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Patent Licensing and Valuation Tips
 

Patent Licensing and Valuation Tips

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Tips and strategies for patent licensing and university technology transfer together with some valuation points to have in mind

Tips and strategies for patent licensing and university technology transfer together with some valuation points to have in mind

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    Patent Licensing and Valuation Tips Patent Licensing and Valuation Tips Presentation Transcript

    • TLO and patent licensing Carlos A. Parra Olarte Raisbeck Moure & Castro Ltda
    • Got a patent? Now what? The roll of a TLO
      • Universities in the US encourage researchers with innovative minds to pursure their inventions and invest into patenting promising inventions expecting to generate profits by licensing the developed technology to interested companies. The technology transfer offices of the universities usually get many invention ideas from their researchers and have to decide which ones to invest further time and resources into. Many have already build valuable patent portfolios as a result of academic research and innovations which have become continuous sources of licensing revenue most of which is a lot more that research and legal investments made and so is used to further catalyze the innovation assessment and investment process. Here is an excerpt published by Forbes in a 2008 article on Stanford University: Stanford University's fertile breeding ground for breakthrough technology may have spawned the likes of Hewlett-Packard and Google, but little Stevens Institute of Technology in Hoboken, N.J., really knows how to get serious returns on its research and development.
    • Some TLO data
      • To wit: In 2006, the school took in $4.5 million in research-related income (including licensing revenue and returns on equity stakes in start-ups) while shelling out $28 million on research--a 16% yield. That same year, Stanford pulled in $62 million against a $700 million investment; return on investment (ROI): 8.7%. While perhaps thousands of universities globally develop valuable IP during the course of their academic research, very few file patents to protect it and fewer still are able to effectively capitalize by licensing their patents. Many US universities hold multiple patents that have failed to find licensees. Many of these are presently marketed by publishing invention details in journals, industry and trade newsletters, conference magazines (AUTM), using agents or brokers. While the culture of investing in research and filing patents has developed and matured in many US universities, being able to spot revenue opportunities within the patent portfolios already held by universities can be accelerated with strong patent analysis support. Much of similar kind of analysis is undertaken by Patent Licensing and Enforcement Agencies (See previous blog) and IP brokers.
    • Why to patent and commercialize
      • Many universities expect not all their patents will be licensed. In fact most rely on a few blockbuster patents to bring home the revenue. Usually only 0.6% of licenses generate in excess of $1,000,000 in annual royalties. Clearly there is need for universities to be more aggressive on the patent portfolios held by them. Assertive licensing and identification of infringers is important. However a change in research approach is required and universities need to analyze the technology areas their inventions lie in and gather data that can be used to back  their assertive licensing strategies. By improving their internal  patent analysis activities, universities can:
    • Why to patent and commercialize
      • Understand the market place and discover licensing opportunities and spaces in the market for research and technology even before filing for patents
      •   Discovering licensing revenue opportunities and spotting companies that are infringing their IP or those who would like to
      • In short, these universities can use IP intelligence to work smarter , make fewer more lucrative investments in research, targeting select research areas, knowing where the opportunities lie and filing for patents specifically for IP which they are more certain will yield revenues. Good analysis will effectively help achieve better ROI on their IP investments. Even if a small percentage of the Universities out there follow in the footsteps of the those with large patent licensing revenues, the impact will be big. Only time will tell if they do.
    • Why to invest in University developed technology
      • In the US:
      • Growing importance of university sector to national economy :
        • Economic sectors with most rapid growth are those closest to the science base.
        • Research universities as “idea factories”
        • 73% of applicants for U.S. patents cited academic research (NSF, 1998)
        • Source of skilled knowledge workers
        • Milken Institute: top 30 high-tech areas in US, 29 home to major research university
    • Roll of a TLO
      • Purpose The purpose of the Law Promoting Technology Transfer from Universities to Industry (TLO Law) is to promote transfer of research achievements arising from universities to industry so as to upgrade industrial technology and create new industries, as well as to activate research activities in universities.
      • Content of the specified university technology transfer operations (TLO operations)
        • Discovery, evaluation, and screening of research achievements that can be commercialized
        • Offer of technical information on technological research achievements in universities
        • Licensing of patents and other IPRs to companies
        • Recycling of royalties and other relevant incomes
        • Advice on business management, Technical guidance and R&D, Financial support, Other operations necessary for efficiently transferring technological research findings in universities
      • Approval of implementation plans Plans on specified university technology transfer operations for efficiently transferring technological research findings in universities to private companies by such means as assignment of patents are approved by the government according to the implementation guidelines. * This does not preclude unapproved technology transfer organizations from engaging in technology transfer.
    • Setting the table
      • Understanding your objectives
        • S eek help for a developed technology that you lack the resources to market and instead want to out-license to raise CASH;
        • Promising technology with a proven track record in the clinic that would now benefit from a joint development agreement to bring it to market ;
        • In-license a technology to produce it in commercial quantities;
        • Include a business development executive, a scientific-technical expert, a decision maker and a licensing attorney
    • Setting the Table
      • The business development executive (sometimes the CEO at smaller firms, or a technology transfer professional at a university) usually finds the deal, brings the parties together and keeps the process moving.
      • The scientific-technical expert provides scientific and technological expertise and conducts due diligence research relating to the technology at issue.
      • T he decision maker must have authority to commit your party to particular deal terms.
      • The attorney. D ocument drafting is often easier when an attorney has the benefit of participating in negotiations and understands the positions of both sides
    • A ssess your s and other party’s standing
      • S trength of your proprietary position on the patents or patent applications;
        • combination of the strength of your IP portfolio (primarily patents) and the strength of third-party (often not a party to the license) IP. Strong proprietary positions can be weakened by the existence of third-party patents that may also cover, or potentially cover, your composition, or its method of use or manufacture
        • P erform a freedom-to-practice search to discover third-party patents that cover, or are close to covering, all or part of your technology
        • It helps, if you a licesee, to reduce your potential return from licensing by a portion of the amount of royalties the licensee needs to pay to third parties.
        • A weaker proprietary position is a factor that licensees can use to negotiate for smaller fees and royalties because large payment obligations, in addition to lack of significant exclusivity, decreases market competitiveness and harms future market success
    • A ssess your s and other party’s standing
      • E valuate and determine your own marketing, technical, sales and services strengths as well as the strengths of the other party in the field of the patented technology ;
      • D efine the scope of the licensed technology and their competitiveness as potential licensing partners
      • E valuate potential best alternatives to the license.
    • Why is it important to value patents?
      • Maturity of the technology: the more mature the more valuable the less developed the less valuable. Thus, the stage of development of the technology is critical;
      • The uniqueness or novel nature of the patent or technology;
      • The breath and depth of the technology;
      • Competing and existing technologies;
      • Time and processing cost required to patent and commercialize the technology fully;
      • The ability to protect the technology with various patents;
      • Size of the market and future prospects for that market;
      • Strategic or econometric influences on the future of the technology;
    • When patent are valued in?
      • Before filing a patent application
      • After filing patent application
      • When paying annuities
      • When applying for continuing applications
      • When the patent is issued and the commecialization process should start
      • When there ins an infringement and damages to be recovered must be assesed
      • When Licensing the technology
    • Valuation methods
      • The fundamental issue is: “by how much the returns from all possible modes of exploitation of the patented invention are greater than those that would be obtained in the absence of the patent?”
      • Patenting is a decision tree that starts from the moment a decision is made to pursue a patent and not a trade secret, when deciding if a PCT is worth to file, when paying an annuity, when requesting examination (if those countries where this is required)
    • Valuation methods
      • Cost based methods;
      • Market based methods;
      • Income or methods based on projected cash flows
      • Time or Discount Cash Flows (DCF) methods allowing for the time value money (money pay for the time it is invested or would be invested in a free-risk investment vgr. T-Notes);
      • Uncertainty or DFC methods allowing for the riskiness of cashflows;
      • Flexibility of DFC based Decision Tree Analysis (DTA) based methods;
      • Changing risk or Option Pricing Theory (OPT) based methods:
        • Discrete Time or Binomial Mode (B-M) based methods
        • Continue Time or Black Scholes (B-S) optrion pricing model based methods
    • Cost Valuation Methods
      • Historical cost to obtain the right are important, but do not provide information about the future benefits to obtain
      • Historical cost are not very useful to value the technology
      • Costs that can be quantified include:
        • Legal fees;
        • Application/registration and other fees;
        • Personnel costs;
        • Development costs;
        • Production costs;
        • Marketing and advertising costs.
    • Market based methods
      • Objective: value assets by studying prices of comparable assets which have been traded between partie`s in active market
      • The usefulness of this method is in only one case: where the cost of an IPR is a possible useful guide to its value (i.e. the cost concerned is the price paid for the same IPR in a very recent comparable comercial transaction
      • However, it is a main problem when comparing the same technology with others recently marketed because the technology may not be the same or if the same the use of said technology in the previous transaction may not be the same as the one under transaction and therefore the value may be suboptimal
    • Market based methods
      • They may be used on comparable royalty rates to set royaltuies in licensing negotiations and setting damages in litigation;
      • The market method use industry averages for royalty rates and utilizes actual transaction values derived from the sale or license of similar assets;
      • The “market rate” can be problematic if the technology in the industry is being misvaluated. Thus, using this standard will perpetuate the sub-optimal valuation based on few leading companies in the market;
      • The market method is the most preferred if the necessary data is found;
    • Income based methods
      • Forecast of future income expected and thus appreciation of the value of the patent;
      • An asset is worth the present value of the future economic benefits (income). For that is necesary:
        • Projection of the future income;
        • An estimate of the likely duration of the income stream; and
        • An estimate of the risk associated with generating the income stream
      • It is the most widely used valuation method
      • The parameters used in this method are:
        • Future income stream;
        • Duration of the income stream;
        • Risk associated with the generation of the income stream
    • Checklist to value a patent
      • Is the patent in force (for instance: annuity payments are paid);
      • Identify the context in which the patent is being valuated (for instance: patent royalty amounts being paid);
      • Gather the patent information:
        • Application file (especially if it is a US patent);
        • List of corresponding patent applications;
        • Copy of any relevant business plan, marketing study, financial statements, etc
        • Descriptions of any litigation, past or present;
        • Copies of any contract, licensing agreement or offer to license
        • Available economic data on the industry in which iinvention is used;
        • Copies of promotions and advertising materials used during the past year related to the invention or the product;
        • Cost information relating to the existing or proposed patented product including cost accounting records and/or engineering feasibility studies
    • Thank You Carlos A. Parra C [email_address] [email_address]