1. Introduction
In today’s knowledge-driven economy, patents are the fuel that foster innovation, drive market competition, and attract investments. Whether in the pharmaceutical, biotech, IT, or engineering sectors a strong patent portfolio can make or break a business. However, the perception that intellectual property rights are primarily a legal matter, hinders their realisation as an asset.
Whether for attracting investors, negotiating licenses, or making strategic business decisions, understanding the worth of a patent is key to leveraging it effectively. As businesses increasingly rely on intangible assets, patent valuation serves as a bridge between innovation and commercial success.
To determine the valuation of a patent, the status of a Patent application plays a vital role. A granted patent gives full rights over one’s invention, which entails stopping others from using one’s invention, licensing, selling, or even suing for infringement.
A pending patent gives no such enforceable rights. But it still has strategic importance as it signals technological advancement and future potential.
In India, the core difference between a pending and a granted patent lies in the nature and extent of legal rights available under the Patents Act, 1970. A granted patent confers full legal rights under Section 48, enabling the patentee to exclude others from making, using, selling, or importing the invention without consent. It also gives the patentee the right to file a suit for infringement and seek remedies such as injunction, damages, or account of profits under Section 108. Additionally, granted patents can be freely assigned or licensed. In contrast, a pending patent is one that has been filed but not yet granted and does not provide enforceable rights. However, under Section 11A (7), once the application is published, the applicant obtains certain provisional rights. These provisional rights allow the applicant to claim compensation from the date of publication, but only once the patent is eventually granted. Importantly, the applicant cannot initiate infringement proceedings during the pendency of the application. Despite the lack of enforceability, pending patents carry strategic value by signalling technological edge.
A pending patent secures a priority date which gives the inventor a potential early bird advantage. For investors, this represents future upside, as a granted patent can enhance market position, open up licensing opportunities, or increase valuation during acquisition or public offering. Even before grant, pending patents can create a perceived competitive edge and serve as a foundation for technical due diligence and R&D collaborations. Thus, while their value is not yet realized, pending patents offer a forward-looking indicator of a company’s growth potential and strategic direction.
In India, while full legal rights are conferred only after a patent is granted, certain protections begin once the application is filed. Before publication of the patent, the innovation details remain confidential and inaccessible to the public. Even after the publication occurs, which happens 18 months from the filing or priority date, or earlier if requested, the applicant is entitled to provisional rights. These rights allow the applicant to claim reasonable royalties or damages from any infringer for unauthorized use of the invention during the period between publication and grant, provided the patent is ultimately granted. Although the applicant cannot initiate infringement proceedings until the patent is granted, they may mark the invention as “Patent Pending” or “Patent Applied For” to deter misuse. Furthermore, if a patent is wrongfully filed by someone else, the true inventor can challenge it through pre-grant opposition or revocation proceedings. Applicants may also claim priority from an earlier foreign filing, thereby securing protection from the date of the first application.
2. Valuation Methods
Valuation methods vary and there is no one-size-fits-all approach that can be adopted in this case. In case of patents, the method used to determine the value of a patent would interalia depend on whether the patent is pending or granted. Each method has its own approach and level of reliability based on how far along the patent is in the lifecycle.
Cost-Based Valuation
Under this approach, valuation can be based either on the estimated cost of reproducing an identical version of the intangible asset or on the expense of acquiring or developing a functionally equivalent asset. This method is not driven by the asset’s use or income-generating potential and relies entirely on historical data. Due to these limitations, the cost-based approach is typically applied to assess the reasonableness of valuations or to establish a lower boundary for pricing, such as during purchase negotiations.
For pending patents, only the actual, non-contingent costs are considered. This means only the money already spent can be counted and the future costs or potential expenses are excluded.
For granted patents, you can factor in broader sunk costs since the invention is now officially recognized and may generate long-term value.
Market-Based Valuation
Market-based valuation compares the patent to other similar patents that have been sold, licensed, or litigated in the market. This approach is only feasible if the prices relate to assets that are sufficiently comparable.
However, in practice, intangible assets such as patents are rarely exchanged in such active markets. As a result, it becomes necessary to assess whether there are comparable transactions or benchmarks that can serve as reliable indicators for valuation purposes.
For pending patents, this approach is more challenging. There are few direct comparisons, and the patents are often grouped with other intellectual property assets, making it hard to isolate their value.
Income-Based Valuation
This method estimates how much income the patent will generate in the future typically through licensing, product sales, or market exclusivity. It’s one of the most forward-looking approaches. This approach estimates the present value of all future cash flows that the intangible asset is likely to produce over its economic life, including potential proceeds from its eventual sale or transfer.
For granted patents, income projections can be made with more confidence. Since the invention is already protected, it’s easier to forecast earnings.
For pending patents, the valuation becomes highly speculative. As variables such as the grant of the patent, the duration of the process for the Patent to be granted, market acceptance and regulatory barriers are considerations that affect the valuation as they make the valuation more risk-prone and require careful adjustment.
Conclusion
In sectors like pharmaceuticals, electronics, and biotechnology, patent portfolios are key to business valuation. Granted patents give solid revenue streams and legal rights.
Pending patents show what’s coming next future drugs, technologies, or platforms. Modern investors and analysts often assess both types together looking at the depth of R&D, prosecution history, and relevance to market trends.
Granted patents are enforceable, marketable, and easier to value. They carry higher certainty. Pending patents carry potential but are harder to price. Their value is strategic and conditional.
In India’s fast-growing innovation ecosystem, both types matter but in different ways. Pending patents are the seeds of tomorrow’s breakthroughs. Granted patents are the fruits. Smart businesses and investors understand how to value both, using the right legal tools, valuation methods, and strategic foresight.