120509 WIPO IP Conference Riga€¦ · The Market Approach in general uses similarities of previous transactions. In real estate transactions the Market Approach is a very common

© 2012 IP Strategists. All rights reserved.

WIPO - Patent Office of the Republic of Latvia Conference “Intellectual Property Rights Management”

May 8 and 9, 2012 Riga, Republic of Latvia

IP Valuation – Overview of Current Situation in Europe and the World

(Challenges and Solutions )

Guido von Scheffer CEO - IP Strategists


Valuation: -  Answers the question of the appropriate monetary value of IP (patents, trademarks, trade

secrets etc.) -  The monetary value of IP can vary according to the chosen valuation method, the

purpose for valuation and the time to the next valuation -  Also the costs and complexity for valuation is depending on the purpose -  Common methods are Cost Approach, Income Approach and Market Approach

Evaluation: -  Answers the question of the commercial potential of IP -  It also answers the question of economic risks related to the realization of commercial

potentials -  Evaluation of IP should deliver probabilities for risk and return expectations for realizing

values from IP

Valuation or Evaluation?


IP Management

Investment

Accounting

Finance

Evaluation

€

Valuation

What is the Purpose for Valuation?


What do You need for which Value?

Infringement*Analysis

Prior*Art*Analysis

Freedom*to*Operate*Analysis

Analysis*of*Field*of*Use

Furture*Revenues

Potential*Licensing*Value

Development*Costs

Investment Future X X X X X X

Finance Collateral X X X X

IP*Management License X X

Accounting Past X

Required*Value

Valuation*Purpose

Required*Components


“Classical” Approaches

Cost Approach

Income Approach

Market Approach

Discounted Cashflow Real Options

Quantitative Approaches

Renewal Rates Indicators

Common Valuation Methods


Systematic: -  Historical costs for generating the IP (e.g. cost for development and costs for filing

patents or trademarks) are collected -  IFRS allows only development costs and costs prosecution, which can be directly linked

to the respective IP right

Challenges: -  In most cases historical costs can not be directly linked to the respective IP -  Valuable patents are underestimated, less valuable patents are over estimated

Type of Value: Past

Recommended Use: -  Accounting purposes / IFRS -  Transfer Pricing

Cost Approach


Systematic: -  Future revenues related to the respective IP have to be estimated -  The estimated revenues will be discounted on a net present value (NPV)

Challenges: -  Revenues can not always be directly linked to IP -  Other revenue influencing components might have a large impact on the IP value (e.g.

market presence and market access) -  Discounting factors and subjective estimations of the future might also have a large

impact on the value

Type of Value: Future

Recommended Use: -  Investment -  IP Management

Income Approach


The Discounted Cashflow approach quantifies cashflow forecasts based on future commercial use. Commercial use could be categorized either as license (royalty income, if available), potential royalty income (if no license is applied), competitive advantage (cashflow for both to be estimated). By discounting these future cashflows on t0 (net present value) the value of the patent can be estimated, assuming that the commercial benefit could be directly dedicated to the patent.

Discounting with Interest Rates (R n-20)

t0

Patent Life

Expected Cashflows (E n-20)

Income Approach – Discounted Cash Flow


Systematic: -  Looking for similar deals (sell or license) -  Assumption of similar revenues for IP to be valuated -  Common indicators for similar IP are e.g. bibliographic dates such as citations, claims,

geographic expand etc.

Challenges: -  IP is unique, clear similarities might be difficult to find

Type of Value: Collateral, Past

Recommended Use: -  Financing -  Accounting -  IP Management

Market Approach


The Market Approach in general uses similarities of previous transactions. In real estate transactions the Market Approach is a very common instrument due to the large number of comparable transactions (see below).

For patents, the assumption is that similar (competitive patents) will be sold for similar prices.

Example: The red, the white and yellow houses were reconditioned in the year 1995.

The yellow house and the white house were sold for 4 Millions Euro recently.

The red house should be evaluated . . .

Market Approach - Example

But: Patents are unique by definition and the highest prices are NOT achieved by selling, but by licensing.


Backward Citations and technical details Description For a Patent-Application it is necessary to

cite all other patents and scientific publication.

Determinates a. Age

b. Type (Own- / Others)

c. Citing Person (Applicant / Patent-Office)

d. Region

…

Availability From Date of Grant

Please Note: One separate indicator does not reflect a significant correlation on patent-values.

Empirische Studien: Carpenter, M., Cooper, M., Narin, F. , 1980, Linkage between Basic Research Literature and Patents, Research Management (March), S. 30-35. Narin, F., Noma, E., Perry, 1987, Patents as Indicators of Corporate Technological Strength, Research Policy 16, S. 143-155. Lanjouw, J.O., Schankerman, M., 2000, Characteristics of Patent Litigation: A Window on Competition, CEPR WP 2042. Lanjouw, J.O., Schankerman, M., 1999, The Quality of Ideas: Measuring Innovation with multiple Indicators, NBER 7345. Harhoff, D., Scherer, F., Vopel, K., 1999, Citations, Family Size, Opposition and the Value of Patent Rights, Munich, Boston, Mannheim, Ludwig-Maximilians-Universität München, Harvard University, ZEW Mannheim. Harhoff, D., Reitzig, M., 2000, Determinants of Opposition against EPO Patent Grants: The Case of Pharmaceuticals and Biotechnology, CEPR WP 3645. Reitzig, M., 2002, Improving Patent Valuation Methods for Management – Validating New Indicators by Understanding Patenting Strategies, LEFIC WP 2002-9.

1.  Backward Citations

2.  Forward Citations

3.  Claims

4.  Patent-Family

5.  Litigations

others . . .

Market Approach - Value Indicators


Market

Know How

Commercialisation

Development

Know How

Patent

Patent Value = Technology Value = IP Value?


Technology Transfer creates Innovation

Technology Transfer: -  Codified (patents, trademarks etc.) and un-codified (know how on technology,

implementation, products etc.) IP have to be evaluated, handled and merged -  Match of technology, development and product cycles are mandatory for success

Area for Licensing

Patents, Trademarks (codified IP)

Characteristics of FURTURE

product

Technology, Implementation,

Product Know How

(un-codified IP)


What is needed to create Innovation?

Invention §  Basis development §  Proof of concept exists §  Basis patents are filed (codified IP) §  Significant know how for technology

(un-codified IP) §  Important know how for

implementation (un-codified IP)

Product and Market §  Market Access §  Established brands and trademarks

(codified IP) §  Production facilities §  Existing patents for competing

technologies (codified IP) §  Significant know how for production

and products (un-codified IP) §  Know how on implementation (un-

codified IP)

Innovation

+

=


Inventor / Research Institute / SME: -  Invested in invention, filed basic patents and holds proprietary know how on invention -  Need / demand for remuneration on invention

Industry Partner: -  Holds know how on production and has market access -  Suspicious on proof of concept / “Not invented here” -  Only willing to invest after successful implementation Ø  No Technology Transfer, because parties have different

EVALUATIONS of IP

Typical Situation in Technology Transfer


Catching interest:

-  Inventor / Research institute / SME has to show proof of concept

-  The more solutions solve existing problems in the industry and the more they reduces costs, the higher the success ratio for technology transfer is

Set Up / Definitions: -  Who covers which areas for transfer project and implementation? -  What are the deliverables? -  What are the joint objectives -  What is the estimated and agreed timeline? -  What are the jointly agreed milestones?

Solutions for Technology Transfer - Technical


License:

-  Any agreement should be under the assumption that technology is fully implemented and product is launched

-  Additional applications should be considered or excluded from the contract

Payments: -  Fixed payments or down payments (entrance fee, credit on future success…) -  Variable payments related to project process and product success -  One time payment (the partner takes it all for a lump sum )

Get together opposite intentions: -  High payments in the beginning vs. low payments as late as possible -  No suspending clauses vs. many suspending clauses -  Large participation in future revenues vs. small upfront payment and small participation

Solutions for Technology Transfer – Financials & Timing

© IP Strategists 2011 Strictly Confidential

Thank you very much

IP Strategists - Hamburg Guido von Scheffer

[email protected] Europe: +49 172 451 74 54

USA: +1 213 291 44 54


Documents

120509 WIPO IP Conference Riga€¦ · The Market Approach in general uses similarities of previous transactions. In real estate transactions the Market Approach is a very common