treasured assets or a waste of money? how companies can recognize the value of their patent...

Treasured Assets or a Waste of Money? How Companies Can Recognize the Value of theirCompanies Can Recognize the Value of their

Patent PortfoliosKim R Jessum Heraeus Incorporated Langhorne PA

Kim Jessum | Heraeus Inc. March 21, 2014

Kim R. Jessum, Heraeus Incorporated, Langhorne, PA

Background

Kodak sold portfolio of 1 100 digital photography related patents to a dozenKodak sold portfolio of 1,100 digital photography-related patents to a dozen licensees, including Apple, Microsoft, and Google for $525 million.

Google bought Motorola Mobility with its 17,000 patents for $12.5 billion, to protect its Android mobile operating systems from rivals.

Microsoft acquired 800 patents from AOL for more than $1 billion and sold 70% of them to Facebook for $550 million.$


What is Patent Valuation?

The Concept of ValueThe Concept of ValueAn asset has value if it produces a return over and above the cost of acquiring, developing and maintaining it

Focused on the current or anticipated earnings of, or linked to, the IP asset, and the level of risk and timing associated with the expected earnings

Difficulties in calculatinggIP assets to be valued may not be associated with a current income stream

Development phase

Early stages of commercialization

But IP related to “new technologies” may be particularly valuableUses innovation to address a previously unsolved problemp y p

Will open up new markets that are not encumbered by competing technologies


What is Patent Valuation?

The Fair Market Value StandardThe Fair Market Value Standard Price at which a hypothetical willing buyer and seller could be expected to agree to a sale

Most often used for government and other regulatory purposes, such as for international tax considerations

The Investment Value Standard Value that would be expected in an exchange between a specified buyer and a specified seller.

Typically used in the pricing of actual licensing transactions IP sales and/orTypically used in the pricing of actual licensing transactions, IP sales and/or partnerships involving the IP assets when interested buyers can be identified.


Patent Portfolio Valuations

InternalInternalCompare year to year

Compare business to business

Transfer portfolio from one business to another business

Internal Management of IP Assets

Investment in R&D

Global tax planning

Insurance of IP assetsInsurance of IP assets

Calculation of damages when IP right infringed


Patent Portfolio Valuations

ExternalExternalTechnology transfer

Donation of IP assets

Report to stockholders

Partnerships between entities

Mergers and acquisitions

Funding of research

LicensingLicensing

Bankruptcy/liquidation


IP Value Chain/Life Cycle by Function

How IP influences shareholder value;

capital allocation decisions

IP management/organizational systems; valuation metrics for IP

How to evaluate R&D options; finding in-

licensing opportunitiesIP Measurement/

Management

IP Protection

IP Monetization

IP Strategy

IP Development

Assessment of monetization opportunities; execution of

monetization options,IP Strategy monetization options, e.g., out-licensing, spin-offs, joint ventures, donations, etc.

Evaluation of the economic cost/benefits of protection

measures; advisory services


measures; advisory services for infringement disputes

Steps for Internal Patent Portfolio Valuations

Create a Patent StrategyCreate a Patent Strategy

Establish a Baseline

Review the Baseline Compared to the CurrentReview the Baseline Compared to the Current


All businesses should have a patent strategy


What is a patent strategy?


Acquisition ExploitationAcquisition Exploitation

IP Strategy

Monitoring Enforcement


What is patent strategy?

Ad hoc Sniper Blocking

Shotgun Flooding Picket fence

Surrounding Prestige Scarecrow


Identify Business Goals

Technology areas of interestTechnology areas of interest

Current and future products

Competitors, partners, and customersCompetitors, partners, and customers

Geographical markets


We Have a Patent Strategy - What’s Next?

What is the value of the patent portfolio?What is the value of the patent portfolio?

Two typical approachesQualitative approach pp

Quantitative approach


Qualitative Approach

Relies on numerical and measurable data with the purpose to calculate theRelies on numerical and measurable data with the purpose to calculate the economic value of the intellectual property

Focuses on the analysis of the characteristics and potential uses of the intellectual property

Legal

TechnologicalTechnological

Marketing

Strategic aspects

Assessing the risks and opportunities associated with the intellectual property of the company


Quantitative Approach

Cost methodCost method

Market method

Income methodIncome method


Cost Method

Based on the principle that there is a direct relation between the costsBased on the principle that there is a direct relation between the costs expended in the development of the intellectual property and its economic value.

Two different techniques:Reproduction cost method: Estimations are performed by gathering all costs associated with the purchase or development of a replica of the patent under valuation

Replacement cost method: Estimations are performed on the basis of the costs that would be spent to obtain an equivalent patent asset with similar use or function


Market Method

Relies on the estimation of value based on similar market transactions (e gRelies on the estimation of value based on similar market transactions (e.g. similar license agreements) of comparable patent rights.

Data on comparable or similar transactions may be accessed in the following sources:

Company annual reports

Specialized royalty rate databases and publicationsSpecialized royalty rate databases and publications

Court decisions concerning damages


Income Method

Determine the income that the IP asset can be expected to generate over theDetermine the income that the IP asset can be expected to generate over the lifetime of the asset

Adjust to Net Present ValueDiscount time value of money

Discount risk that income will not be realized


Identifying Cash Flow From the IP Asset:Linking Technology Attributes to Products & Revenue/Profits

3

4 Identify Link of Patent to Increased Cash Flow

Derive Product Financials & Market Information

Product Exp. 5 Yr --sales growth/penetrationl t t

2Link patents to technologyproducts

123•

Revenue$

-- complementary assets--claims analysis

Patent # title countries/expire Tech “key” attributes ProductsA B C… 1 2 3…

2Design Strategic

Blocking around relevance Scores(Y/N) (L/M/H) (L/M/H) (0-100)

1 Understanding what patents/technology you have

Add citations, self citations, tech. attrib., life cycle, “core tech,” breadth of claims, competitor comments,…

• Patent/tech inventory• Patent space mapping • “Scoring”

PresentUse

FutureUse

Licensingpotential


Use Use potential

Preparing an IP Valuation

Look at the company’s patentsLook at the company s patentsHow many patents does the company have?

How many relative to its competitors? y

How well positioned are the company’s patents?

Has management built a strategic portfolio, or are its patents just a hodgepodge of good ideas?good ideas?



How important is the patent’s underlying invention?How important is the patent s underlying invention? Is it a transformative invention?

Or is it just an incremental invention? j

Frequent citations of patent by others as prior art can be an indicator that it is a good patent



Does the patent capture and protect the value of that invention?Does the patent capture and protect the value of that invention? Do the claims define the subject matter in terms that create commercial value?

Are the claims valid and enforceable?

How can value be extracted from the patent?Deterrent to competitors

Tie to profit of associated product(s)

Licensing

LawsuitsLawsuits

Is there freedom to operate?


Patent Valuation Tools

IPVision See the Forest Patent Analytics patent analysis program thatIPVision See-the-Forest Patent Analytics - patent analysis program that generates patent maps that show how the documents are related over a number of parameters, including citation relationships

IpscoreFree tool from EPO that provides a comprehensive evaluation of patents and technological development projects based on an installable Microsoft Access database

Applies qualitative and quantitative algorithms for patent valuation and portfolio management.

Provides a financial forecast showing the net present value of the evaluated technologies and output in the form of graphical overviews and a report to facilitate communication of the results of the evaluation

The Patent Asset Index™ by PatentSight


Patent Valuation Tools

The Patent Asset Index™The Patent Asset Index™Objective measure of global technological strength and innovation

Considers the number of patent-protected inventions and their quality or valuey

The Patent Asset Index method Identify patents

Profiles patents

To leverage to create value from innovation

Competitive Impact™Competitive Impact™All patents in a portfolio or

Only those patents relevant to a certain technology


Competitive Impact

Relative measure comparing the business value of a patent with an averageRelative measure comparing the business value of a patent with an average patent from the same field

Technology Relevance™ of a patentBased on the number of worldwide prior art citations received from later patents

Adjusted for age, patent office practices and technology field

M k t C ™ f t tMarket Coverage™ of a patentMeasures share of global market protected by patent


Patent Asset Index Example

BASF advertises on its website 1st place in Patent Asset Index in industryBASF advertises on its website 1st place in Patent Asset Index in industry

In 2013, BASF filed about 1,300 patents worldwide.

BASF claims to be most innovative company in the global chemical industryBASF claims to be most innovative company in the global chemical industry


Patent Asset Index

ProsProsEasy to use

Good comparison of same business over timeOwn business

Competitor’s business

IndustryIndustry

ConsIndex has no meaningg

Difficult to compare different businesses

No thorough understanding of strength of claims in the patents


Other Internal Tools

Fi 2013 2016 Fi 2013 2016Figures 2013YEO1

2016plan

Sales [M€]

Innovation rate [%]

Figures 2013YEO1

2016plan

IPR Expenses* [T€]

Patents & applications [#]Innovation rate [%]

R&D Expenses [#]

(total families)[#]

Invention disclosures [#]

First filings [#]

R&D Employees

R&D Intensity(= R&D Expenses/Sales)

[%]

Oppositions filed [#] n.a.

Third party oppositions [#] n.a.

KPIs 2013YEO1

2016plan

*) IPR Expenses containExternal services (patent attorneys, translation and research costs)p

IPR Expenses / Sales [%]

First filings / R&D Expense [M€-1]

research costs)Fees of authorities and patent officesInternal costs (HH-SR hours and share of general cost [weighted by share of sales]; cost of SBS internal IP


cost of SBS-internal IP management)

Key Performance Indicators

Monetary related KPIMonetary related KPI IPR related KPI


Monetary related KPI

No of invention disclosures in corresponding year / R&D expenseNo. of invention disclosures in corresponding year / R&D expense

No. of priority-establishing patent applications in corresponding year / R&D expense

No. of priority-establishing patent applications in corresponding year / sales

IPR expense / sales

IPR expense / Total No. of patents and applications


IPR related KPI

No of oppositions filed against business in corresponding year/ Total No ofNo. of oppositions filed against business in corresponding year/ Total No. of patents and applications of SBS

No. of oppositions filed against third party IPR in corresponding year

No. of oppositions filed against business in corresponding year/ Total No. of patents and applications

No of invention disclosures in corresponding year / No R&D employeesNo. of invention disclosures in corresponding year / No. R&D employees


Assessment of Own IP Position

Relevance of IP in own industry/market environment *

No significant IP protection

Patent protection, but easy to evade

Evading existing patents requires significant R&D

Potential patentevasion doubtful

Base patent(s) in place, bypass inconceivable

Qualitative Assessment

industry/market environment p y significant R&D inconceivable

Own IP position *No patents, none

pending or in preparation

Individual patents which are easy to

evade

Individual applicationslocked up

Significant application areas

locked up

Extensive patent protection, bypass

attempts failedpreparation evade locked up locked up attempts failed

Relative Strength of own patent portfolio

Best competitor has significantly stronger portfolio

Best competitor has slightly

stronger portfolio

On par with best competitor

Own portfolio is slightly stronger

Significantly stronger than best

competitorg p g p p

Quantitative Assessment

Patent Asset IndexHeraeus <SBS name> Best Competitor <name> Industry Peer Group

4.9 5.2 3.8


Questions?

treasured assets or a waste of money? how companies can recognize the value of their patent...

Law

current kim jessum heraeus

infringed kim jessum

calculatingg ip assets

ip value chainlife cycle

patent valuation

patent strategy whats

economic value

patent strategycreate