VALUING AND LICENSING INTELLECTUAL PROPERTY

COMMERCIALISING INTELLECTUAL PROPERTY SERIES #6

John P. Mc Manus

Published by NuBooks, an imprint of Oak Tree Press, 19 Rutland Street, Cork, Ireland

www.oaktreepress.com

ISBN: 978-1-84621-143-0 (PDF)
ISBN: 978-1-84621-144-7 (ePub)
ISBN: 978-1-84621-145-4 (Kindle)

© 2012 Dr. John P. Mc Manus.

All rights reserved. This eBook may not be reprinted or distributed in electronic, print, web or other format without express written permission.

The information contained in this publication is intended for guideline purposes only and does not represent legal advice. Readers should always seek independent legal and/or other professional advice specific to their own requirements before taking any action based on the information provided herein.

Extracted from INTELLECTUAL PROPERTY: FROM CREATION TO COMMERCIALISATION – A Practical Guide for Innovators & Researchers, by Dr. John P. Mc Manus, published by Oak Tree Press.

1: INTRODUCTION

The value of a particular piece of intellectual property (IP), in terms of its ability to protect an innovative technology in its widest possible application of products, processes and services, relies on it being legally valid, defensible and broad in its scope. This may confirm that there is value to be gained by using it to create and protect a market position. But how can a monetary value be placed on it? This is ‘valuation’ of IP and to do this, we need to look at applying acceptable methods of valuation.

There are three main approaches used in business to assign a value to a piece of IP, but there are lots of variables and risks associated with each. To perform a valuation, it helps to begin with a clear purpose of what the valuation will be used for – for example, valuing a company, liquidation value of IP assets, sale of the IP as in an assignment, or estimating what it is worth in a licensing transaction. The last is of particular interest, as this is probably the main route to exploitation of IP for a private inventor, IP manager or technology transfer office (TTO).

A licensee’s interests centre on two main issues when considering the value of IP to his company. The first is related to the potential for infringement:

• Whether the company will infringe the IP if it does not have a licence; and if it does require a licence
• Whether the IP is strong and broad enough in scope to provide good protection against copiers.

The second aspect relates to the economic benefits afforded to the company by use of the IP, such as:

• Money saved by not having to develop its own technology or to design around the IP;
• An opportunity in getting to market earlier than it would if it decided to develop its own technology;
• Access to further business opportunities by having the IP; and
• An advantage in blocking competition and defending market position.

Before calculating a price for the IP, both licensor and licensee should view the situation from their own perspectives and consider some of the variable parameters that need to be taken account of in estimating a value.

2: WHAT IS BEING VALUED?

Firstly, identify the asset. It may be a single element or bundled as a composite IP package, where it comprises a mixture of patents, design rights and trade marks.

Next, what circumstances surround the use of the IP? Important factors to consider are:

• The type and number of commercial applications;
• The companies and industry sectors using it;
• The duration and territory for its use; and
• The stage of development the IP is currently at.

The licensee must be convinced that there is some incremental value to be gained from having access to the IP – in other words, that it will enable some of the following:

• Have a role in generating profit;
• Provide an increase in sales;
• Allow the company to charge a price premium;
• Improve production and reduce costs;
• Eliminate risks and reduce competition; and
• Provide scope for new business opportunities.