A realistic patent value can be determined using many of the same techniques used to value businesses.
Pending patent applications have very little to zero (and sometimes negative) value.
The key to patent value is the scope of the invention, and you don’t know that until the patent issues. You can, of course, do a patent search and *guess* how broad/narrow the patent might be, but there is lots of risk and uncertainty, meaning the valuation is lower.
When the patents issue, you can use many of the same techniques to determine patent value as you would a business. Analysis of patent values is a very sophisticated economic analysis. There are literally dozens of ways to put a dollar value on a patent.
For example, you can look at the sales or licenses of comparable patents. You would need to find patents that were sold or licensed in a similar space and that cover a comparable percentage of a products. There are several databases with these listings, although almost all are paid-for products.
Another technique to determine a patent value is to look at VC funds raised for two similar companies, but where one company has a large patent portfolio and the other a small one. Assuming that the one with the large portfolio raised more money, you would try to assess how much of that advantage was due to the patents, as opposed to other factors.
Still another valuation technique is to use Black-Scholes analysis to determine patent value as if the patent was a stock option, since they have very similar economic properties. If you are familiar with options, a patent can be treated as a call option because both patents and call options are time limited “options” that may be exercised in the future.
Yet another method is to look at a licensing model, which determines a reasonable royalty for licensing the patent to competitors in the space. This will hinge on royalty rates typical of your industry and product type.
There are many more economic valuation models for patents. For people in the intellectual property business, the economic models are often highly prized models that are used internally for valuing assets that they wish to buy or sell, so people do not advertise their methods very often.
In order to get as much patent value as possible, I generally recommend that startup companies do NOT file provisional patent applications, but instead file non-provisional applications and do everything they can to expedite the patent through the process. At BlueIron, our track record is to can get patents issued within 12 months. In that case, your company valuation would be much, much higher with issued patents than with mere patent applications.
Note: This post is from a Quora answer that I posted in reply to a question about how to value a company with patents.