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Management of Intangible Assets in Higher Education

¡Think Academic – Act Business!. Management of Intangible Assets in Higher Education. INTRODUCTION TO PATENT VALUATION. International Patents. PILA Kick-off Meeting, 19-20 January 2009. 3. International Patents. http://www.wipo.int/patentscope/en/patents_faq.html.

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Management of Intangible Assets in Higher Education

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  1. ¡Think Academic – Act Business! Management of Intangible Assets in Higher Education

  2. INTRODUCTION TO PATENT VALUATION PILA Kick-off Meeting, 19-20 January 2009

  3. International Patents PILA Kick-off Meeting, 19-20 January 2009 3

  4. International Patents http://www.wipo.int/patentscope/en/patents_faq.html A patent is an exclusive right granted for an invention, which is a product or a process that provides, a new way of doing something, or offers a new technical solution to a problem. A patent provides protection for the invention to the owner of the patent. The protection is granted for a limited period, generally 20 years. PILA Kick-off Meeting, 19-20 January 2009 4

  5. What kinds of inventions can be protected? http://www.wipo.int/patentscope/en/patents_faq.html It must be of practicaluse; It must show an element of novelty, that is, some new characteristic not found in the body of existing knowledge in its technical field. The invention must display an inventive step which could not be deduced by a person with average knowledge of the technical field. Finally, its subject matter must be accepted as "patentable" under law. PILA Kick-off Meeting, 19-20 January 2009 5

  6. Who grants patents? http://www.wipo.int/patentscope/en/patents_faq.html • national patent office • regionaloffice that does the work for a number of countries • European Patent Office • African Regional Intellectual Property Organization • WIPO-administered Patent Cooperation Treaty (PCT) provides for the filing of a single international patent application PILA Kick-off Meeting, 19-20 January 2009 6

  7. How can a patent be obtained worldwide? http://www.wipo.int/patentscope/en/patents_faq.html At present, no world patents or international patents exist. Application for a patent must be filed before a patent can be granted and enforced, in each country Any resident or national of a Contracting State of the Patent Cooperation Treaty (PCT) may file an international application under the PCT PILA Kick-off Meeting, 19-20 January 2009 7

  8. Where can I find patent information? http://www.wipo.int/patentscope/en/patents_faq.html Procedural and substantive requirements for the grant of patents as well as the amount of fees required are different from one country/region to the other. http://www.wipo.int/directory/en/urls.jsp PILA Kick-off Meeting, 19-20 January 2009 8

  9. Where can I find patent information? http://www.wipo.int/patentscope/en/patents_faq.html Search patent applications and granted patents WIPO: http://www.wipo.int/patentscope Web-based databases:http://www.wipo.int/ipdl/en/resources/links.jsp PILA Kick-off Meeting, 19-20 January 2009 9

  10. What information does a patent documentcontain? WIPO Guide to Using PATENT INFORMATION Technical information from the description and drawings of theinvention; Legal information from the patent claims defining the scope of the patent and from its legal status; Business-relevant information from reference data identifying the inventor, date of filing, country of origin, etc.; Public policy-relevant information from an analysis of filingtrends to be used by policymakers, e.g., in national industrial policystrategy. PILA Kick-off Meeting, 19-20 January 2009 10

  11. Sample patent application front page WIPO Guide to Using PATENT INFORMATION PILA Kick-off Meeting, 19-20 January 2009 11

  12. What information does a patent documentcontain? WIPO Guide to Using PATENT INFORMATION Applicant. Name of the individual or company applying to have a particular invention protected; Inventor. Name of the person or persons who invented the new technology and developed the invention; Description. Clear and concise explanation of known existing technologies related to the new invention and explanation of how this invention could be applied to solve problems not addressed by the existing technologies; PILA Kick-off Meeting, 19-20 January 2009 12

  13. What information does a patent documentcontain? WIPO Guide to Using PATENT INFORMATION Claims. Legal definition of the subject matter which the applicant regards as his invention and for which protection is sought or granted; Priority filing. Original first filing on the basis of which further successive national, regional or international filings can be made within the priority period of one year; PILA Kick-off Meeting, 19-20 January 2009 13

  14. What information does a patent documentcontain? WIPO Guide to Using PATENT INFORMATION Priority date. Date of the first filing from which the innovation is protected Filing date. Date of submitting an individual patent application at a particular patent office and, therefore, the date from which the innovation is protected if the application issuccessful; Designated states. If the application is regional or international, the countries to which the rights may be extended; PILA Kick-off Meeting, 19-20 January 2009 14

  15. What information does a patent documentcontain? WIPO Guide to Using PATENT INFORMATION Legal status. Indicates whether the patent has been granted or not Citationandreferences Bibliographic data Documentkindcodes PILA Kick-off Meeting, 19-20 January 2009 15

  16. Patent Valuation Step-by-step guide to patent valuation PILA Kick-off Meeting, 19-20 January 2009

  17. Patent valuation Valuation of a patent involves making judgments, explicitly or implicitly, about the future. PILA Kick-off Meeting, 19-20 January 2009 17

  18. Step-by-step guide to patent valuation Practical step-by-step guide: Checklist patent valuation PILA Kick-off Meeting, 19-20 January 2009 18

  19. Step-by-step guide to patent valuation PILA Kick-off Meeting, 19-20 January 2009 19

  20. A. Valuation application • Client • Person who assigned the patent valuation. • Engagement • Verbal • Written PILA Kick-off Meeting, 19-20 January 2009 20

  21. A. Valuation application • Item to be valued (valuation object) • Protection patent • Licensable patent • Blocking patent • Exchange patent PILA Kick-off Meeting, 19-20 January 2009 21

  22. A. Valuation application PILA Kick-off Meeting, 19-20 January 2009 Item to be valued (valuation object) 22

  23. Valuation risks Market risks Market acceptance Market dynamic Sales opportunities Competition Investment risks Technical risks Feasibility Product integration potential Technological progress Legal risks Protectability Risk of litigation Claims (Spranger 2006) PILA Kick-off Meeting, 19-20 January 2009 23

  24. Valuation parameter PILA Kick-off Meeting, 19-20 January 2009 24

  25. A. Valuation application • Valuation subject • In general a valuation will be prepared from the perspective of the valuation subject. • This can be done for one party or for several. PILA Kick-off Meeting, 19-20 January 2009 25

  26. Reasons for patent valuation • Non-legal obligation • Transactions (Patent value as a basis for the selling price) • Controlling (Patent governance, part of company valuation) • Financing (Valuation for investors, loan security) • Phase of patenting • Valuation of legal costs PILA Kick-off Meeting, 19-20 January 2009 26

  27. Reasons for patent valuation • Legal obligation • Accounting • Tax calculation • Value of a claim (patent infringement) • Adjustment of claims PILA Kick-off Meeting, 19-20 January 2009 27

  28. Valuation purpose, function of the evaluator • Evaluator as a consultant • Subjective value depending on the valuation subject • Selling or buying perspective • Evaluator as an intermediator • Subjective value depending on several valuation subjects • Patent value is a trade-off between the valuation subjects • Evaluator as an expert third-party • Valuation for accounting reasons • Valuation for tax basis PILA Kick-off Meeting, 19-20 January 2009 28

  29. Valuation date A valuation will be always prepared for a specific point in time. PILA Kick-off Meeting, 19-20 January 2009 29

  30. Valuation methods PILA Kick-off Meeting, 19-20 January 2009

  31. Quantitative evaluation methods • Cost approach • What are reproduction or replacement costs? • Market approach • What is the value for a comparable patent? • Income approach • What are the possible future cashflows of the patent? • Hybrid forms PILA Kick-off Meeting, 19-20 January 2009 31

  32. Cost approach • Reproduction cost method • This method considers the costs necessary to reproduce a duplicate of the asset • Replacement cost method • This method considers the costs in order to produce a asset with the same benefit. • Costs are based on the current market conditions. PILA Kick-off Meeting, 19-20 January 2009 32

  33. Replacement cost method PILA Kick-off Meeting, 19-20 January 2009 33

  34. Market Approach • Market transaction method • This method is based on monitoring of an active market for intangible assets. • Thus, the monitored market prices need to be set for comparably priced assets. • Problem: intangible assets are not regularly traded on active markets PILA Kick-off Meeting, 19-20 January 2009 34

  35. Market Approach • Residual value approach of Parr • Basic idea: the patent value is the difference between the market value of the company (stock price) and the current value of the other assets • Problem: • Not all intangible assets are identifiable • Does the stock price represent the real company value? PILA Kick-off Meeting, 19-20 January 2009 35

  36. Income approach and other approaches • Income approach • Discounted cash flow method • Residual value approach • Relief-from-Royalty-Method • Incremental Cash flow Method • Other methods • 25%-Method • Conjoint-Analysis • Real options PILA Kick-off Meeting, 19-20 January 2009 36

  37. Discounted cash flow method • Cashflow (CF) is the difference between the yearly income and outflows which can be linked to the patent • The future cashflows need to be predicted and discounted for the valuation date • Required Parameters • Turnover that will be generated by the patent • Costs for usage of the patent • Run-time • Discount rate (risk-free rate + market risk rate + substitution risk and technical risk) PILA Kick-off Meeting, 19-20 January 2009 37

  38. Residual value approach • Cash flows can not always be directly linked to a specific asset • In most cases a patent generates a cash flow in combination with other tangible or intangible assets • The calculation of the cash flows will be done for a specific product PILA Kick-off Meeting, 19-20 January 2009 38

  39. Residual value approach • With the residual value approach, fictive outflows from the total cash flow will be deduced in order to determine the cash flows for the patent • These fictive outflows can be seen as fictive compensation fees for usage of the asset PILA Kick-off Meeting, 19-20 January 2009 39

  40. Incremental cashflow method • The cash flows will not be estimated directly, but based on the difference between the cash flows of the valuation object with and without usage of the patent. • With this method, the surplus for the usage of the patent will be extrapolated • A profit-improving effect is induced by e.g. new patent drugs, which lead to a considerable increase of sales of existing drugs • Another possible improvement would be an increase in efficiency and thus cost reduction with the usage of the patent PILA Kick-off Meeting, 19-20 January 2009 40

  41. Relief-from-Royalty-Method • Basic idea: What is the licencing fee if you are not the owner of the patent • With ownership of the patent, the entrepreneur/innovator saves costs, which generates additional cash flow • The sum of all savings over the patent lifetime is discounted to the valuation date.  This is the patent value. • This method is the so-called hybrid method • Market based approach (licences fee) • Income based approach (sales) PILA Kick-off Meeting, 19-20 January 2009 41

  42. Calculation of the discount rate www.stern.nyu.edu/~adamodar/ • Capital Asset Pricing Model (CAPM) Kd = Cost of capital Rf = Risk-free rate of return β = β –Factor (e.g.: Webpage Damodaran) Rm = Average market rate of return Rm -Rf = Market risk premium PILA Kick-off Meeting, 19-20 January 2009 42

  43. Risk consideration • Substitution risks • Technical risks • Legal risks PILA Kick-off Meeting, 19-20 January 2009 43

  44. EXAMPLE 1 Discounted cash flow method (according to Ensthaler / Strübbe2006, P. 167 f.) • Parameters for the discounted cash flow method PILA Kick-off Meeting, 19-20 January 2009 44

  45. EXAMPLE 1 cash flow method • Calculationofthediscount rate PILA Kick-off Meeting, 19-20 January 2009 45

  46. EXAMPLE 1 Cash- Flow method • Calculation of technicalrisks PILA Kick-off Meeting, 19-20 January 2009 46

  47. EXAMPLE 1 Cash flow method • Calculationofthe patent value PILA Kick-off Meeting, 19-20 January 2009 47

  48. EXAMPLE 2 Relief-from-royalty-method • The calculation of the relief-from-royalty-method is based on three steps: 1. Step: Identification of the revenues for the patent 2. Step: Identification of the royalty rate 3. Step: Calculation of present savings value PILA Kick-off Meeting, 19-20 January 2009 48

  49. EXAMPLE 2 Relief-from-royalty method • Parameter for the Relief-from-royalty method(according to Spranger 2006) PILA Kick-off Meeting, 19-20 January 2009 49

  50. EXAMPLE 2 Relief-from-royalty-method • Calculation of the Relief-from-royalty-method(according to Spranger 2006, P. 166) PILA Kick-off Meeting, 19-20 January 2009 50

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