Patented technology represents the strongest form of intellectual property protection available for technical inventions. A patent grants the holder exclusive rights to make, use, and sell the patented invention for a defined period — typically 20 years from the filing date. Under IFRS 3, patents are classified as technology-based intangible assets and are among the most straightforward to identify and value because they have clear legal protection, defined terms, and observable licensing markets.
In technology acquisitions, patent portfolios can represent a substantial portion of deal value. When Google acquired Motorola Mobility for $12.5 billion, a significant motivator was the 17,000+ patent portfolio. When Microsoft acquired Nokia's devices business, the patent licensing arrangements were central to the deal structure.
Not all patents are equal. Before valuation, each patent (or patent family) should be assessed for strength:
| Factor | Strong Patent | Weak Patent |
|---|---|---|
| Claim breadth | Broad claims covering fundamental approaches | Narrow claims easily designed around |
| Remaining life | 15+ years remaining | Less than 5 years remaining |
| Prior art exposure | Minimal prior art challenges | Significant prior art that could invalidate |
| Geographic coverage | Filed in all major markets | Limited to one or two jurisdictions |
| Enforcement history | Successfully enforced or licensed | Never tested; uncertain enforceability |
| Revenue linkage | Directly enables revenue-generating products | Peripheral to core business |
Patent valuation starts with patent quality assessment. A single strong patent protecting a core technology can be worth more than a portfolio of hundreds of weak, narrow, or expiring patents. The valuation must reflect the actual commercial strength and enforceability of the patent, not simply its legal existence.
The RFR method is the primary approach for patent valuation. The patent owner avoids paying royalties that a licensee would incur for the right to use the patented technology.
Patent royalty rates vary enormously by industry and technology:
| Industry | Typical Royalty Range | Key Factors |
|---|---|---|
| Pharmaceuticals | 5-15% of net sales | Blockbuster potential, regulatory exclusivity |
| Semiconductors | 1-5% of chip revenue | Standards-essential vs non-essential |
| Software | 3-10% of relevant revenue | Core vs ancillary technology |
| Medical devices | 3-8% of device revenue | Regulatory barriers, clinical evidence |
| Consumer electronics | 1-4% of product revenue | Patent density, design-around options |
| Industrial / manufacturing | 2-6% of relevant revenue | Process efficiency gains |
Sources for royalty rate evidence include actual licence agreements (discoverable in litigation), royalty rate databases (ktMINE, RoyaltyStat), industry surveys, and Georgia-Pacific factor analysis.
Determine which products or services incorporate the patented technology. The revenue base should include only revenue that depends on the patent — not total company revenue unless the patent is foundational to all products.
Use comparable licence agreements as the primary evidence. Adjust for differences in patent strength, exclusivity, geographic scope, and remaining life between the comparables and the subject patent.
Forecast the revenue base from the acquisition date through patent expiry, incorporating product lifecycle, market growth, and competitive dynamics.
Apply a risk-adjusted discount rate reflecting patent-specific risks: validity challenges, design-around alternatives, and technology obsolescence.
Patent portfolios typically contain two distinct categories with very different value profiles:
A semiconductor company is acquired with 450 patents. Analysis reveals 35 core patents that protect the company's chip architecture and manufacturing processes, directly enabling £200 million in annual revenue. The remaining 415 patents provide defensive coverage against competitor infringement claims. Using a 3.5% royalty rate and 12-year average remaining life at a 14% discount rate, the core patents are valued at approximately £45 million. The defensive portfolio, valued at replacement cost, adds approximately £8 million.
For businesses with large patent portfolios, individual patent valuation is impractical. A portfolio approach groups patents by technology area, product line, or strategic function and values each group:
Revenue attribution: Map patents to the products or revenue streams they protect. A patent portfolio protecting a £100 million product line is valued differently from one protecting a £5 million niche product.
Layered protection: Multiple patents often protect the same product — each adding incremental protection but not independently generating the full product revenue. The total royalty rate applied to a product's revenue represents the cumulative protection of all related patents.
Standards-essential patents (SEPs): Patents declared essential to industry standards (Wi-Fi, 5G, Bluetooth) are subject to FRAND (Fair, Reasonable, and Non-Discriminatory) licensing commitments, which cap the royalty rate and mandate broad licensing availability.
Patent valuations are highly sensitive to the royalty rate assumption. A 1% change in royalty rate on a large revenue base produces millions in valuation difference. Every royalty rate selection must be supported by comparable evidence and documented thoroughly. Generic industry averages are insufficient — the rate must reflect the specific patent's contribution.
Patent useful life is determined by the shorter of the remaining legal life and the economic useful life:
For most technology patents, a useful life of 5-12 years is typical, even when the legal life is longer. Pharmaceutical patents are an exception — the combination of patent protection and regulatory exclusivity often supports the full legal term.
In pharmaceuticals, the expiry of patent protection on a blockbuster drug — the "patent cliff" — triggers immediate generic competition and revenue decline of 80-90%. Valuation must model this cliff explicitly. In technology, the equivalent is technology obsolescence — but the transition is typically more gradual as customers migrate to newer alternatives.
Patented technology is one of ten technology-based intangible assets under IFRS 3. For the full taxonomy, see 35 types of intangible assets. To understand the RFR method in detail, read our guide to intangible asset valuation methods.
Ivan Gowan is the Founder and CEO of Opagio. He brings 25 years of experience building and scaling technology platforms in financial services. Meet the team.
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