can you measure the value derived from such a significant investment?
What is return on investment (ROI)?
ROI measures the return on a particular investment relative to its cost.
ROI is used across the business for the financial modeling of investments and assets.
So why treat patents differently?
Patents are a business asset, and a patent portfolio’s ROI can be calculated and used to communicate its value to the business and improve that value.
ROI of your patent portfolio promotes transparency and actionability
ROI allows you to speak to the business using a language they understand, as it is already widely used amongst R&D, Marketing and Finance teams.
ROI allows you to compare the outcome of different strategies and decide how to maximise the gain from a scarce resource.
Measuring ROI of a patent portfolio
What is the primary purpose of your patent portfolio?
Defense against third parties
The assumption is that a patent portfolio’s number one use is to defend your business against a potential aggressor. 62% of organizations report that this is their primary strategy for their portfolio.
What is the number one strategic objective that your patent portfolio serves?
Building blocks of ROI
What is the total cost of building your patent portfolio?
- Organic patent COST (patents you have filed) – what is the average yearly cost?
- Acquired Patent COST (excluding non-core patents, including core patents)
What is the deterrent value of your patent portfolio?
- Looking backwards to understand what the portfolio has delivered and
- Looking forward to compare different strategies to enable the best choice.
Calculating portfolio ROI
Bringing this together, we have the final ROI calculation:
|Benefit||$20.8M||$23.8M||$43.6M||The sum of the Benefit or Adjusted benefit columns|
|Cost||$13.1M||$11.5M||$24.6M||Annualized cost of building and maintaining the portfolio|
|Overheads||$2.0M||$1.7M||$3.7M||Salary, outside counsel fees, etc|
|ROI||38%||80%||54%||ROI = (Benefit — Cost — Overheards) / (Cost + Overheads)|