Patent Options

Options are derivative contracts that give the holder the right, but not the obligation, to buy or sell the underlying instrument at a specified price on or before a specified future date.

A patent is a contract that gives the holder the right, but not the obligation, to sue a competitor for patent infringement for implied or real financial gain. However, in a subsequent court case the patent rights may be re-examined and the holder of the patent has no guarantee that their patent rights will be upheld.

In essence a patent is a ‘naked’ option that allows a party to enforce a specifically-defined state-granted monopoly. There is no offsetting position in an underlying security and there is no protection against unfavourable court proceedings; just the option.

The cost (premium) of acquiring a patent right can be accurately calculated and depends on many choices made by the applicant.

The implied or real financial gain from patent enforcement (which itself can be actual or virtual, simply due to the existence of the patent) depends on many factors such as jurisdiction, legal budget, the scope of product revenues, willingness of the parties to settle, and many other factors.

The likelihood that a patent right will be upheld in a court proceeding is also dependent on many factors such as the jurisdiction, type of invention, the prior art, the quality of the original patent office examination, the determination of the opponent, and many other factors.

These are just notes to self … I am working on a patent pricing model.