A patent is a form of intellectual property that grants its holder the exclusive right to make, use, sell, or import an invention for a limited period—typically 20 years from the filing date. In M&A, patents are treated as intangible assets on the balance sheet. They provide legal protection against competitors copying a technology, thus creating a defendable market position.
Value of Patents to Sellers
Differentiation & Competitive Moat: A robust patent portfolio signals that a company’s products or processes are unique and defensible against knock-offs.
Revenue Streams: Beyond products, patents can be licensed to generate recurring royalty income during ownership and even post-sale.
Negotiating Leverage: Sellers with valuable patents can command higher purchase prices or better deal structures (e.g., earn-outs tied to patent-driven product launches).
Role of Patents in Establishing Value During due diligence, patents are appraised—often via a relief-from-royalty or income-projection method—to quantify future economic benefits. For example, when Nortel Networks entered bankruptcy, its remaining pool of over 6,000 patents sold for $4.5 billion, illustrating how patent assets alone can constitute a multi-billion-dollar valuation component The GuardianBBC.
Benefits of Patents to Buyers
Market Exclusivity: Acquiring patents can immediately block competitors, granting a window of monopoly profits.
Risk Mitigation: Ownership of patents reduces exposure to infringement claims by others and can be used defensively in negotiations.
Strategic Flexibility: Buyers can integrate patented technologies into existing product lines or monetize via cross-licensing deals.
A notable example: in 2011 Google purchased Motorola Mobility for $12.5 billion, largely driven by its portfolio of over 17,000 patents—aiming to bolster Android’s legal defenses against rivals CNN MoneyIEEE Spectrum.
Famous Patent Stories in History
Bell Telephone (1876) Alexander Graham Bell secured U.S. Patent No. 174,465 on March 7, 1876, for “Improvements in Telegraphy,” effectively laying the legal foundation for the telephone industry and the Bell Telephone Company (later AT&T) The Library of Congress.
Wright Brothers’ Flying Machine (1906) Orville and Wilbur Wright were granted U.S.
Patent No. 821,393 on May 22, 1906, covering their method of lateral control
(“wing-warping”). They aggressively enforced this patent in early aviation lawsuits, shaping the emerging airplane market Wikipedia.
Nortel’s Patent Auction (2011) The bankrupt Nortel Networks sold its final tranche of ~6,000 patents—including wireless, optical, and internet technologies—for $4.5 billion to a consortium of Apple, Microsoft, Sony, and others, underscoring how patent portfolios can be the most valuable assets in a restructuring The GuardianBBC.
Google-Motorola (2011) Google’s $12.5 billion acquisition of Motorola Mobility was driven by the desire to amass patents protecting Android—demonstrating how buyers will pay premium prices for patent-driven defensive positions CNN MoneyIEEE Spectrum.
Key Takeaways
For Sellers: Patents boost credibility, provide additional revenue channels, and strengthen negotiating power.
For Buyers: Patents offer exclusivity, reduce legal risk, and can be leveraged strategically for licensing or cross-licensing.
In M&A: Thorough patent due diligence and accurate valuation are critical—intangible assets can make or break deal economics.
Patents aren’t just legal documents; they’re strategic assets that shape deal value, competitive dynamics, and long-term return on investment.
