determining the value of ip · 2020. 6. 10. · ip value extraction and commercialisation...

IP value extraction and commercialisationDetermining the value of IP

Dr. Christian Hackl 25.10.2018

in cooperation with TUM-Tech GmbH

Managing Director of TUM-Tech GmbH

European Patent Office

§ Background- Ph.D. in Chemistry

§ More than 20 years experience in industry (management consulting), CEO of TUM-Tech for more than 15 years

§ TUM-Tech GmbH:- “Tech”: Technology Transfer (demand oriented) - Consulting on innovation management for companies and researcher

§ Assistant Professor at TUM (Technology and Innovation Management)

§ Cofounder of start-up (renewable energy)

Your speaker – Christian Hackl

www.tumtech.de

TUM: Technical University of Munich

DisclaimerOpinions expressed in this presentation are those of the speaker and not necessarily those of the European Patent Office.

www.tum


1. IP strategyFive virtual classroom sessions

2. IP evaluation and protection Five virtual classroom sessions

3. IP value extraction and commercialisationFour virtual classroom sessions

Overview of Webinars


§ Module 1: “IP value extraction”

§ Module 2: “Licensing I”

§ Module 3: “Licensing II and enforcement”

§ Module 4: “Determining the value of IP”

Series Three - IP value extraction and commercialisation


§ Different types of assets, value

§ Main valuation methods

§ Summary

Agenda


What does the value of a company consist of?

?


Tangible assets

BuildingsVehiclesEquipment…

Allocation of the enterprise value (%)

Tangible assets

Ernst & Young

Tangible and intangible assets

European Patent Office Ernst & Young 2009

Tangible assets

BuildingsVehiclesEquipment…

Intangible assets II

Goodwill

Allocation of the enterprise value (%)

Goodwill

Other intangible assets

Tangible assetsIntangible assets I

Patents / TrademarksKnow-how / Trade secretsCopyright / DesignHuman capital

Goodwill: excess amount paid for a company over the fair market value of the company’s identifiable assets” (tangible and IPR).

Ernst & Young



Components of S&P 500 market value

Importance of intangible assets?

Ocean Tomo intangible asset market value study 2017


Goodwill Tangible assets

10

Industries Other intangible assets(e.g. IP)

Ernst & Young




11


Ernst & Young




12


Ernst & Young



What IP-asset is most important in M&A transactions?

Importance of patents

mergermarket: M&A Insights: Spotlight on Intellectual Property Rights


The value of European patents

EPO, Ceccagnoli et al., 2005.

Patent value

Sh

are

of p

ate

nts

, %




Patent value

Sh

are

of p

ate

nts

, %

Average value(Mean)




Patent value

Sh

are

of p

ate

nts

, %

MedianAverage value

(Mean)




Patent value

Sh

are

of p

ate

nts

, %

MedianAverage value

(Mean)

3%




Patent value

Sh

are

of p

ate

nts

, %

MedianAverage value

(Mean)

3%10%


Share of patent value classes in total portfolio value


Just 3% of all patents!

Just 10% of all patents!


Value • Price

20

The notion of value


Value • Price

• Price: result from the transaction seller / buyer

• Value: how much people are ready to pay

Willing Buyer(Licensee)

Willing Seller(Licensor)

21

The notion of value


Value • Price

• Price: result from the transaction seller / buyer

• Value: how much people are ready to pay

Owner value: estimate of the value by the owner if he wasdeprived of the property of the item

Purchaser value: how much the buyer could pay for it

Market value: value • price of similar items already sold

Willing Buyer(Licensee)

Willing Seller(Licensor)

22

The notion of value


Value PriceAmount of money exchangedValue to you / somebody else

What is the value?


DPA

What is the value?

6 year old Golf


DPA

What is the value?


IP Value

28

???

a) Why valuing Intellectual Property?


IP Value

29

External reporting and accounting

Taxation Planning

Litigation Resolution

Internal Management

Sales and licensing

Company Valuations

RaisingFinance

a) Why valuing Intellectual Property?

Different stakeholders involved


§ Different types of assets, value

§ Main valuation methods

§ Summary

Agenda

European Patent Office 31

Cost-based

Overview of the different methods


Cost-based

Market-based



Cost-based

Market-based

Income-based



Definition

§ The pricing of an asset is based on the cost of

developing the technology asset

Cost-based methods

35


Definition



§ Cost considerations usually include:

Cost-based methods

36

???


Definition



§ Cost considerations usually include:

• R&D: salaries, materials & equipment

• IP protection

• Trials, testing and prototyping

• Marketing & advertising

• Cost of capital

Cost-based methods

37


Capitalization of historical costs

§ How much was spent to develop the technology

§ Problems:

Cost-based methods

38

???


Capitalization of historical costs

§ How much was spent to develop technology

§ Problems:

• R&D costs are difficult to count (Which personal

costs? Over which period of time? Including

failures?)

• How to take into account inflation

• Cost • potential value

Cost-based methods

39


Replication / replacement costs

§ Value of total costs to replace or re-create similar

technology that may already exist

§ Value paid • cost of re-developing it

§ Advantages for the buyer:

Cost-based methods

40

Replication cost: recreate similar IP, including cost of failureReplacement cost: create s.th. to replace IP, excluding cost of failure



§ Value of total costs to replace or re-create similar

technology that may already exist

§ Value paid • cost of re-developing it

§ Advantages for the buyer:

• Avoids development effort

• Minimises risk

• Avoids costs related to a

delayed market entry (lost sales)

Cost-based methods

41




§ Practical considerations for the buyer

− Can you re-develop a unique, protected asset?

− Have development costs changed?

− Does a license secure freedom to operate?

− What is the cost of delayed time-to-market?

Cost-based methods

42



When to use the cost approach

§ When the asset is at very early stage of development

§ When IP is easy to “design-around”

§ Bookkeeping

Cost-based methods

43


Cost-based

Market-based

Income-based



Definition

§ Value is based on the transactions of other

purchasers & sellers in the marketplace

§ Licensee/buyer is not willing to pay more than others

have paid for similar IPRs

§ Fair value of a patent = Price paid in comparable,

“arm’s length” transactions

Market-based methods

45


When to use market approach

§ When you can find sufficient transaction information

§ Similar transactions: IPR type, industry, market size

Comparison considerations:

§ Technology: technical features, stage of development

§ Specific clauses, financial terms, legal parameter

§ Background: economic conditions, position of the

parties


46


Where to find transaction data

§ Company web sites, Industry presentations

§ Company annual reports

§ Online databases (e.g. www.Royaltysource.com,

www.Windhover.com)

§ Securities filings: SEC (US), FSA (UK)

§ Licensing specialists

§ Licensing Executives Society (LES) www.lesi.org

§ Royalty-rate journal: Licensing Economics Review

§ Court records


47

www.Royaltysource.com,

www.Windhover.com)

www.lesi.org


Cost-based

Market-based

Income-based



Income-based methods

Ability of Technology to Generate Future Income

=IPR Value

49

Definition

Fair Value of Patent = Present Value of the expected

future income (cash flow) stream



Discounted Cash Flow (DCF)


PV = I1(1+r)-1 + I2(1+r)-2 + I3(1+r)-3….+ In(1+r)-n

PV = Present value of IP asset

I = Economic income projection

n = Year

r = Risk-adjusted discount rate

51


Discounted Cash Flow (DCF)


Now? OR in 1 Year??


What do you prefer?


Now? OR in 1 Year??

TIME


What do you prefer?


Cash? OR (1 EURO)

Lottery ticket (chance to win 1 EURO)??


What do you prefer?


Cash? OR (1 EURO)

Lottery ticket (chance to win 1 EURO)??

RISK


What do you prefer?


Two main principles:

1. Time

2. Risk

Three key parameters (for calculation):

1.

2.

3.


56

DCF

???


Two main principles:

1. Time

2. Risk

Three key parameters:

1. Amount of the income stream

2. Duration of the income stream

3. Risk associated with the realization of the income


57

DCF


Time

Discounting with an adjust Risk Rate

t0

Revenue


Discount Cash Flow (DCF)


t0 t1 t2 tn


Discount Cash Flow



Discount Cash Flow

t0 t1 t2 tn


t0 t1 t2 tn

61

100 EUR


Discount Cash Flow

Income from

- Licensing fee

- Incremental profit: * price premium (apportioned cash flow)* extra sales* lower cost

- Relief from royalty


t0 t1 t2 tn

PV = I1(1+r)-1



n = Year


62

100 EUR


Discount Cash Flow – year 1


t0 t1 t2 tn

PV = I1(1+r)-1



n = Year


63

100 EUR

PV = I(1+r)




t0 t1 t2 tn

PV = I1(1+r)-1



n = Year


64

100 EUR

PV = I = 100 (1+r) (1 + 10%)

Assumption: r = 10%




t0 t1 t2 tn

PV = I1(1+r)-1



n = Year


65

100 EUR

PV = I = 100 = 100 (1+r) (1 + 10%) 1,1

Assumption: r = 10%




t0 t1 t2 tn

PV = I1(1+r)-1



n = Year


66

100 EUR

PV = I = 100 = 100 = 90,9 EUR(1+r) (1 + 10%) 1,1

Assumption: r = 10%




t0 t1 t2 tn

PV = I1(1+r)-1



n = Year


67

100 EUR

PV = I = 100 = 100 = 90,9 EUR(1+r) (1 + 10%) 1,1

Assumption: r = 10%




t0 t1 t2 tn



n = Year

r = Risk-adjusted discount rate 68



PV = I1(1+r)-2

100 EUR

PV = I = 100 = 100 = 82,6 EUR (1+r)2 (1 + 10%) 2 1,12

2. Year:

Assumption: r = 10%


t0 t1 t2 tn



n = Year

r = Risk-adjusted discount rate 69


Discount Cash Flow – year 1 + 2

PV = I = 100 = 100 = 82,6 EUR (1+r)2 (1 + 10%) 2 1,12

2. Year:

Assumption: r = 10%

PV = I = 100 = 100 = 90,9 EUR(1+r) (1 + 10%) 1,1

1. Year:

Total: 173,5 EUR

PV = I1(1+r)-1

100 EUR

PV = I1(1+r)-2

100 EUR


t0 t1 t2 tn

PV = I1(1+r)-1



n = Year


70


Discount Cash Flow

PV = I1(1+r)-1 + I2 (1+r)-2

PV = I1(1+r)-1 + I2(1+r)-2 + I3(1+r)-3 …. + In(1+r)-n


t0 t1 t2 tn

PV = I1(1+r)-1



n = Year


71


Discount Cash Flow

PV = I1(1+r)-1 + I2 (1+r)-2

PV = I1(1+r)-1 + I2(1+r)-2 + I3(1+r)-3 …. + In(1+r)-n


Valuation tools: patent rating

§ Automated tools, up to 50 econometric indices

aggregated:

• IPscore (EPO – www.epo.org)

• Global Patent Scorecard (Patent Board)

• Patent Factor index (Patent Café)

• Patent strength (Innography)

• IPQ (Ocean Tomo)

www.epo.org)


Valuation tools: patent rating

§ Automated tools, up to 50 econometric indices

aggregated:

• IPscore (EPO – www.epo.org)

• Global Patent Scorecard (Patent Board)

• Patent Factor index (Patent Café)

• Patent strength (Innography)

• IPQ (Ocean Tomo)

§ Limitations:

• Often works as a black box

• Limited value for a single patent

• Strongly depends on the field of activity

www.epo.org)


www.epo.org, IPscore

Source: IPscore

www.epo.org,



LegalIssues

Technology Market

Finance

Strategy

R&D

Finance orControlling

Marketing

PatentDepartment

General Manager

Source: IPscore

Structured approach / stimulating communication

www.epo.org,


Source: IPscore


www.epo.org,


Source: IPscore

Output – risk and opportunity


www.epo.org,


2018 2022

Source: IPscore

Output – financial forecast


www.epo.org,


Various factors

See VC on “Evaluation dimensions” (series: “IP evaluation and protection”)§ Legal position

• Granted? Valid? Countries (number, importance)

• Remaining patent time

• Backward / forward citations

• Detectability of infringement, enforceability

• Passed opposition (period, proceedings)

§ Technical position

• Strength of claims

• Maturity, options of design around

§ Market attractiveness

• Industry, size, competitors


§ The choice should be influenced by:

• The kind of industry

• The degree of maturity of the technology

• The degree of risk

• The IPR

• Available information / price of comparable assets

§ Combination of several methods to get an envelope of values

§ Valuation should be done on a regular basis

How to choose valuation methods

80

determining the value of ip · 2020. 6. 10. · ip value extraction and commercialisation...

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