Valuation of Patented Product Features

Keywords

patent value, incremental profits, demand estimation, market equilibrium

Abstract

Ultimately, patents have value to the extent to which the product features enabled by the patents have economic value in the marketplace. Products that are enhanced by inclusion of patented features should generate incremental profits. Incremental profits can be assessed by considering demand for products with patented features and contrasting that demand with demand for the same product without the patented features. Profit calculations must be based on valid estimates of demand as well as assumptions about how competitive forces affect demand via computation of market equilibria. A conjoint survey can be used to estimate demand. Recently, conjoint methods have been applied in the patent setting, but the measures of value used are purely demand based and do not involve equilibrium profit calculations. We illustrate our method using the market for digital cameras and show that current methods can overstate the value of a patent.

Original Publication Citation

Allenby, Greg M., Jeff Brazell, John R. Howell, and Peter E. Rossi. "Valuation of Patented Product Features", Journal of Law and Economics, 2014.

Document Type

Peer-Reviewed Article

Publication Date

2014

Publisher

Journal of Law and Economics

Language

English

College

Marriott School of Business

Department

Marketing

University Standing at Time of Publication

Assistant Professor

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