Patent valuation using MDMP methodology

Patent Valuation – The
Achilles’ heel of Technology crafting innovation together

Commercialization
crafting innovation together

Multi-Dimensional Multi-Perspective
Valuation Methodology

Confidential © Crafitti Consulting Private Ltd.

What life cycle stage is your Invention/Patent?

Cross Licensing

Post Grant Opposition
Granted Patent
Patent Application
Invention
Idea

Confidential © Crafitti Consulting Private Ltd. April 27, 2011 2

Valuation Methodology for a Patent

Claims Analysis Parameters used by
standard methodologies

Citations
backward/ Current State of
forward the Patent/ Family
Patent Value Size

Indicators
Maintenance
levels/ Legal
Status
Remaining Technical
Life Description


Crafitti’s Multi Dimensional Multi-Perspective
Valuation Methodology (MDMP)

TRIZ-
Patent Life Standard Contradictions resolved
based

Valuation

Social and

Value Future Thought Experiments
Network Potential
Analysis

Multi-Dimensional Multi-Perspective (MDMPTM) Valuation does not produce a single $ number.
The methodology gives a sum total of past, current and potential future value that the asset may
create in a range of possibilities.

Confidential (c)

Lets go back 60+ years ……..

1946,
WW II has just ended
A 20 years old Engineer in Baku, USSR, working in USSR Innovation Office,
decided

To develop a method for systematic invention that could transform engineering
creativity from MAGIC, attainable by few, into a logical discipline available to
many more.
He Conjectured, the key secrets of inventiveness should NOT be sought inside
the inventor’s minds, but rather in the logic of inventions themselves.

Confidential © Crafitti Consulting Private Ltd. 5

Father of TRIZ - Genrich S. Altshuller
(Oct.15 1926 - Sept. 24,1998)

He uncovered the secrets of
systematic creativity, successful
innovation and design.
The development of TRIZ involved
thousands of engineers, took more
than 50 years and included the
analysis of millions patents

worldwide.

Main postulates of TRIZ:
► The evolution of engineering systems is not a random process, but obeys
certain laws;
► Products/processes evolve towards the increase of perfection (ideality) by
elicitation and overcoming technical and physical contradictions.
Confidential

Estimating The Current State of the Patent
Using TRIZ – why TRIZ?
Theory of Inventive Problem
Solving by Altshuller
Main postulates :
► The evolution of
• 1946 Patent Officer engineering systems
in Russian Navy is not a random
• Discovered patterns process, but obeys
in patents, published certain laws;
paper. Sent to Gulag ► Products/processes

• 1954 released, evolve towards the
analysed 2,500,000 increase of
patents perfection (ideality)
• Identified what by elicitation and
makes a successful
overcoming technical
patent
and physical
• 1956-1985 TRIZ
contradictions.
formulated


Patent Valuation

• 4 Key Pillars of Our Holistic Approach
– TRIZ
– Social Network Analysis
– Scenario Planning
– Analytic Hierarchy Process (AHP)

• Multi-Dimensional Multi-Perspective Methodology


Crafitti Multi-Dimensional Multi-Perspective
(MDMP) Valuation Methodology for a Patent

History of Current State of Future Scenarios in
Super System

Technology, Market Technology, Market Technology, Market
and Competition and Competition and Competition

Historical Factors
Current State of Future State of the
System

related to the
the Patent Patent
invention/Patent

Current State of Future State of sub-
Historical Factors
sub-systems, systems,
Sub System

related to
components and components and
components and
parts that make-up parts that make-up
sub-systems
the patent the patent

PAST PRESENT FUTURE


Assessing the Patent Using
Claims Theory of Inventive Problem
Length/Breadth Solving (TRIZ) – A Unique
Proposition
Citations
backward/ TRIZ Level of Invention
Current State of 77% of inventions are at Level 1 or 2,
forward the Patent/ 19% at Level 3, 4% at Level 4 less than <
0.3% at Level 5, Higher Level means
higher Valuation
Maintenance Patent Value

levels/ Legal Indicators TRIZ Laws of Evolution
9 Laws have been identified. Based on
Status the position of patent on each of these
TRIZ Function and laws it is possible to ascertain the
Remaining Resources Analysis strength of the patent

How does various parts of the invention
Life combine to perform the function and
how much resources have been utilized
Technical Family help in understanding the strength of
Invention
Description Size

5 Levels of Inventions

• Pioneering Invention – based on newly discovered phenomenon

Level 5 (<0.3%) • Pushing existing technology to a higher level
• Revolutionary

• New System Developed

Level 4 (< 4%) • Interdisciplinary solutions
• Replacing old technology with New

• Radical change or elimination of one principal system component

Level 3 (19%) • One Engineering Discipline
• Resolution of a physical contradiction

• Slight Modification of the system

Level 2 (45%) • Knowledge from different areas within the industry
• Resolution of a technical contradiction

• A simple improvement

Level 1 (32%) • Knowledge within the trade
• No system conflicts are resolved


How strong are the inventions?

Invention using a conceptually distant
construct (totally unrelated domain)
This patent
belonged to a
Invention using a known construct from
startup
another (possibly related) domain

Invention using constructs
known within the domain

Small incremental
improvement

Confidential
(c) Crafitti Consulting Private Limited


A law of technological system evolution describes
significant, stable, and repeatable interactions between
elements of the system, and between the system and its

environment in the process of its evolution

Confidential

TRIZ: Laws of Evolution


1. Law of Increasing Degree of Ideality - Increasing Ratio -> Benefits/Harm (cost)

2. Law of Non-uniform evolution of subsystems -> Leads to System Conflicts

3. Law of Transition to a higher Level system -> from simple to more complex

4. Law of Increasing dynamism (flexibility) -> More adaptable to change

5. Law of Transition to micro-level -> Increasing fragmentation

6. Law of Completeness -> Gradual Elimination of Human Component

7. Law of Shortening of Energy Flow Path -> Reduction in Energy/Info transformation
stages
8. Law of Increasing controllability -> Evolution of controlled interactions of system
elements
9. Law of Harmonization of rhythms -> Synchronization of natural frequencies of
elements
Confidential © Crafitti Consulting Private Ltd. 14

Case Study: Technological Alternatives
Study on EP0922744

Confidential Patent Benchmarking Competitor’s Patents to TRIZ Lines of System Evolution


Citations Assessing the Patent Using the
Claims its Relative position in its Ego-
Length/Breadth backward/ Centric Citation Network and
forward Social Citation Network
TRIZ Level of Invention
19% at Level 3, 4% at Level 4 less than <
the Patent/ 0.3% at Level 5, Higher Level means
higher Valuation


Invention
Description Size


SOCIAL CITATION NETWORK ANALYSIS OF A
PATENT – Crafitti’s Methodology


HOW SOCIAL
IS YOUR

PATENT?

A unique way to quantify the relative value of a
patent in its citation network
Confidential 18 April 27, 2011 ©

Relative Centrality of the Patent in
its Ego-Centric Citation Network

1984 1985 1987 1996 1997 2000 2002 2003 2006 2007 2008 2009

EVERY DOG IS A LION IN ITS STREET


Relative Centrality of the Patent in
its Ego-Centric Citation Network

1984 1985 1987 1996 1997 2000 2002 2003 2006 2007 2008 2009

Building the Ego-Centric Citation Network of the Patent


Relative Importance Index quantifies (using crafitti’s methodology) the
centrality of the Patent in its Ego-Centric Citation Network

1984 1985 1987 1996 1997 2000 2002 2003 2006 2007 2008 2009

Relative Importance Index gives a view
of vitality of the patent. If its value is
more than the rest of the patents in its
ego-centric citation network, valuation
should be more


Relative Centrality of Patent in its “Social” Citation Network
– taking a cue from social network analysis

Relative Social Importance Index gives a view of vitality of the patent in its social network of
patents which is formed by connecting all forward and backward citations of patents in its ego
centric citation network. This involves forming the “social” citation network of the Patent,
which may large number of patents


CASE STUDY


Citation Analysis from Espacenet

Social Network Analysis and Ego Centric Index
Computation Using Crafitti’s Methodology for
finding important patents in the dense citation
network of a patent

EP Patent No. EP1514784A1


What is the Ego-Centric Citation Index of a Patent?

Ego-Centric Citation Network of a Patent (called the central patent) consists of all those
patents that either cite the Patent or are cited by the Patent. Besides the ECCN of a Patent
has links that connect any two nodes in the ECCN but need not pass through the central
patent.

Social Citation Network of a Patent (called the central patent) consists of all patents in its
ECCN plus all patents that cite or are cited by each patent in the ECCN of the central
patent.

Crafitti’s Social Citation Network Analysis measures three indices on these Patents –
Patent Dependency on Network Index (PDNI, which gives a relative measure of how much
the network depends upon the Patent in terms of citation relative to all other patents in
the network. Network Dependency on Patent Index (NDPI) gives a relative measure of
how much patent depends upon the Network in terms of citation relative to all other
patents in the network. The Ego Centric Citation Index (ECCI) gives the relative measure
of how much it cites the other patents and how much it is cited by other patents in the
network.


Ego Centric Citation Network of Espacenet Data


Social Citation Network of Espacenet Data (Depth 2 or Degree 3)
87 Patents
129 Citation Links crafting innovation together

Which of these Patents
are more important?



Citations Assessing the Patent Using the
backward/ its Relative position in its Ego-
Centric Citation Network and
forward
Social Citation Network
Claims Analysis
TRIZ Level of Invention
19% at Level 3, 4% at Level 4 less than <
the Patent/ 0.3% at Level 5, Higher Level means
higher Valuation


Invention
Description Size

COMPARING APPLES WITH ORANGES – AN EXPOSITION OF
AHP

Similar to Decision Matrix approach but

allows a wider range of values in
comparison of alternatives
Developed by T.L. Saaty (1980)
AHP invites pair-wise qualitative
comparisons
The problem is organized as a hierarchy
Confidential

Why AHP ?

Qualitative Inputs Sound Mathematical Basis
Pairwise comparisons Consistency Evaluation
Gartner
Reduces Complexity of decision by organizing it in structured
format
Promotes comparison of homogeneous characteristics

Framework to check logical consistency
Facilitates What if Scenarios
It undermines Political Agendas
Facilitates Senior Managers’ buy-in
Confidential

Combining Multiple Value Indicators Using
Analytic Hierarchy Process (AHP)

Integrated Patent Valuation Rating

Citation Function/
TRIZ Level of Claims Family
Network Resource
Invention Analysis Size
Analysis Analysis

Maintenance Analysis as per Technical
levels TRIZ Laws of Description
Evolution
Ego- Social
Centric Citation
Citation Network
Network

Confidential

Using the AHP for relative importance of each
parameters from multiple experts

Parameter Relative Importance
Level of Invention 15.0%

Position as per Laws of Evolution 15.0%

Function/ Resource Analysis 15.0%

Citation Network Analysis 15.0%

Maintenance levels/Legal Status 5.0%

Technical Description 10.0%

Claims Length/ Breadth 12.5%

Family Size 12.5%

Total 100%



Future Scenarios
History of Current State of
Super System

in Technology,
Technology, Market Technology, Market
and Competition and Competition Market and
Competition
Historical Factors
Current State of Future State of the
System

related to the
the Patent Patent
invention/Patent

Current State of Future State of sub-
Historical Factors
sub-systems, systems,
Sub System

related to
components and components and
components and
parts that make-up parts that make-up
sub-systems
the patent the patent

PAST PRESENT FUTURE

Scenario Writing and Thought Experiments
(understanding something about something in future)
Scenario Writing: Description of sequences of Thought Experiments: the process of
events for thought stimulation on potential crisis and employing imaginary situations to help us
to anticipate future. Usually include plausible, but understand the way things really are. The
unexpectedly important situations and problems that understanding comes through reflection upon
exist in some small form in the present day. this imaginary situation.

Crafitti Approach Combines Scenario Writing with Thought Experiments

During the Idea Crafting Engagement for one
of the world’s top three financial data
provider, four global scenarios were written
and future initiatives played out in each of
Global scenarios as thought experiments to
rank order the initiatives
Confidential © Crafitti Consulting Private Limited 37

Valuation Methods Used (in Practice)

• The Capitalization Approach

• The Income Approach

• The Cost Approach
• The Market Approach

We Propose a Valuation using multiple perspectives and
multiple Scenarios


MDMP Valuation

• In each of scenarios (i) that emerge during the valuation study what are the
potential benefits that can accrue from the patent (bi) and the risks (ri)
– Incorporating the Invention in the existing products
– Potential Market Share enhancement
– Using the invention to Invent more adjacent areas
– Does it denies a space to competitor
– Does it enhances the portfolio of the inventor – the synergistic effect
– How easy it is to design around the patent?

– How easy it is to verify the infringement?
• In each of scenarios Value (vi) of Patent will vary within a range based on
benefits and risks of the patent loosing its relevance (bi) and (ri)
• Each Scenario also comes with an estimation of likelihood or a probability
estimation (pi)

• Overall value V = ∑ pi x vi = ∑ pi x f(bi , ri)

Crafitti’s Patent Valuation Methodology

• Is Multi-Dimensional and takes into account multiple perspectives to produce
a robust valuation considering multiple futures, current state and past trends
• We combine multiple science based methodologies to come up with the
valuation framework
– TRIZ Based Patent Analysis
– Value Network Analysis
– Analytic Hierarchy Process

– Scenario Writing
– Standard Patent Landscaping and Analysis
– Systems Analysis

Multi-Dimensional Multi-Perspective (MDMPTM) Valuation does not produce a
single $ number. The methodology gives a sum total of past, current and
potential future value that the asset may create in a range of possibilities.


Thank You

Navneet Bhushan, Co-crafter

Founder Director| Crafitti Consulting Pvt Ltd |www.crafitti.com
+91-9902766961 |+91-80-41688077
(navneet.bhushan@crafitti.com)
1B-401, Akme Harmony, Amblipura, Sarjapur Outer Ring Road,
Bangalore 560037, INDIA
Confidential © Crafitti Consulting Private Ltd.

Patent valuation using MDMP methodology

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