Patent donations

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Patent donations

  1. 1. Intellectual Property & Valuation: Donations of IP Portfolios APLI Summer 2005 (c) Todd Juneau 2005
  2. 2. Overview I. What is IPR II. Valuation of IP III. University Tech Transfer IV. Corporate Donations  Why, What, To whom, Risks, Rewards, Examples V. IPR Appraisal VI. Risks of Inaccurate Appraisal (c) Todd Juneau 2005
  3. 3. What is IPR? Patent  Electronic,Mechanical, Chemical, Biotech, Business Method, Design, Plant  20 year grant to exclude others from making, using, selling, importing Trade Secrets  Secret recipes, e.g. KFC, Chanel No. 5, Coca Cola, Benedictine liquor  Protectable so long as “secret” (c) Todd Juneau 2005
  4. 4. Valuation of IP Rule of Thumb, e.g. Heuristic methods  5% net sales or 25% of profits Cost Approach Market Approach, e.g. Comparables Income Approach e.g. raNPV*  Development costs, market size and constitution, regulatory burden, production costs, revenues and profits per unit, etc. Negotiated Settlement Approach (*www.biogeneticsventures.com) (c) Todd Juneau 2005
  5. 5. University tech transfer under Bayh-Dole Act of 1980 FY2000*: $29.5 billion in R&D for 190 institutions 6375 patent applications filed 4362 licenses signed; top 125 make >$1 million each in royalties per year 25% of 20,699 active licenses were for commercial products 347 new products 454 new companies; 3376 since 1980; 2309 still operating. (c) Todd Juneau 2005 (*AUTM Survey)
  6. 6. Tech Transfer Equity Interests*  Academic institutions received an equity interest in 372 of 4362 (8.5%) transactions in FY2000  Academic institutions held equity in 252 of 454 new start-ups (56%) in FY2000 (*AUTM Survey) (c) Todd Juneau 2005
  7. 7. Why Donate IPR? Immediate impact on Company’s bottom line Value of the donated IP is deductible from Company’s taxable income appraised value of donation x tax rate (~38%) = tax savings (profit!) Allows R&D to continue Possible public/community relations benefits  enhanced Company image Streamlined IP portfolio saves $ (c) Todd Juneau 2005
  8. 8. Why donate continued… IP Donation to Non-Profits Allowed by IRS  Part of Tax Code Since 1954 (IRC Sec. 170)  Purpose Is to Foster Use of Unexploited Technology by Society Key Provisions  Deduction for FMV; valuation is critical  IP Embodied in Patents or Documented Know- How/Trade Secrets  Willing Donor/Willing 501(c)(3) Non-Profit Donee  Donee Accepts Full Ownership; Donor may retain rights but lessens deduction.  Donee Uses Technology in Accordance with Non-Profit Status; e.g. research, teaching, technology transfer (c) Todd Juneau 2005
  9. 9. What IPR should be donated? Patents are best, most tangible form of IP  Also documented know-how and trade secrets Non-Core Technology  Not Integral to Company’s Strategic Plans Requires Additional Resources to Complete Development  Resources Unavailable or Committed to Other, Higher Value Programs Not Suitable for Sale or Licensing  due to fragmented market, further development required, market not large enough, failed joint venture or licensing re-acquisition etc (c) Todd Juneau 2005
  10. 10. What to donate continued… Large potential commercial market Compelling Case for Eventual Licensing Company willing to donate with no reserved rights. Intellectual Property has been held for more than one year (to be a Sec. 197 intangible) Significant Foreign Filing Costs coming due, e.g. 30 month PCT deadline Regulatory hold pending additional data (c) Todd Juneau 2005
  11. 11. To whom should you donate? 501c(3) NPO (Non Profit Organization) Coordination w/Community & Educational Relations Relationship with Company - Existing or Desired Reputation for Expertise in the Technology Area Availability of Resources to Advance Technology Effective Tech Transfer Resources, Experienced in Receiving IP Donations Track Record of Realizing Academic and Financial Value from IP (c) Todd Juneau 2005
  12. 12. Risk of Donation Program IRS Audit  Back taxes and interest  penalties  mitigated through selection of experienced IP appraisal firm Patents are given up  so are downstream licensing revenues Cost of appraisal (subject to 2% rule?).  ~$25k - $50k Liability, Cost to Accept Donation  Donation Agreement terms mitigate (c) Todd Juneau 2005
  13. 13. Rewards from IPR Donation Immediate impact on Company’s bottom line Value of donated IP is deductible from taxable income  appraised value of donation x tax rate (~38%) = tax savings (profit!) Allows research to continue Possible public/community relations benefits  enhanced Company image Streamlined IP portfolio saves $ (c) Todd Juneau 2005
  14. 14. Corporate Examples Apr 1999 DuPont Donates $23M Gift to Virginia Tech relating to PET/Glass Fiber Compression Molding technology; Oct 2001 Virginia Tech realizes it needed a large amount of money to accept the donation P&G Technology Donation Program (13) recipients: Milwaukee Sch. Of Eng., W. Mich. Univ., Midwest Res. Inst., Vanderbilt, NC State, UNC, Inst. Paper Sci, & Tech., Princeton, Clemson, Mayo, Cinn. CHOP, Univ. Fla. Boeing IP Donations Program (c) Todd Juneau 2005
  15. 15. IPR Appraisal – analysis of primary patents Novelty/Validity Search Type of Claims  Composition and Apparatus claims  Methods of Treatment, Business, Manufacturing File History Analysis Renewal fees (c) Todd Juneau 2005
  16. 16. IPR Appraisal – Analysis of U.S. Portfolio Hub and Spoke coverage  Offensive and defensive diversification  Are patents structured to cover commercial products? In multiple layers?  Are patents aligned with a business plan? Back-up commercial product coverage Competitive Patent Search/Analysis  Dominating Patents, Sub-generic Patents (c) Todd Juneau 2005
  17. 17. IPR appraisal – International Patents Tier I countries:  EPO, JP, CA, MX, IL, AU Tier II countries:  IN, CN, KR, TW, RU, BR Translation and formalities satisfied Annuities paid Examination deferred (c) Todd Juneau 2005
  18. 18. Additional valuation factors Make Use Sell Import  Business methods  Methods of Treatment  Process claims Litigation Costs  $640,000 per patent Licensed/Litigated patents  E.g. greater presumption of validity Beware Shortcuts  Mapping Technologies, etc. (c) Todd Juneau 2005
  19. 19. Risks of inaccurate appraisal Notice of Tax Deficiency  (Deduction taken – later FMV) = add’l tax Earnings Restatement Stock effects Liability under Sarbanes-Oxley Act of 2002, Sec. 302 et seq.? (c) Todd Juneau 2005
  20. 20. Questions & Answers Todd Juneau, Esq. www.juneaupartners.com todd@juneaupartners.com Thank you. (c) Todd Juneau 2005

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