“Ideas to Assets” – Chapter 5 Project 2, part 2: Reviewing other chapters Justin Woo IEOR 190G – Spring 2010

Overview  Main point: there is a right and a wrong way to view intellectual property rights Proper  RIGHT: IP rights = call options Options contracts are valuable Can be bought, traded, sold, etc More profitable for a company  WRONG: IP rights = financial assets used only during litigation Promotes stagnation Company more susceptible to attack / takeover

RIGHT VIEW: A Closer Look  Often, IP assets/patents are not accounted for as monetary assets More likely that it is “zero” on the accounting balance sheet  In reality, IP assets should be represented as tangible assets that can produce money

RIGHT VIEW: Modern Changes  Asset allocations 70’s: 50% intangible 80’s: 80% intangible Overall trend: growing attention to IP assets in modern times, increase in % intangibles  Possible driver: ease of buying & selling IP assets has increased the market for intangibles (IP assets) Internet has enabled security for both sides in transactions within a large market

IP Assets: Basic Guidelines  We always want to maximize return on a company’s assets Do this by selling / buying to make them most valuable. ○ Ex: sell non-performing low-value assets  Similar to stock market However, most companies (wrongly) do not apply same market strategies to the IP asset market ○ Thus, they lose out on much profit and strategic company growth over competitors

Patents as call options: Black Scholes Equation

Barriers & Objections  Futures game – we cannot predict the future Some IP assets will win, some will lose Impossible to know for certain which is which Ex: new technology in new markets cannot be accurately priced due to its nature  Options pricing cannot be done in imperfect world

Summary & Conclusion  Problem/trend: IP assets are easily and often overlooked within a company  Solution: treat IP assets as valuable monetary assets that can be bought, sold, and traded in the market much like call options.  Result: Companies can generate cash flow from otherwise non-performing assets