Patent valuation using MDMP methodology

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c r a f t i n g i n n o v a t i o n t o g e t h e r

Patent Valuation – The Achilles’ heel of Technology

Commercialization

Multi-Dimensional Multi-Perspective Valuation Methodology

© Crafitti Consulting Private Ltd.

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What life cycle stage is your Invention/Patent?

April 27, 2011 © Crafitti Consulting Private Ltd. 2

Idea Invention

Patent Application Granted Patent

Post Grant Opposition

Cross Licensing

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Valuation Methodology for a Patent


Current State of the Patent/

Patent Value Indicators

Citations

backward/

forward

Maintenance

levels/ Legal

Status Technical

Description

Family

Size

Claims Analysis

Remaining

Life

Parameters used by standard methodologies

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Standard TRIZ-based

Social and Value

Network Analysis

Future Potential

Patent Life Contradictions resolved

Thought Experiments

Valuation

Multi-Dimensional Multi-Perspective (MDMPTM) Valuation does not produce a single $ number. The methodology gives a sum total of past, current and potential future value that the asset may create in a range of possibilities.

Crafitti’s Multi Dimensional Multi-Perspective Valuation Methodology (MDMP)

(c) Crafitt

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© Crafitti Consulting Private Ltd. 5

Lets go back 60+ years ……..

1946,

WW II has just ended

A 20 years old Engineer in Baku, USSR, working in USSR Innovation Office, decided

To develop a method for systematic invention that could transform engineering creativity from MAGIC, attainable by few, into a logical discipline available to many more.

He Conjectured, the key secrets of inventiveness should NOT be sought inside the inventor’s minds, but rather in the logic of inventions themselves.

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Father of TRIZ - Genrich S. Altshuller (Oct.15 1926 - Sept. 24,1998)

Main postulates of TRIZ:

► The evolution of engineering systems is not a random process, but obeys certain laws;

► Products/processes evolve towards the increase of perfection (ideality) by elicitation and overcoming technical and physical contradictions.

He uncovered the secrets of systematic creativity, successful

innovation and design.

The development of TRIZ involved thousands of engineers, took more

than 50 years and included the analysis of millions patents

worldwide.

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Estimating The Current State of the Patent Using TRIZ – why TRIZ?


• 1946 Patent Officer in Russian Navy

• Discovered patterns in patents, published paper. Sent to Gulag

• 1954 released, analysed 2,500,000 patents

• Identified what makes a successful patent

• 1956-1985 TRIZ formulated

Theory of Inventive Problem Solving by Altshuller

Main postulates :

► The evolution of engineering systems is not a random process, but obeys certain laws;

► Products/processes evolve towards the increase of perfection (ideality) by elicitation and overcoming technical and physical contradictions.

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Patent Valuation

• 4 Key Pillars of Our Holistic Approach

– TRIZ

– Social Network Analysis

– Scenario Planning

– Analytic Hierarchy Process (AHP)

• Multi-Dimensional Multi-Perspective Methodology


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Crafitti Multi-Dimensional Multi-Perspective (MDMP) Valuation Methodology for a Patent


Current State of the Patent

Future State of the Patent

Historical Factors related to the

invention/Patent

Current State of sub-systems,

components and parts that make-up

the patent

Future State of sub-systems,


the patent

Historical Factors related to

components and sub-systems

PAST PRESENT FUTURE

Current State of Technology, Market

and Competition

Future Scenarios in Technology, Market

and Competition

History of Technology, Market

and Competition

Sub

Sys

tem

Sy

stem

Su

per

Sys

tem

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Citations

backward/

forward

Maintenance

levels/ Legal

Status

Technical

Description

Family

Size

Claims

Length/Breadth

Remaining

Life

Assessing the Patent Using Theory of Inventive Problem

Solving (TRIZ) – A Unique Proposition

TRIZ Level of Invention 77% of inventions are at Level 1 or 2, 19% at Level 3, 4% at Level 4 less than < 0.3% at Level 5, Higher Level means higher Valuation

TRIZ Laws of Evolution 9 Laws have been identified. Based on the position of patent on each of these laws it is possible to ascertain the strength of the patent

TRIZ Function and Resources Analysis How does various parts of the invention combine to perform the function and how much resources have been utilized help in understanding the strength of Invention

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5 Levels of Inventions

• Pioneering Invention – based on newly discovered phenomenon

• Pushing existing technology to a higher level

• Revolutionary Level 5 (<0.3%)

• New System Developed

• Interdisciplinary solutions

• Replacing old technology with New Level 4 (< 4%)

• Radical change or elimination of one principal system component

• One Engineering Discipline

• Resolution of a physical contradiction Level 3 (19%)

• Slight Modification of the system

• Knowledge from different areas within the industry

• Resolution of a technical contradiction Level 2 (45%)

• A simple improvement

• Knowledge within the trade

• No system conflicts are resolved Level 1 (32%)


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Small incremental

improvement

Invention using constructs

known within the domain

Invention using a known construct from another (possibly related) domain

Invention using a conceptually distant construct (totally unrelated domain)

How strong are the inventions?

(c) Crafitti Consulting Private Limited

This patent

belonged to a

startup

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A law of technological system evolution describes significant, stable, and repeatable interactions between elements of the system, and between the system and its environment in the process of its evolution

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© Crafitti Consulting Private Ltd. 14

TRIZ: Laws of Evolution

1. Law of Increasing Degree of Ideality - Increasing Ratio -> Benefits/Harm (cost)

2. Law of Non-uniform evolution of subsystems -> Leads to System Conflicts

3. Law of Transition to a higher Level system -> from simple to more complex

4. Law of Increasing dynamism (flexibility) -> More adaptable to change

5. Law of Transition to micro-level -> Increasing fragmentation

6. Law of Completeness -> Gradual Elimination of Human Component

7. Law of Shortening of Energy Flow Path -> Reduction in Energy/Info transformation stages

8. Law of Increasing controllability -> Evolution of controlled interactions of system elements

9. Law of Harmonization of rhythms -> Synchronization of natural frequencies of elements

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Patent Benchmarking Competitor’s Patents to TRIZ Lines of System Evolution

Case Study: Technological Alternatives Study on EP0922744

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Citations

backward/

forward

Maintenance

levels/ Legal

Status

Technical

Description

Family

Size

Claims

Length/Breadth

Remaining

Life

Assessing the Patent Using the its Relative position in its Ego-Centric Citation Network and

Social Citation Network




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SOCIAL CITATION NETWORK ANALYSIS OF A PATENT – Crafitti’s Methodology


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April 27, 2011 18 © Crafitt

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A unique way to quantify the relative value of a patent in its citation network

HOW SOCIAL IS YOUR PATENT?

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Relative Centrality of the Patent in its Ego-Centric Citation Network


1997 1996 1987 1985 1984 2000 2002 2003 2006 2007 2008 2009

EVERY DOG IS A LION IN ITS STREET

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Relative Centrality of the Patent in its Ego-Centric Citation Network


1997 1996 1987 1985 1984 2000 2002 2003 2006 2007 2008 2009

Building the Ego-Centric Citation Network of the Patent

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Relative Importance Index quantifies (using crafitti’s methodology) the centrality of the Patent in its Ego-Centric Citation Network


1997 1996 1987 1985 1984 2000 2002 2003 2006 2007 2008 2009

Relative Importance Index gives a view

of vitality of the patent. If its value is

more than the rest of the patents in its

ego-centric citation network, valuation

should be more

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Relative Centrality of Patent in its “Social” Citation Network – taking a cue from social network analysis


Relative Social Importance Index gives a view of vitality of the patent in its social network of patents which is formed by connecting all forward and backward citations of patents in its ego

centric citation network. This involves forming the “social” citation network of the Patent, which may large number of patents

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CASE STUDY


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Citation Analysis from Espacenet


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EP Patent No. EP1514784A1

Social Network Analysis and Ego Centric Index Computation Using Crafitti’s Methodology for finding important patents in the dense citation

network of a patent

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What is the Ego-Centric Citation Index of a Patent?

Ego-Centric Citation Network of a Patent (called the central patent) consists of all those patents that either cite the Patent or are cited by the Patent. Besides the ECCN of a Patent has links that connect any two nodes in the ECCN but need not pass through the central patent.

Social Citation Network of a Patent (called the central patent) consists of all patents in its ECCN plus all patents that cite or are cited by each patent in the ECCN of the central patent.

Crafitti’s Social Citation Network Analysis measures three indices on these Patents – Patent Dependency on Network Index (PDNI, which gives a relative measure of how much the network depends upon the Patent in terms of citation relative to all other patents in the network. Network Dependency on Patent Index (NDPI) gives a relative measure of how much patent depends upon the Network in terms of citation relative to all other patents in the network. The Ego Centric Citation Index (ECCI) gives the relative measure of how much it cites the other patents and how much it is cited by other patents in the network.


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Ego Centric Citation Network of Espacenet Data


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Social Citation Network of Espacenet Data (Depth 2 or Degree 3)

87 Patents

129 Citation Links

Which of these Patents

are more important?

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Citations

backward/

forward

Maintenance

levels/ Legal

Status

Technical

Description

Family

Size

Claims Analysis

Remaining

Life

Assessing the Patent Using the its Relative position in its Ego-Centric Citation Network and

Social Citation Network




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COMPARING APPLES WITH ORANGES – AN EXPOSITION OF AHP

Similar to Decision Matrix approach but

allows a wider range of values in

comparison of alternatives

Developed by T.L. Saaty (1980)

AHP invites pair-wise qualitative

comparisons

The problem is organized as a hierarchy

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Why AHP ?

Qualitative Inputs

Pairwise comparisons

Gartner

Reduces Complexity of decision by organizing it in structured

format

Promotes comparison of homogeneous characteristics

Framework to check logical consistency

Facilitates What if Scenarios

It undermines Political Agendas

Facilitates Senior Managers’ buy-in

Sound Mathematical Basis

Consistency Evaluation

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Citation

Network

Analysis

Family

Size

Claims

Analysis

TRIZ Level of

Invention

Function/

Resource

Analysis

Integrated Patent Valuation Rating

Technical

Description

Analysis as per

TRIZ Laws of

Evolution

Maintenance

levels

Ego-

Centric

Citation

Network

Social

Citation

Network

Combining Multiple Value Indicators Using Analytic Hierarchy Process (AHP)

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Using the AHP for relative importance of each parameters from multiple experts


Parameter Relative Importance

Level of Invention 15.0%

Position as per Laws of Evolution 15.0%

Function/ Resource Analysis 15.0%

Citation Network Analysis 15.0%

Maintenance levels/Legal Status 5.0%

Technical Description 10.0%

Claims Length/ Breadth 12.5%

Family Size 12.5%

Total 100%

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Current State of the Patent

Future State of the Patent

Historical Factors related to the

invention/Patent

Current State of sub-systems,


the patent

Future State of sub-systems,


the patent

Historical Factors related to

components and sub-systems

PAST PRESENT FUTURE

Current State of Technology, Market

and Competition

Future Scenarios in Technology,

Market and Competition

History of Technology, Market

and Competition

Sub

Sys

tem

Sy

stem

Su

per

Sys

tem

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Scenario Writing and Thought Experiments (understanding something about something in future)

37 © Crafitti Consulting Private Limited

Scenario Writing: Description of sequences of

events for thought stimulation on potential crisis and to anticipate future. Usually include plausible, but unexpectedly important situations and problems that exist in some small form in the present day.

Thought Experiments: the process of employing imaginary situations to help us understand the way things really are. The understanding comes through reflection upon this imaginary situation.

Crafitti Approach Combines Scenario Writing with Thought Experiments

During the Idea Crafting Engagement for one of the world’s top three financial data provider, four global scenarios were written and future initiatives played out in each of Global scenarios as thought experiments to rank order the initiatives

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Valuation Methods Used (in Practice)

• The Capitalization Approach


• The Income Approach

• The Cost Approach

• The Market Approach

We Propose a Valuation using multiple perspectives and

multiple Scenarios

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MDMP Valuation

• In each of scenarios (i) that emerge during the valuation study what are the potential benefits that can accrue from the patent (bi) and the risks (ri)

– Incorporating the Invention in the existing products

– Potential Market Share enhancement

– Using the invention to Invent more adjacent areas

– Does it denies a space to competitor

– Does it enhances the portfolio of the inventor – the synergistic effect

– How easy it is to design around the patent?

– How easy it is to verify the infringement?

• In each of scenarios Value (vi) of Patent will vary within a range based on benefits and risks of the patent loosing its relevance (bi) and (ri)

• Each Scenario also comes with an estimation of likelihood or a probability estimation (pi)

• Overall value V = ∑ pi x vi = ∑ pi x f(bi , ri)


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Crafitti’s Patent Valuation Methodology

• Is Multi-Dimensional and takes into account multiple perspectives to produce a robust valuation considering multiple futures, current state and past trends

• We combine multiple science based methodologies to come up with the valuation framework

– TRIZ Based Patent Analysis

– Value Network Analysis

– Analytic Hierarchy Process

– Scenario Writing

– Standard Patent Landscaping and Analysis

– Systems Analysis

Multi-Dimensional Multi-Perspective (MDMPTM) Valuation does not produce a single $ number. The methodology gives a sum total of past, current and potential future value that the asset may create in a range of possibilities.


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Thank You

Navneet Bhushan, Co-crafter

Founder Director| Crafitti Consulting Pvt Ltd |www.crafitti.com

+91-9902766961 |+91-80-41688077

([email protected])

1B-401, Akme Harmony, Amblipura, Sarjapur Outer Ring Road, Bangalore 560037, INDIA

© Crafitti Consulting Private Ltd.

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Patent valuation using MDMP methodology