An application of fuzzy methods to evaluate a patent under the chance of litigation

The value of a patent, including such unmeasurable things like the chance of litigation, is calculated using a methodology which combines real option theory and fuzzy numbers. The vagueness about the patent holder’s future profits, the validity and scope of the patent, the litigation costs, the court’s decision under imperfect enforcement of property rights are specified introducing fuzzy numbers. This method is embedded in a real option computation, where the value of a patent includes the option value of litigation. We study how the value of a patent is affected by the timing and incidence of litigation. The main results are compared with the empirical findings of previous results.