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Mastering IP Valuation: Strategies for Success

Learn about IP valuation approaches and case studies, including the On-Off Evolution Matrix and licensing partnerships. Explore the rise in patent filing activity in India and the importance of IP valuation in today's knowledge-based markets.

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Mastering IP Valuation: Strategies for Success

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  1. IP Valuation Dr. Rahul Verma, Assistant Vice President, Rahul.Verma@Evalueserve.com Ashutosh Pande Group Manager, Ashutosh.Pande@evalueserve.com October 2010

  2. Presentation Plan IP Valuation Overview IP Valuation Approaches Case Study

  3. Presentation Plan IP Valuation Overview IP Valuation Approaches Case Study

  4. The On-Off Evolution Matrix Technology Scouting Off-Shore Technology Partners On/Off-Shore Markets Borderless Innovation Yes Technology Outsourcing Opportunity No No Yes Business Outsourcing Opportunity Captives Off-Shore R&D Centers On/Off-Shore Markets In-house On Shore R&D Centers On-Shore Markets Licensing/Marketing Partnerships On-Shore R&D Centers Off-Shore Markets

  5. Patenting trends in India The patent filing in India has been on the rise in the last few years. The Figure below illustrates the increase in the filing activity in various technical fields over the last five years.

  6. National Innovation Foundation National Innovation Foundation (India) in its website :"......the time has come to unleash the creative potential of our scientists and innovators at grassroots level. Only then we can make India truly self-reliant and a leader in sustainable technologies....propose a national foundation for helping innovators all over the country. This fund...will build a national register of innovations, mobilize intellectual property protection, set up incubators for converting into viable business opportunities and help in dissemination across the country.''

  7. National Innovation Foundation

  8. India ranks 30th out of 134 countries on Prevalence of Foreign Technology Licensing MNCs partnering with Indian companies with innovations MNCs entering the Indian market Two Perspectives of Technology Licensing in Indian Context

  9. Foreign Technology Licensing in India MNCs partnering with Indian companies with innovations MNCs entering the Indian market • Imtech licensed a new drug molecule to Nostrum Pharmaceutical for USD 3 million in 2009. • Imtech, a CSIR laboratory licensed a clot-busting therapeutic protein to US-based Nostrum Pharmaceutical for USD 20 million in 2006 • Shasun, Indian drug manufacturing firm, sign non-exclusive license with Merck. • Indoco Remedies Ltd., a Mumbai-based generic company, announced a technology licensing agreement to produce generics with Watson Pharmaceuticals, Inc. Watson will file an ANDA for US FDA approval. • Pfizer entered into licensing agreements with India’s Strides Arcolab, Aurobindo and Claris LifeSciencesfor supply of generic products and injectibles • Evolving Indian market and customer feel the need for advanced and world-class products and services • Automatic permission for foreign technology agreements in a few industries • CSIR has signed a MOU with San people of South Africa for commercialization of Hoodia, as a blockbuster anti-obesity drug. • Eisai, a Japanese pharma major to set up manufacturing and research base in India.

  10. Presentation Plan IP Valuation Overview IP Valuation Approaches Case Study

  11. Growing Importance of IP Valuation Increased focus of industry and markets on knowledge-based market • There is an increasing need for shifting research focus from valuing tangible assets to valuing intangible assets. Source – Ned Davis Research

  12. Monetizing IP – Patents Patent Monetizing Ideas Aggressive Marketing of Products Patents as a Business Concept Portfolio of Stocks with Strong Patent Portfolio Adobe markets its key product, Adobe Reader 7.0, with 51 utility US patents, 4 US design patents, and patent pending legal notices A 2002 study by the Equipment Leasing and Finance Foundation listed the market value of patent-based licenses at USD 1 trillion in the US Ocean Tomo 300™ Patent Index, the first equity index based on the value of corporate IP of 300 diversified companies, was launched in 2006; it is published by Amex

  13. Context for IP Valuations Small and Medium Enterprises in Hi-Tech Domains • Pharmaceutical Companies • Electronics and Computer Hardware Firms Licensing Deals • IP Brokerage Firms and Medium-Sized Enterprises Sale of IP • Consulting Firms • Investment Banks • Private Equity Funds M&A Deals • Infringement Support Law Firms • Plaintiff/Defendant Infringement Lawsuits • Banks • Private Equity Funds • VCs Financing/Securitization • Any Tax/Financial Reporting

  14. Patent Valuation and Product Valuation Patent Valuation Product Valuation • Valuation methods, particularly early in the life of a patentable idea • Lifecycle of a patent • Future and uncertainties of the technology, e.g., new and ongoing research, lifecycle/term of a patent, and income attributable to a patent • Legal issues on jurisdictions • Valuation methods, before launching a product in the market • Cost of OEMs • Future and uncertainties of the product market, e.g., growth trends, lifecycle of a product and competing products available in the market • The whole world is a potential market • Patent and product valuation go hand in hand. To estimate the value of a patent or product, knowledge about the related product or patent and the associated market/legal boundaries is helpful.

  15. Factors for IP Valuations Novelty of the technology Competitive technologies/products in the domain Benefits of the technology over the competing technologies IP Landscape in the domain Regulatory requirements Product Features Target Market Market acceptance Cost of the product Marketing Strategy

  16. Process Flow in a Typical IP Valuation Understanding IP Assessing IP Strength AssessingIP-Centric Factors IdentifyingMarket for IP Building Valuation Model • Understand how is the IP different from other existing IP in the market • What are the competing companies and technologies • What does the IP uniquely add to the market • What factors of market demand does it satisfy • How powerful is the IP in terms of the existing IP • Will it sustain an invalidation attempt by competitors • How does the IP fare in comparison with competing technologies, in terms of major advancement or minor adjustment • How broadly does the IP claim • In which jurisdiction is the IP applicable • What is the remaining life of the IP • Are there any risks associated with government rules with the IP • What is the market for the technical domain in the specific jurisdiction • What is the growth trend of the market • What is the lifecycle of the IP • What is the discount rate for the DCF modeling • How sensitive is the value on the estimations used in the model

  17. Approaches for IP Valuation Valuation Approaches Comparable Approach Cost Approach Income Approach Value Estimate Multiples or prices of market transactions involving the sale of comparable IP Value Estimate Reproduction/ replacement cost adjusted for depreciation and obsolescence Value Estimate Present value of earnings attributable to the IP or costs avoided as a result of owning the IP

  18. Comparables Approach This method is very easy to use and estimates the value of IP based on past occurrences Approach usage rationale Disadvantage • Comparing the IP to comparable assets recently exchanged under similar circumstances • Finding a comparable asset in same technology domain as the IP to be valued can be difficult • Comparing two different IPs, even the ones in the same domain can be difficult Advantage Process • Comparatively simpler method of valuation • Establish IP comparability: type of asset, industry relevance, geographical constraints, timeframe, financial characteristics of underlying operations • Locating similar licensing deals

  19. Cost Approach This method is useful in identifying the floor value of IP Approach usage rationale Disadvantage • Determine the value of patent by aggregating the costs involved in its development • Determine ‘Reproduction Cost’ to reproduce the same asset • Cost based approach provides a benchmark for management to control cost of development and not a fair value of the IP • The data is not publicly available Advantage Process • It is a simple method • It is easy to use • Collect and analyze IP R&D cost • Review comparable cost data of similar IPs • Identify direct cost and multiples for allocation of indirect cost • Prepare a cost sheet for the IP R&D project

  20. Income Approach This method is useful in identifying the intrinsic value of IP Approach usage rationale Disadvantage • Establish ability of patent to generate economic benefits over the property’s useful life • When discount rate for the IP can be known with certainty but not cash flows • Discounted Cash Flow (DCF) is a static model • It only captures the expected cash flows and does not account for uncertainty Advantage Process • Gives a very objective value of the IP in relation to the market • Proportion of the revenue attributable to the subject IP • Estimating size and growth rate of relevant industry • Estimate revenue, risk and growth associated with the IP proportion of the revenue attributable to the subject IP • Application of DCF, Monte Carlo and option pricing techniques

  21. Presentation Plan IP Valuation Overview IP Valuation Approaches Case Study

  22. Case Study: How do we actually value a patent? What is patented? Objective and Need • An automatic syringe for drawing blood. • You need to present the patented idea to a medical company to sell the patent. • They are already convinced that there is a market that can be tapped. • You need to identify the target market and what value should you go to the negotiation table with. What methodology will you follow to identify the price of the patent? • Assess the strength of IP and the competing IP in the space • Identify market targeted by the IP based on IP centric parameters • Identify licensing amount

  23. Risk Assessment/SWOT analysis

  24. Life Cycle Analysis

  25. DCF Valuation Model (1/2)

  26. DCF Valuation Model (2/2)

  27. Presentation Plan IP Valuation Overview IP Valuation Approaches Case Study

  28. Thank you

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