Intellectual Property, Licensing, and Technology Valuation

Marty KaszubowskiPresident, General Ideas

Intellectual Property

TYPES OF INTELLECTUAL PROPERTY

• Patents: give monopoly on inventions, ornamental designs, or plants

• Copyrights: protect rights in works of authorship

• Trademarks: function as indicator of source and quality

• Trade Secrets: confidential information that gives its owners a business advantage

• Different IP Notices: Pat. Pending, ©, ™, ® 

TYPES OF U.S. PATENTS

• Utility patents: cover useful items, structures, methods, or processes

• Utility patents protect the functional embodiment of an idea

• Utility patent gives owner the right to exclude others from practicing invention

• Design patents: cover ornamental designs

• Plant patents: cover only asexually reproducing plants discovered in the wild (not wild plants that reproduce sexually or any genetically engineered plants) 

Intellectual Property

REQUIREMENTS FOR UTILITY PATENTS

• Inventorship: in U.S. only inventors may file patent applications

• Novelty: invention must be new (not covered by “prior art”)

• Non-obvious: invention cannot be an obvious variation on prior art

• Enabled: inventor must be able to describe invention so that it could be built (but working model not required)

• Utility: invention must be useful

• No statutory bars: for

example, the “one year on-sale bar”

U.S. PATENT PROCESS

• Provisional Application: for utility patents; optional but establishes priority date with U.S. Patent and Trademark Office (“PTO”)

• Regular Application: must be filed within one year after public disclosure of invention or filing of provisional application

• Issued Utility Patent: provides 20 years of protection from application filing date

Licensing your technology

• Licensing mean selling the rights to your technology to someone else …

• In exchange you get:• Initial Payment ($)

• Royalties ($$)

• Opportunities to work on future projects & products

• The right to “Take it back” if the other party fails

Why License?

• You don’t have the resources needed to develop a product

• You don’t have any relationship to the market(s)

• You just don’t want to be a product company!

• Your technology is more valuable when combined with someone else’s technology

What does it mean to put a “value” on your technology?

Why put a value on a technology?It’s the core asset of the company!

You can’t license it until you know how valuable it is!

It needs to be matured, and that costs money

“Valuing” the technology helps establish the price you charge for products and services that use the technology

When you sell the company, everyone will want to know how much value remains in the underlying technology

What IS the technology being “valued”?A “Technology" is usually described in terms of : A bundle of patents; Related technical trade secrets and

proprietary technical know-how; Proprietary hardware/software

required to make full use of the technology; and

The business made possible by the practice of that comprehensive bundle of technology.

What factors affect the value?There are a number of factors

affecting value: Nature, form, and stage of development of

the technologyPerceived technical riskPerceived commercial riskEconomic impact and useful economic lifeExpected future advances in the fieldTransaction-specific details

Technology Readiness Levels

1. Basic principles observed and reported.2. Technology concept and/or application formulated.3. Analytical and experimental critical function and/or characteristic

proof of concept.4. Component and/or breadboard validation in laboratory

environment.5. Component and/or breadboard validation in relevant environment.6. System/subsystem model or prototype demonstration in a relevant

environment.7. System prototype demonstration in an operational environment.8. Actual system completed and qualified through test and

demonstration.9. Actual system proven through successful long-term operations.

The value of technology increases as it matures!TRL 1-3 is basic research and is generally “marketed” to government

agencies, major companies, and philanthropic organizations that seek to advance the state of the art.

Ex: Sponsored research, “Science for hire”

TRL 4-7 is technology demonstration and is “marketed” to early-adopters and strategic partners seeking early market advantages.

Ex: Licensing agreements, sales of patent portfolio, joint venturing, pilot projects

TRL 8-9 is technology application and product development and is marketed directly to end users.

Ex: Product sales and marketing, full-scale manufacturing & support

Start gathering information …To do a proper technology

valuation you’ll need: Correct interpretations of patent claims

and definition of what is unique and valuable.

The time remaining to practice the unique patent claims.

A “Concept Statement” for the product(s) you expect to develop.

Assessments of the markets for the product(s) you envision.

Financial models related to price, elasticity, demand, cost of manufacturing, costs-to-scale, etc.

Two Questions

To what extent does your technology make other technologies obsolete?

Example: The automobile made the horse and buggy obsolete

To what extent will your technology make current marketing & sales channels obsolete?

Example: The people who sell automobiles are not the same people who sold horses and buggies

Other Examples

Niche Innovations: Solid state Flash Drives did not make Hard Drives obsoleteThe people who sell Flash Drives do not sell Hard Drives

Evolutionary Innovations: 1 TB hard drives did make 100GB hard drives obsoleteThe people who sold 1GB drives also sell 1TB drives

Revolutionary Innovations:High Definition (digital) TV made analog TVs obsoleteThe people who sold analog TVs also sell digital TVs

The Transilience Map

Niche Architectural

RevolutionaryEvolutionary

Makes sales & marketing channels obsolete

Makes older

technologies

obsolete

Automobiles

MP3 Music

Digital Cameras

Flash Drives

High Def.TVHigh Capacity Hard Drives

Leaves older

technologies viable

Retains existing sales & marketing channels

Value is a function of maturity and market potential

Mark

et

Pote

nti

al

Technology Maturity

€$

Weakening

Stable

Slow Growt

h

Strong Growt

h

Explosive

Growth

Idea Stage Growing Mature

Increasing Value

Increasing Value

Incre

asin

g V

alu

e

Three Approaches to Valuing Technology

Cost

Market

Income

“Values” the technology on the basis of what it cost to create it

Considers recent transactions involving transfer of ownership of

similar technologies

“Values” the technology as the “Present Worth” of projected

economic benefits

Valuing based on Cost

Advantages:Simple to doEasy for everyone to

understand

Disadvantages:Has little relationship to

potential benefitsRarely considers

opportunity costs

Valuing based on recent market activityAdvantages: Simple to do, if you can

find the data … Easily understandable

Disadvantages: Hard to find comparable

transactions Every technology is

unique, difficult to agree on comparisons

Valuing based on future earningAdvantages: Best captures the long-

term value and full range of risks and benefits

Disadvantages: Difficult to create and

agree on the financial model and associated assumptions

Highly subjective, based on anticipated future revenues …

Don’t overanalyze!

The size and growth potential of you market is a critical part of assessing the value of your technology

But it’s an inexact science and carriers much uncertainty.

The most certain markets are the ones that are already in decline …

Questions?