Posts Tagged: "valuation"

Companies that license intellectual property may not realize they are leaving money on the table in royalty underpayments and calculation errors made by their licensees. Forensic royalty audits can identify issues and correct royalty underpayments and IP valuations, but there are many aspects, not just financial, to consider. Beyond the costs and benefits associated with conducting a royalty audit, it’s also important to understand why and how licensees underreport and underpay royalties, and the key terms to scrutinize in your licensing agreement.

Imagine you have found four patent families that address a specific risk to your business, and you are about to ask your boss to approve buying those patents for $2 million. Her questions might include, “What’s the going rate for patents?” Similarly, if you were working with your company’s accounting team and moving four patent families from your corporate parent to a subsidiary, the accounting department might ask, “What is the ‘fair market value’ of these patents for transfer pricing?” A preliminary issue arises: what are you really being asked for? This confusion in part stems from the common use of “price” and “value” nearly interchangeably in day-to-day conversations.

In an article we published on this blog in November 2015, we documented the findings of a study of Unicorns (startups with valuations of over $1 billion) and their patent holdings. In that study, we discovered that over 60% of Unicorns held immaterial patent portfolios (10 assets or less). We have subsequently concluded that these Unicorns are likely to fill the gap in their patent holdings through organic filing and patent acquisitions, as they approach an exit event or as they enter a major new market. Fast forward to October 2019, and WeWork, a member of our Unicorn “Class of 2015”, has been in the news under very unpleasant circumstances. The WeWork planned IPO was called off in October 2019, after questions emerged related to, among other things, the viability of the company’s business model following financial and operating disclosures included in its S-1 filing with the SEC. This led to a series of events where, eventually, SoftBank acquired a controlling interest in the company at a valuation of $8 billion, a fraction of its most recent valuation of $47 billion, while in the process removing Adam Neumann, the company’s co-founder and CEO, and buying out his shares.

The cult of celebrity keeps creating more and more wealth. And concurrent with protecting that, ‘Image Rights”’have been receiving a lot of publicity – as well as the attention of tax authorities. Even James Bond, Sir Sean Connery, has just discreetly protected his brand and trademarked his name. Documents filed in both the EU and the US show the veteran star is ensuring that he and he alone can profit from his name.

Intellectual property (IP) often represents one of the largest asset classes that a company holds, and unlocking its value is a key element in any business sale. The value of intellectual property such as patents, trademarks, brands, databases, and trade secrets, can be valued using a number of methodologies. But what makes these intangible assets so valuable to a business?

Whether one celebrates or decries the PTAB, there can be little doubt that it has worked a profound effect on the value of American patents—and, concomitantly, on incentives to invest in research and development… Compared to their judicial counterparts, PTAB judges are biased in favor of invalidity. Personnel differences also explain a more disturbing phenomenon, mainly, that the Patent and Trademark Office seems to be at war with itself. Frequently, the PTAB invalidates claims based on prior art that examiners considered during initial prosecution. The only explanation for such discordant outcomes is that PTO examiners take a more pro-patent view of validity than the judges who make up the PTAB.

Your CEO: “Why are we spending so much on patents?” Your CFO: “Do we have a financial model for this spend?” The path forward isn’t clear. Now what? Using a model that examined both patent risk and expected risk reduction allowed the client’s IP department to put a number on the value of their efforts. In turn, this enabled the executive team to grasp the return on investment (ROI) from the patent strategy. Our client now had a tool to use for making decisions on how to mitigate patent risk and where to spend money to build their patent portfolio. The implications extend further into setting metrics and plan objectives to ensure that the patent strategy is on track.

In many cases, the challenge of patent quality is reduced to questions of patent validity. However, in other cases, the quality of a patent depends on economic valuation, which is a market phenomenon. After all, if a patent lacks any value in market, why would infringers care about it at all? Only valuable patents that have market impact are directly attacked by incumbents. This observation leads to the revelation that all patent disputes are based, not on patent quality, but on patent valuation. In the main, most patents of high value are considered high quality inventions, with low quality inventions not having value in the market… The modern patent system originated in Venice. At first, it worked well. But eventually, a cartel of market incumbents exercised their market power, took over the system by modifying its rules and diminished the effectiveness of the patent system for their self-interest. The effects of these changes were disastrous as technological progress slowed and the economy floundered. We are seeing a repeat of this market phenomenon in the U.S.

Even though traditionally valuation professionals have used a combination of cost-based and market-based valuation, more and more practitioners are using income-based valuation in combination with market data.  The income-based model focuses on what potential monetization or potential impact on business a patent portfolio might have, and as such, it is much more dynamic and reliable… For patent portfolios of potential future value, technology risk is preferred over market risk and one could use current market data to benchmark future value while building an income-based valuation model.

While patent portfolios are entering the market other patent portfolios continue to leave the market having been purchased. Asking prices seem to have also reached an equilibrium point, according to Kent Richardson of the ROL Group. There are buyers on the market looking for good portfolios, both tech companies who themselves have thin patent portfolios who are looking to back-fill their portfolios. Some non-practicing entities that had previously left the market have also started to come back as buyers over the last 12 to 18 months, at least kicking tires and strategically acquiring where the assets are strong and the price is right.

Whether you are managing an in-house patent portfolio, engaged in M&A deals involving IP assets, or a startup looking to secure funding, this webinar is for you. It is designed to help you optimize the value of your IP portfolio and will highlight patent market trends and the key factors impacting IP valuations.

Join me on Thursday, January 26, 2017, at 12pm ET for a free webinar discussion that will focus on decision making for dealmakers. This free webinar will approach this material first from the lens of the dealmaker who needs to know that they have all the relevant information necessary to confidently assess value and close a deal. We will ask, and answer, the question about which information can prove to be most useful and why. We will then pivot the discussion to bring in data experts to discuss how they work to find that information and deliver it as actionable intelligence so that good decisions are made with good data.

Most patent professionals recognize that a raw count of the number of forward citations to a patent can be an indicator of a patent’s value. However, a mere count is insufficient because decoding the citations to support meaningful decisions is still a challenge. To further complicate matters, important and meaningful citations are virtually always underreported making them unavailable to patent analysts for consideration. This article reveals new data that may render traditional citation analysis inadequate, and discusses the who, what, and when of each citation as an important consideration when attempting to derive value from careful examination of the complete forward citation record.

What is the best way to assess the potential value or use of a patent portfolio? Before we examine this, it’s important to clarify that a patent only has value in the context of its place in a portfolio and in how the portfolio is used to support the organization’s business strategy. Let’s look at two examples. A Patent Assertion Entity will evaluate patent value based solely on the potential revenue that will come from a licensing program. On the other hand, an operating company typically places a higher value on patents that provide protection. This can be the ability to defend leadership in a profitable market category or the ability to offer protection as a sole-sourced product’s revenue stream.