How Do Valuators Look at “Patent Pending?”
I talked to a Technology Transfer Officer at AUTM earlier this month who said her university had a provisional patent on something, and it begged the question: How do valuators look at provisional patents?
A useful article in Inc. illuminated the issue: there are no provisional patents. There are only Provisional Applications for Patents; they serve to lock in a filing date and obligate the filer to file a regular patent application within a year.
If there are no IP rights that come with a Provisional Patent Application, with all of its contingencies (it is automatically voided at the end of 12 months, it requires the filing of a non-provisional application, etc.), though there may be value to the applicant (a 12-month extension, more time to review the expected benefits, more time to research prior art, etc.), unless there are other factors to be considered (credible management forecasts, significant progress on the non-provisional filing), the risk appears to nullify the value in the provisional application.
There are, however, two other benefits. The first is cosmetic, perhaps, though may serve important notice to competitors. Provisional filers can label their product “Patent Pending.”
The second, however, directly affects valuation: The filing of a provisional application also grants the filer up to 12 months additional time on the patent, as the provisional filing date is used as the date filed, but the non-provisional filing (the patent application) determines the start date for purposes of patent expiration. Valuators who use patent expiration date as the useful life need to take into account whether or not a client first filed a provisional application and the exact dates of both filings.