Detectability is a Key Factor for Patent Valuation

Due Diligence for Patents – Detectability is a key factor for patent valuation.

Detectability is a critical factor in valuing and rating inventions. Inventions that are detectable are much more valuable than those that are not. However, detectability is a continuum, with many variations.

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Why is detectability so important? An invention/patent that is not detectable can virtually never be enforced, meaning that the patent has no commercial value.

For example, an invention that is used inside a complex piece of machinery inside a competitor’s factory has virtually no chance of detection without inside knowledge. Because of this, the owner of the patent would never know that the competitor might be infringing and therefore could never enforce the patent.

In this case, the patent owner disclosed a trade secret in the patent application, which showed the competitor how to use the invention, and the competitor can essentially use the invention for free. This invention would have been much better protected by not patenting the invention and keeping it as a trade secret.

As the detectability rises, the ability to enforce a patent also rises.

A qualitative scale for evaluating detectability:

    5. Detectable through casual inspection/competitor advertising.
    4. Detectable through inspection and inference based on observation.
    3. Detectable through targeted investigation and experimentation.
    2. Detectable through experimentation by subject matter experts.
    1. Undetectable without specific knowledge about implementation.

A “value” of a patent or invention can be determined by multiplying the detectability rating with other factors, such as economic impact, actor analysis, and other factors. In some cases, an invention with poor detectability may be worth pursuing when it has exceptionally high value or some other factor.

Check out our other posts on Patent Due Diligence.
Download our invention valuation checklist here.