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What is your IP worth? David W. Blackwell Professor of Finance and Dean Gatton College of Business and Economics University of Kentucky Commercialization.

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Presentation on theme: "What is your IP worth? David W. Blackwell Professor of Finance and Dean Gatton College of Business and Economics University of Kentucky Commercialization."— Presentation transcript:

1 What is your IP worth? David W. Blackwell Professor of Finance and Dean Gatton College of Business and Economics University of Kentucky Commercialization Pathways Workshop Part II, March 11,

2 Commercialization Pathways Sponsored Research License to Industry Startup Company How do you decide? What’s best for the inventor? What’s best for UK? Source: Von Allmen Center for Entrepreneurship 2

3 UK Industry Partner Startup MARKETMARKET Commercialization Pathways Sponsored research License to industry License to product startup License to development startup Source: Von Allmen Center for Entrepreneurship 3

4 UK Industry Partner Startup MARKETMARKET patent expenses progress payments royalties patent expenses progress payments royalties equity progress payments royalties product/service sales lab funding 1 st rights to license Commercialization Pathways Sponsored research License to industry License to product startup License to development startup Source: Von Allmen Center for Entrepreneurship 4

5 Client Stories (UK) UK Royalty Distribution UK licensee patent expenses royalties equity progress payments after repayment of patent expenses 40% inventors 20% inventors’ department(s) 20% inventors’ college(s) 20% UKRF Source: Von Allmen Center for Entrepreneurship 5

6 Client Stories (UK) UK Royalty Distribution Simplified Example after payment of patent expenses UK licensee patent expenses royalties equity progress payments after repayment of patent expenses 40% inventors 20% inventors’ department(s) 20% inventors’ college(s) 20% UKRF $100 sales 5% royalty $5 $2 $1 Source: Von Allmen Center for Entrepreneurship 6

7 Client Stories (UK) Sponsored Research 1 Provides funding for UK research Creates early industry partnership In many cases, hard to find company willing to do Potential conflicts on IP ownership Company usually has first rights to license, potentially limiting commercialization options Energy opportunity where… industry partner does not have internal research expertise commercialization can only be done by industry funding required is very large and time to market is long heavy regulatory requirements BenefitsChallenges Example where it is the preferred approach 7

8 Client Stories (UK) License to Industry 2 Creates ongoing royalties for life of patent Minimizes UK & inventor resources in commercialization process Many companies want further along in development before licensing Need to monitor licensee keeps focus on commercialization Doesn’t contribute to local/state economic development Agriculture opportunity where… UK IP has large market opportunity and first office action is positive commercialization can only be done by industry funding required is very large and time to market is long regulatory requirements BenefitsChallenges Example where it is the preferred approach Source: Von Allmen Center for Entrepreneurship 8

9 Client Stories (UK) License to Product Startup 3 Offers inventor opportunity to participate in bringing product to market, and to own equity Startup controls priorities Contributes to job creation and economic development in Kentucky Inventor must carefully manage potential conflict of interest with UK responsibilities Finding the right management team is hard Raising money is a continual challenge Engineering opportunity where… UK IP has large market opportunity SBIR/STTRs and angel funding can bring to market or to next funding stage Time to market is relatively short Strong management team is available with both technical and business experience No regulatory requirements BenefitsChallenges Example where it is the preferred approach Source: Von Allmen Center for Entrepreneurship 9

10 Client Stories (UK) License to Development Startup 4 Medical device opportunity where… UK IP has large market opportunity SBIR/STTRs and angel funding can bring to prototype and hopefully early clinical results Time to license to industry player is a few years, and target licensee(s) have been identified Strong management team is available with both technical and business experience Minimal/moderate regulatory requirements BenefitsChallenges Example where it is the preferred approach Offers inventor opportunity to participate in bringing product to market, and to own equity Increases license value by being further along in commercialization stage Contributes to job creation and economic development in Kentucky Inventor must carefully manage potential conflict of interest with UK responsibilities Finding the right management team is hard Raising money is a continual challenge 10

11 Client Stories (UK) Startup Distribution Simplified Example UK Startup patent expenses royalties equity progress payments after repayment of patent expenses 40% inventors 20% inventors’ department(s) 20% inventors’ college(s) 20% UKRF $100 sales $5 $2 $1 equity ? share of profits Source: Von Allmen Center for Entrepreneurship 11

12 Commercialization Pathways Guidelines Time to market Funding required Regulatory requirements Proposed product Inventor involvement Startup < 3 years <$10 million Low Complete solution High License >7 years >$50 million High Add-on to market leader Low never this clear cut, right solution depends on individual circumstances Source: Von Allmen Center for Entrepreneurship 12

13 13 $1 billion in sales since the late 1980s!

14 14 Lonnie Johnson “Rocket Scientist” (Former nuclear engineer for the Strategic Air Command) Source: invents-new-thermoelectric-generator

15 15 Super Soaker Inventor Invents New Thermoelectric Generator Lonnie Johnson has moved on from high- powered squirt guns to a chip that converts heat from the sun--or anything else--into electricity Among the potential applications are at utility- scale solar thermal farms and for plug-in hybrid vehicles, in which the device would use waste heat from the car’s internal combustion engine to help power the car’s electric motor. Johnson even envisions a day when miniaturized versions will power consumer electronics. Imagine your laptop producing power from its own waste heat, your cellphone being charged as you hold the handset against your face, or an implantable medical device exploiting the difference in temperature between, say, your chest cavity and the skin on your arm. Source: invents-new-thermoelectric-generator

16 Is it in your personality to do a start-up? “Unstoppable skill at selling!” – Ron Popeil: Veg-o-Matic; Pocket Fisherman Are you a business innovator? – Lonnie Johnson: Super Soaker; thin battery technology (Excellatron); miniature “heat pump;” process that converts thermal energy to electrical energy using a non- steam process which works by pushing hydrogen ions through two membranes, with significant advantages over alternative systems Are you a talented manager? Are you a risk taker? Do you have access to capital? 16 Source: Forbes, Should You License or Produce Your Invention?,

17 Source: Gene Quinn, manufacture-that-is-the-question/id=17036/ 17

18 Determination of Royalty Rates Profitability of the IP and how the profit is shared between licensor and licensee (income approach) – 25% of profits rule (heuristic starting point) – Impact of uncertainty – IP typically used with other assets; thus, how to apportion? Market based approach (comparables) – Royalty rates in arm’s length transactions on similar IP – Difficult to find “comps” Structure of the license agreement – Duration – Exclusivity – Lump sum payments 18 Source: Tim Heberden, Intellectual Property Valuation and Royalty Determination, Chapter 4 of International Licensing and Technology Transfer: Practice and the Law

19 Source: Profitability and royalty rates across industries: Some preliminary evidence, KPMG International, Global Valuation Institute,

20 Source: Profitability and royalty rates across industries: Some preliminary evidence, KPMG International, Global Valuation Institute,

21 How valuable is the IP? How important is the invention? – Transformative—gene splicing? – Incremental—adding squeaky noise to a toy? – Citations to your patent? Is the patent well constructed? – Does the patent protect the IP? Market dynamics and licensing strategy – Competition – Structure of deals? 21

22 What determines the profitability of the IP? Uniqueness Know-how Design-around Number of suitable licenses Risks of two parties Level of investment by each party Incremental profitability relative to industry norms 22

23 Example Profit Split 23 Source: Tim Heberden, Intellectual Property Valuation and Royalty Determination, Chapter 4 of International Licensing and Technology Transfer: Practice and the Law

24 24 Source: Tim Heberden, Intellectual Property Valuation and Royalty Determination, Chapter 4 of International Licensing and Technology Transfer: Practice and the Law

25 25 ktMine Royalty Rate Resource Guide 2013

26 26 ktMine Royalty Rate Resource Guide 2013

27 27 ktMine Royalty Rate Resource Guide 2013

28 28 ktMine Royalty Rate Resource Guide 2013

29 29 ktMine Royalty Rate Resource Guide 2013

30 30 ktMine Royalty Rate Resource Guide 2013

31 31 ktMine Royalty Rate Resource Guide 2013

32 32 ktMine Royalty Rate Resource Guide 2013

33 Legal Requirements for Patent Validity that Relate to the Economic Value of IP Utility Novelty Nonobviousness 33

34 Selected Georgia-Pacific Factors 34 The rates paid by the licensee for the use of other patents comparable to the patent-in-suit; The nature and scope of the license, as exclusive or non-exclusive, or as restricted or non-restricted in terms of territory or with respect to whom the manufactured product may be sold; The licensor’s established policy and marketing program to maintain its patent monopoly by not licensing others to use the invention or by granting licenses under special conditions designed to preserve that monopoly; The commercial relationship between the licensor and the licensee, such as whether they are competitors in the same territory in the same line of business, or whether they are inventor and promoter; The effect of selling the patented specialty in promoting sales of other products of the licensee; the existing value of the invention to the licensor as a generator of sales of its non-patented items; and the extent of such derivative or convoyed sales; The duration of the patent and the term of the license; The established profitability of the product made under the patent; its commercial success; and its current popularity; The utility and advantages of the patent property over the old modes or devices, if any, that had been used for working out similar results; The nature of the patented invention; the character of the commercial embodiment of it as owned and produced by the licensor; and the benefits to those who have used the invention; The portion of the profit or of the selling price that may be customary in the particular business or in comparable businesses to allow for the use of the invention or analogous inventions; The portion of the realizable profit that should be credited to the invention as distinguished from non- patented elements, the manufacturing process, business risks, or significant features or improvements added by the infringer;


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