By Pal Asija
1. Familiarize yourself with the process of valuation and how evaluation consultants and experts operate. Any search on the Internet should include a word or phrase from each of the following 3 categories.
(i) IP, Patent, Trademark, Copyright, goodwill, idea,
(ii) Valuation, evaluation, predictor, software, tool,
(iii) Companies, consultants, organizations, websites, books, videos, publications, articles etc.
- 2. Establish a budget, objectives, time table and available resources for this due diligence intensive task.
- 3. Make an inventory of entire portfolio of intellectual property. Divide it into various types and put it on a spread sheet if more than a few are involved. Each piece of IP should be on a separate row of the spread sheet. Column headings may include:
(i) Status of IP e.g. issued pending licensed (exclusive, non-exclusive, limited defined exclusive etc.)
(ii) Venue of IP (countries in which protected)
(iii) Number of times patent has been cited by the patent offices, general and trade press
(iv) Associated and estimated Goodwill
(v) Income stream generated even if loss as the licensee is often able to project profits by economies of scale.
(vi) Projected demand
(vii) Level of confidence
- 4. Select and prioritize one or more methods from the following 3 basic methods and many variations thereof.
(i) Cost Plus (including actual cost + percentage of margin or in some exceptional new industry starting cases a multiplier) for creation, protection and cashing. Typically costs include (R & D + Prototype +
Patenting or other protection + Marketing (including advertising campaigns and consumer survey etc)
(ii) Market value (comparison with actual sales of comparable I.P in comparable circumstances, types, venues etc.) This method is similar to the method used by the Real Estate agents in evaluating real property.
(iii) Income Method (Past, Present and Potential) This method becomes more attractive, certain and less risky as the income stream is developed.
- 5. You can reduce your risk by using multiple methods and experts and average the results by Delphi forecasting techniques.
- 6. For a small portfolio or for any reason you cannot afford consultants, the DIY (Do It Yourself) approach is an option for which many software tools are available.
- 7. Periodically review and update the evaluation of portfolio as circumstances change (for example enlarged or diminished portfolio, ownership changes, changed market conditions, technological obsolescence, political climate etc) It is like solving a Jig Saw Puzzle where the pieces of the puzzle are constantly changing shape.
RECOMMENDATIONS
- Keep an open mind and keep your options open and revise the value of your portfolio periodically.
- Larger the portfolio lesser is the risk and more are the available options. Likewise
further along the IP is, easier it is to cash.
- Greater the negotiating and staying power, greater is the advantage in negotiating. Remember as a rule of thumb the party that mentions the valuation numbers first is at a slight disadvantage.
- Instead of cash transactions only, also consider cross licensing, bartering and other innovative techniques
- Include ADR (Voluntary mediation and/or compulsory arbitration) clauses especially if you are the smaller entity.
- Charge a fair price for your IP, consultations etc .Time is money and nothing is FREE, but be fair to the other party. A deal is a good deal only if it is a good deal for all parties otherwise it tantamount to postponing troubles. Protect yourself but also them from mistakes.
- Familiarize yourself with the IP valuation process and how evaluation consultants charge and operate by visiting the following links:
http://www.journalofaccountancy.com/Issues/2004/Nov/20StepsForPricingAPatent.htm
http://www.appraisaleconomics.com/patent-valuation.htm
http://www.patentvaluepredictor.com/Home.asp
http://www.patenthawk.com/valuation.htm
http://ideanomics.com/category/patent-valuation/ http://www.investopedia.com/articles/fundamental-analysis/09/valuing-patent.asphttp://www.generalpatent.com/consulting/ip-valuation
CAVEATS:
- 1. Intellectual property laws are not designed to protect ideas but merely expression of ideas by copyrights and embodiments of ideas by patents. Limited protection can be had by trade secrets, contracts and race to market approach to grab lion’s share of the market.
- 2. The value of all intellectual property is eventually subjective, due diligence intensive, frustrating, imprecise, risky and depends upon one’s ability to attract a ready willing and able party to negotiate with. At best you can estimate a range in which the value may reside and just because you have confidence in the range of value you have generated with considerable due diligence does not mean you can convince others that the range is realistic.
- 3. There are NO experts on evaluation of IP much less ideas. The experts have been wrong in both directions. For example when experts thought a certain IP is a “shoe-In” and cannot fail even if the owners tried but it flopped miserably and conversely when the experts thought the IP was useless and worthless it started a whole new industry.
- 4. There are many similarities and differences between intellectual property and real property. Caution must be used and modification is advisable when importing a real estate evaluation technique to IP evaluation. Just as real property is defined by location and deed, IP is defined by scope of patent claims.
- 5. These are merely guidelines and do not constitute legal advice for which you should consult a practicing attorney. For further delineation of any of the steps or caveats, the author would be pleased to provide with no obligation information including contemporary hyperlinks to best consultants and websites.
Author
Our Pal Asija, B.Sc., Grad IERE(Lond.), PGD, MBA, PE, CDP, JD, ATM
CEO OUR PAL LLC, 7 Woonsocket Ave, Shelton, CT. 06484-5536 USA
Phone: 001-203-924-9538 FAX: 001-203-924-9956
www.OurPal.com
[email protected] or [email protected] or [email protected]
© Our Pal Asija, 2009
