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Carrots and Coins: Recent Trends in the Valuation of IP Assets


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Recent trends in the valuation of IP assets

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Carrots and Coins: Recent Trends in the Valuation of IP Assets

  1. 1. Licensing V O L U M E 3 9 N U M B E R 3 Edited by Gregory J. Battersby and Charles W. Grimes THE Journal MARCH 2019 DEVOTED TO LEADERS IN THE INTELLECTUAL PROPERTY AND ENTERTAINMENT COMMUNITY
  2. 2. MARCH 2019 T h e L i c e n s i n g J o u r n a l 1 Carrots and Coins: Recent Trends in the Valuation of IP Assets Efrat Kasznik Efrat Kasznik is president of Foresight Valuation Group, a Silicon-valley based consulting firm specializing in IP valuation and strategy advisory. Ms. Kasznik is a Lecturer on IP Management at the Stanford Graduate School of Business. She serves as Chair of the Licensing Executives Society (LES) USA-Canada’s High-Tech Sector and has been listed on the IAM Strategy 300—The World’s Leading IP Strategists list every year since 2013. A lot has been written on the impact of the new leadership at the USPTO on the value of patents. Since his appointment in early 2018, Director Andrei Iancu has managed to introduce new initiatives that increase transparency and uniformity in how the USPTO and the courts interpret patent claims and validity challenges, reforms that are largely consid- ered to have a positive impact on the value of patents. Some market followers who keep track of the vener- able “pendulum”, which signals the patent climate de-jour, were quick to note that the pendulum started swinging ever so slightly back in favor of patent hold- ers (as indicated by some renewed interest in the pat- ent marketplace). From an IP valuation perspective, one should take a broader view at the factors impacting the value of IP assets: patents, as well as other assets. While patents represent legal rights that are profoundly impacted by case law and the USPTO examination policy, focusing on legislative and judicial developments in the US alone constitutes a very narrow lens by which to evaluate IP portfolios and the value they bring to the companies that hold them. Our experience over the past year indicates that patents are only one component of the modern company’s IP portfolio. There are other types of intangible assets, including new categories of assets we haven’t seen before, that are emerging in the new digital economy, posing new valuation challenges but adding more sources of value for companies. Additionally, new technological advances are creating fertile ground for technology transfer and open innovation, processes that depend on IP rights and which give IP assets great value. Below are some of the main trends in that we have seen over the past year, based on the IP portfolios and transactions that came through the door in our IP valuation practice: Foreign Assets Increasingly Significant Over the last year, we have seen a clear increase in the weight of foreign assets in the IP portfolios pre- sented to us; it used to be the case that the vast major- ity of assets were US assets, with a few counterparts that served more as a placeholder and less as a driver of economic value. Over the last couple of years, we have seen more and more patent portfolios used to support funding, strategic collaborations, interna- tional expansion or the sale of a company, where the major corpus of assets were foreign assets. More spe- cifically, we have seen German, Korean, Chinese, and Japanese assets anchoring an entire portfolio with very little and sometime no US counterparts at all. This is a telling sign of the increasing state of enforce- ment in foreign markets, as well as the increasing economic activity in foreign markets, which are usu- ally the two reasons driving patenting decisions. I will stop short of also saying that this is a sign of the weak- ness of the US patent market, because I don’t believe that to be the case. Patenting decisions are made years in advance of the patent actually showing up. I also don’t believe that to be a ‘zero sum game’, i.e., if foreign IP assets drive more value, it doesn’t mean the US assets are worth less, but rather the entire pie is probably worth more. Return of “Carrot Licensing” Another trend that we are seeing emerge is the return of “carrot licensing”, which is a term used to reference licensing activity that is driven by tech- nology transfer, as opposed to licensing driven by enforcement (also known as “stick” licensing). This form of licensing is more closely associated with emerging technologies, where the licensor is inter- ested in creating markets for new products using an idea protected either by trade secrets or by patents.
  3. 3. 2 T h e L i c e n s i n g J o u r n a l MARCH 2019 With enforcement models taking a back seat for a variety of legal and judicial reasons, particularly in the United States, we are seeing more and more licensing activities involving new technologies and the IP rights protecting them. While enforcement is looking into infringement in mature markets, technology transfer is looking to carve new markets. This is a clear indication not only of the decline in the value of patents as “naked assets”, but it also indicated the increase of trade secrets as a form of IP protection that can be monetized together or apart from patents. We worked with a few European com- panies looking to expand worldwide using technology licensing as their main business model, seeing that a licensing business model allows expansion into new regions without bearing the marketing, manu- facturing, and distribution cost associated with the complementary business assets needed to bring new technology to market. Biotechnology There is a wave of innovation in the area of bio- technology, leveraging on novel methods for molecu- lar diagnostics and other technologies enabled by advances in genetic sequencing and gene editing, as well as the convergence of science with big data ana- lytics and artificial intelligence (AI). Many of these technologies are initially developed by startup com- panies, who end up licensing to, or being acquired by, larger players. In such acquisitions or collaborations, we have seen IP rights—patents in particular—play a key role in determining the price and terms of the deal. IP assets in these areas are very valuable, and they gain their value from a technology transfer and new market perspective. As a matter of fact, IP assets in biotech and other life sciences companies are so valuable that they often survive the company even if the startup goes bankrupt for lack of funding, particu- larly if regulatory (FDA) approvals have been secured and other product milestones have been met. Digital Assets Over the last couple of years, we have seen the emergence of new digital assets: databases, crypto- currency, and other types of assets that made their way from the digital world into the business world. The valuation profession is slow to keep up with these assets, and as a result we have to be very creative in how we value them, as no guidelines, comparable transactions or other points of reference exist. One interesting case we have worked on this year involves the valuation of a digital token for a token-presale (a token is an asset used in a Blockchain environment to facilitate transactions on the network). From a valu- ation perspective, valuing tokens and cryptocurrency in general poses a challenge, as the very nature of the asset is not clearly defined: is it a security, a commod- ity, or a currency? Should the asset, and therefore the valuation thereof, be regulated by the SEC? Many of these valuations are done for tax reporting purposes, however, there is no clear policy by the IRS on some of these assets and the regulations are evolving, which makes the valuation exercise somewhat of a moving target. In conclusion, corporate IP holders should take a much broader look at their IP portfolio and their monetization opportunities, not one that is narrowly focused on the trials and tribulations of the US patent market. With technology transfer on the rise, foreign IP markets opening up, and new types of assets show- ing on the portfolio, things are looking up for IP hold- ers as we approach 2020. Copyright © 2019 CCH Incorporated. All Rights Reserved. Reprinted from The Licensing Journal, March 2019, Volume 39, Number 2, pages 5–6, with permission from Wolters Kluwer, New York, NY, 1-800-638-8437,