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© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge WIPO-Italy International Conference on Intellectual Property and Competitiveness of MSME December 10 th, 2009, Rome Workshop 3: IP Valuation An Overview of IP Valuation for MSMEs Lutz Bode, Managing Director IPB www. ipb-ag. net IP BEWERTUNGS AG (IPB)
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge About IPB (IP Bewertungs AG) One of Europes leading consulting firms for intellectual property services such as patent evaluation, patent monetisation, patent management and technology scouting International network with worldwide resources in commercial legal protection, in the financial services sector and in auditing and taxes More than EUR 200 Mio. under management Bank-independent spin-off from HypoVereinsbank Shareholders are partners in international law firms, board members in the financial and insurance sectors, professors and entrepreneurs among others Headquarter: Hamburg International representations in Switzerland United Kingdom Finland United States Japan
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge Why is Intellectual Property important? IP BEWERTUNGS AG (IPB)
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge Intellectual Property Intellectual Property is the Oil of the 21st century. Mark Getty, founder Getty Images
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge In the last thirty years, the industrial society ended and the knowledge-based economy has begun. Intangible assets are emerging as the most powerful asset class. 1975198519952005 % 16.8 % 32.4 % 68.4 % 79.7 % S&P 500 ® Intangible Value as % of Market Capitalisation Data: Ned Davis Research, Inc. Shift in companys value drivers
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge Revenues from non-core IP Licensing Out IP Efficient Technology Scouting Protection & Monopoly Licensing In IP Evaluation of IP Management
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge Companys Value Effective Licensing Out Companys Value + 20% Companys Value + 60% Companys Value Effective Licensing In IP Values, IP Management and Companys Value Source: McKinsey
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge How to evaluate patents? IP BEWERTUNGS AG (IPB)
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge Technical Levels for Evaluation Economic Legal Technical
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge Classic Methods Cost- Approach Income- Approach Market- Approach Discounted CashflowReal Options Quantitative Methods Renewal RatesValue-Indicators Patent- Evaluation Methods
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge Technical Levels for Evaluation Economic Legal Technical ? ?
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge How to identify IP values? IP BEWERTUNGS AG (IPB)
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge Valuable patent = Successful product ? Football shoe with screw-on cleats Inventor: Adolf Dassler 1953 Source: Helden der Vergangenheit
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge Plastic plug: Inventor: Artur Fischer 1958 Source: Helden der Vergangenheit Valuable patent = Successful product ?
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge Mercedes S-Class Approx. 1000 patents are built in the S-Class Approx. 1/3 originate from the own development lab 2/3 of the patents und therewith approx. 650 patents are to it-bought and/or licensed Both examples show, how enterprises can reach competition projections/leads by patents Target: Technology Leadership through patents! Gillette razor Approx. 70 patents are contained in Gillette wet shaver Most patents are hidden in the connecting joint between shade and shank! Intention: Only by the patent monopoly the comparatively high prices for blades, which can be bought in addition, can be required! Valuable patent = Successful product ?
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge IP Bundle Market Know how Commercialisation Development Know how Patent
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge Radical Innovation Step Innovation Incremental Innovation Strong technical improvement Alternative Potential cash generation Time to achieve the effects Selecting the Right Technologies Level of potential
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge Thank you very much ! IPB Guido von Scheffer Managing Director IP BEWERTUNGS AG (IPB) IPB- IP Bewertungs AG Stephansplatz 10 D - 22359 Hamburg Tel.: +49.40. 87 87 90 00 Mail: firstname.lastname@example.org
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge Annex: Patent- Evaluation | Discounted Cashflow The Income- Approach (DCF) quantifies cashflow forecasts based on (prognosticated) future income streams of the patents commercial use. In principle they can be separated into procedures, which quantify either the economic additional receipts or cost savings by the respective patent. By discounting these future cashflows on t 0 today's value of these future incomes and thus the value of the patent can be calculated. Discounting with Interest Rates (R n-20 ) t0t0 Patent Life Expected Cashflows (E n-20 )
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge With the market Approach the value of the patent is determined on the basis a similar before accomplished transaction: If a competitor sold a similar patent, it is to be assumed for the own patent might have a similar value. In real estate evaluation similar procedures were established reliably. 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... Annex: Patent- Evaluation | Market- Approach
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge InfrastructureYear of construction Storey heightSituationSquare meters Annex: Value-Indicators by the example of real estates
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge 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... Annex: Value-Indicators for Patents | Example
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge Annex: The technology transfer challenge – the gap Commercialisation focus Product development Manufacture Marketing Distribution Sales Applied research Basic research Companies t
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge Time J-Curve R&D Budget Patent Application Financial Gap (e.g. for prototypes, test series, miniaturization...) PATENT VALUE FUNDS Sales Budget Cash Annex: Technology transfer – the valley of death 7
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge Annex: The technology transfer challenge – a solution Commercialisation focus Experimental development Proof of concept Technology development Product development Manufacture Marketing Distribution Sales Applied research Basic research Companies t The PVF concept as solution: know how capital
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge Patent Value Fund Capital Portfolio IPB PrivateInstitutional Investors International Demand International Source § § = Cash § = IPR Annex: Patent Value Funds scheme
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge Advantages of Patent Value Funds From the Patent Holders Perspective Four success elements: At the time of contract conclusion the seller will receive a premium for exclusivity for the waiting period until the fund is fully placed. The patent owner may definitely keep the premium, even in the unlikely event that the fund placement fails, due to not achieving the minimum volume required. The risk of placement failure is minimized by the fact that a well-known German bank is the responsible partner for the placement. After the fund has been successfully issued the original patent owner receives payment agreed between the parties in the contract. The amounts negotiated are affected by the value and the status of the patents (application, assignation, existence of a prototype). The general idea of the patent value fund is not to separate the patents from the know how. Depending on the status of each project it is common to conclude a development contract e.g. for prototyping or practice-oriented onward developments focused on the commercialization strategy. If possible, the inventor or the inventors institute is the first choice. Otherwise third parties institutes can be involved. The patent owner participates in the returns that are created through the patent / patent portfolio. The inventor profit share depends on the status of the project. And the risk/return profile of the project. All details are negotiated within the basic contract before the project starts. The profit share will be less, if e.g. an unpublished application is available without a concrete proof of technology or proof of concept. For a granted patent with existing potential licensees and prototype the profit participation will be much higher. 1. 2. 3. 4. Annex: Advantages for the Patent Holder Page 27
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge Advantages of Patent Value Funds From the Licensees Perspective Five advantages: Qualitative, quantitative and legally pre-selected portfolios Reduction of Time-To-Market Reduction of R&D risks Reduction of R&D Investments Synergies in Technology Scouting 1. 2. 3. Annex: Advantages for the Licensee 4. 5. Page 28
© 2001-2009 IP BEWERTUNGS AG (IPB). All rights reserved. Value from Knowledge Annex: Advantages for the Investor Especially in the growth sector patents constitute the main value drivers of companies. Patent value funds purely invest in these value drivers, i. e. the investor receives an ASSET DEAL instead of a SHARE DEAL. Risk reduction: The focus on the investment in patent portfolio results in a risk reduction regarding management risk for instance with start-ups. Broad diversification due to small investment per project decreases the overall risk, especially compared to venture capital. Patent value funds provide the opportunity to participate directly in license revenues or other commercialization options. Above-average valuable patents promise above-average high yields. 1. 2. 3. 4. Advantages of Patent Value Funds From the Investor's Perspective Four advantages: Page 29
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