1. Principles of Intellectual Property (IP) Valuation
NATIONAL SEMINAR
Intellectual Property Rights (IPRs) and its Role in Economic Development
organized by
the World Intellectual Property Organization (WIPO)
in cooperation with
the Industrial Property Office of the State Organization for Registration of
Deeds and Properties of the Judiciary of the Islamic Republic of Iran
Tehran, April 26 to 28, 2014
Principles of Intellectual Property (IP) Valuation
Arvind Viswanathan
Xellect IP Solutions LLP, India

2. Seven Rays of IP Exclusivity™

3. Wealth of a business includes: Working Capital Fixed Assets
Intangible Assets
IP Assets created by law
Identifiable
Transferable
Have economic life

4. Value of Technology at Different Stages
3000 Raw Ideas = 1 Commercial Success*
Launches
Value
Major Developments
Significant Developments
Small Projects
Ideas Submitted
Raw Ideas
Stages of Technology Development
*: Greg Stevens and James Burley, 3,000 Raw Ideas = 1 Commercial Success, Research Technology Management, 40(3), May-June 1997,

5. Scalability (Manufacturability) Customers Competition
Categories of Risks
Technological
R & D
Scalability (Manufacturability)
Market
Customers
Competition
Legal (IP)
Regulatory (Government or Societal)

6. Technology Adoption Rate
Time from invention to 25% penetration of U.S. households 35
Telephone TV 25 15 PC
Cell Phone 5
Internet
1876
1927
1976
1980s
1990

7. Value of the FUTURE economic benefit
VALUE OF AN IP ASSET
Value of the FUTURE economic benefit
Ability to exclude competitors from a market
Value is different than Price (monetary amount in trading)
Value to a buyer usually exceeds the price paid

8. Standard for Valuation
Fair Market Value
Based on willingness to exchange between the buyer and seller
Fair Price Value
Post transaction purchase price allocation (value in-use)
Who is the assumed buyer of the asset?

9. Legal, tax, financial or other business circumstance
Context of Value
Is the asset in use
Or not in use
Legal, tax, financial or other business circumstance
Validity and strength of the asset
Infringement/Freedom to Operate issues
Reason for valuation
Valuation method used

10. Corporate valuation for shareholders Mergers & Acquisitions
Reasons for Valuation
Corporate valuation for shareholders
Mergers & Acquisitions
Privatization of public equity
Fund raising
Initial Public Offering
Financial Reporting
Acquisition of IP itself
Licensing-in or Licensing-out
Investment in IP itself (e.g. for further development)

11. Parameters for IP Valuation
Nature of IP Asset
Patents, Trademarks, Copyright, Designs, Trade Secrets
For whom is the Valuation being done
What is the purpose of valuation
Date of Valuation
Method of Valuation

12. Breadth of Scope & Coverage
Legal Factors
Value of an IP Asset governed by 2 Chief Legal Factors
Breadth of Scope & Coverage
Enforcing Capability
Function of:
Treaties the Country Part of
Availability of Quality Litigating Personnel
Courts Capable of handling subject
Resources available to the Owner
Money, Time, Will
Words Used in the Document
Technical Feasibility
Geographies Covered
Proper Maintenance

13. IP Valuation Methods
Transaction Method: Actual price paid for a similar intangible under similar circumstances
Income method: Most commonly used patent valuation method. The method focuses on the expected income stream that the patent holder would get during the lifetime of the patent
Replacement Cost method: Establishes the value of the patent by calculating the cost of developing a similar asset either internally or externally.
Market method: Based on the value of comparable transactions made in the market.
Option-based methods: Based on the option pricing methods initially developed for use in pricing stock options.
Other Methods using probabilistic estimates:
Real Option method
Monte Carlo simulations
Binomial Expansion method

14. Understanding the Context for IP Valuation
IP BASED FINANCING FOR
Attracting investment
Procuring loans
Borrowing against the license stream
Securitization of IP assets
GENERATING REVENUES FROM IPRs:
Manufacturing and selling the end-product
Selling the IP rights
Licensing the IP Rights
Franchising the business

15. Value comparisons then used for deciding on proposals to go ahead with
Value of Technology
Predicted value
Based on a number of probabilistic considerations
Usually, value best utilized as a starting point for negotiations for transactions
Alternately, used for comparing values of technology proposals
Value comparisons then used for deciding on proposals to go ahead with

16. A Typical Valuation Report
Provide a narrative summary:
Analyze and explain the basic business model, plan and strategy and show how the IP contributes to the bottom line of your business.
How do you make money and what role does the IP play in it?
Relate your income streams to your IP :
What were the returns from IP-protected business segments?
How do your trade secrets/patents contribute to the new/improved/superior/better-functionality or features of your services/products as compared with those of your competitors?
How do/does your trademark(s) contribute to your company's or your company's products'/services' image, recognition, reputation or branding strategy in the market in developing customer loyalty or attracting new customers?
Do you use industrial designs to protect the unique look or packaging of your products?
How do your trade secrets, such as know-how or business ideas, make your company unique?
Relate the IP to your position in the market:
Does the ownership of IP help you to gain/secure/improve your market share or profits?
Are you using IP as an entry barrier to keep competitors out of a particular market?
Does the IP of your competitors pose a threat to your business?
Do you have "freedom to operate" in using your own new ideas, concepts, inventions and innovations, without being required to take prior permission (which may involve making a payment) of someone else (say, a competitor) to develop a new/improved product/service or add new features to an existing product/service?
Does your IP provide you with some form of exclusivity in the market, and, if yes, for how long?
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