Introduction
It is considered that “innovation ages faster than the product it creates.” This sentence is a perfect illustration of the dilemma that evaluators face when assessing the value of a patent.
Because while legal protection extends over twenty years, economic reality does not always follow the same rhythm. Technologies are evolving, needs are changing, competitors are innovating. The central question then becomes: should an churn rate be integrated to take into account the gradual erosion of the value of a patent over time?
Why Attrition Is Essential
Including an churn rate means recognizing that a patent is not a fixed asset.
Its ability to generate revenue declines as technology becomes commonplace or as new solutions emerge. From this perspective, the churn rate reflects the gradual decline in the economic advantage associated with the patent.
Methodologically, it usefully complements the discount rate, by translating not the overall risk, but the specific wear and tear of technology.
Its integration thus makes it possible to obtain a more realistic estimate, especially in sectors where the commercial lifespan of innovations is much shorter than their legal term of protection.
The Risk of Double Counting
However, introducing an churn rate can lead to methodological redundancy.
Patent decline is often already captured by the discount rate, which integrates market, obsolescence, and competition risks.
Doubling this mechanism means artificially weakening the value of the asset, especially when the technology remains relevant over the long term or is supported by successive innovations.
Moreover, some companies maintain the vitality of their patents thanks to an incremental innovation strategy — additional filings, extensions, technological partnerships — making the concept of churn less relevant in these contexts.
Words from the manager
In practice, it is not so much a question of whether an churn rate should be applied, but to what extent it reflects the economic reality of the patent being evaluated. Each technology tells a different story, and it is often in the detailed understanding of its life cycle that the relevance of the parameter depends.
Summary
The rate of churn reflects a truth that numbers alone are not enough to tell: an idea, even when protected, always ends up fading under the weight of time and progress.
Yes, it provides a more accurate reading in industries with a rapid pace of innovation — where competitive advantage is eroded in the first years of operation.
But no, it is not a universal rule. In areas where legal protection confers lasting power, or where society has the capacity to maintain its technology, the use of an churn rate becomes superfluous.
In essence, the value of a patent lies at the border between law and time: one guarantees ownership, the other reveals its fragility.
The evaluator must therefore handle this variable with discernment — neither as a constraint, nor as a habit — but as a measured reflection of the technological vitality he seeks to understand.
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