Caserta, December 1 st 2005, Guido von Scheffer IPB AG How to Use Intellectual Property to Access Finance? A Practical Example Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 WIPO-ITALY INTERNATIONAL SYMPOSIUM ON INTELLECTUAL PROPERTY AND THE COMPETITIVENESS OF SMALL AND MEDIUM-SIZED ENTERPRISES IN THE TEXTILE AND CLOTHING SECTORS IP Bewertungs AG (IPB) Value from Knowledge Heimhuder Straße 81, D-20148 Hamburg Hotline +49(0)40 -8222 -07 -00 www. patent-value. net
IPRs play a Major Role within Intangible Assets Corporate Assets intangible Assets Corporate Knowledge Human Capital generates Innovation & Intellectual Assets Intellectual Property Rights Patents, Brands, Trademarks & Others Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Tangible Assets
Patents are the Most Tangible Intangibles A Patent. . . Increase of worldwide yearly patent-based licence fees § Billion USD 500 provides the patent owner – in return for disclosing his innovation – the exclusive right to commercially exploit his invention (monopoly right), § can usually be kept in force for 20 years (Renewal fees), § 100 offers (almost) all features of a common tangible asset. t 1990 2000 2015 e Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 § is a validated right, granted and guaranteed by the government,
Using Patents as Business Tools Direct Use Patent Indirect Use Financing Competitor’s Exclusion Reporting Freedom to Operate R&D-Controlling Licensing Competitor’s Targeting Sale How to set a price for an unique asset? Taxation Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Self-Interest
How to Access Finance? Valuation Patent Income Approach Market Approach Relief from Royalty-Method Quantitative Method Multi-period Excess Earnings Method Fundamental Method Incremental Revenue Method Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Valuation
Market Approach Quantitative - 1 Year of construction Square meters Storey height Situation Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Infrastructure
Market Approach Quantitative - 2 Sample indicators: Backward Citations and technical details § Backward Citations § Forward Citations Description For a Patent Application it is necessary to cite all other patents and scientific publication. § Claims Determinates § Patent Family § Litigations § others. . . a. Age c. Citing Person (Applicant / Patent Office) d. Region e. … Empirical studies: Carpenter, M. , Cooper, M. , Narin, F. , 1980, Linkage between Basic Research Literature and Patents, Research Management (March), S. 30 -35. Availability From Date of Grant Narin, F. , Noma, E. , Perry, 1987, Patents as Indicators of Corporate Technological Strength, Research Policy 16, S. 143 -155. Lanjouw, J. O. , Schankerman, M. , 2000, Characteristics of Patent Litigation: A Window on Competition, CEPR WP 2042. Lanjouw, J. O. , Schankerman, M. , 1999, The Quality of Ideas: Measuring Innovation with multiple Indicators, NBER 7345. Please Note: Harhoff, D. , Scherer, F. , Vopel, K. , 1999, Citations, Family Size, Opposition and the Value of Patent Rights, Munich, Boston, Mannheim, Ludwig- Maximilians. Universität München, Harvard University, ZEW Mannheim. Harhoff, D. , Reitzig, M. , 2000, Determinants of Opposition against EPO Patent Grants: The Case of Pharmaceuticals and Biotechnology, CEPR WP 3645. Reitzig, M. , 2002, Improving Patent Valuation Methods for Management – Validating New Indicators by Understanding Patenting Strategies, LEFIC WP 2002 -9. Patent value One separate indicator does not reflect a significant correlation on patent values. Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 b. Type (Own- / Others)
The result is a Value-Distribution for a single patent family as well as for the whole portfolio. The patent values in general are logarithmic. The determined Value-Distributions are also logarithmic. Therefore the median is the most reliable value estimation for financing. Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Market Approach Quantitative - 3
Market Approach Quantitative - 4 Advantages Objective fair market value due to realized market transactions § Consistent and efficient due to objective and automated data selection of bibliographic patent data from public databases § Patent holder is not involved in the process § Efficient for large portfolios including strategic patents Disadvantages § Only the market price of the patent itself is valuated, not the potential income that the patent holder might be able to generate § Potential of young patents and patent applications is underestimated § Statistically uncertain for a single-patent-valuation Conclusion § Significant correlation between construct of indicators and patent values is empirically proven § If an objective and consistent valuation without involving the patent holder and for a competitive price is needed this is an appropriate valuation system Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 §
How to Access Finance? Utilization Valuation Patent Utilization Income Approach Market Approach Quantitative Valuation Relief from Royalty-Method Quantitative Method Qualitative Valuation Multi-period Excess Earnings Method Fundamental Method Purchase Incremental Revenue Method Realization Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Addressing
Process of investing Addressing Sample: Companies Investment Assets Identifying most innovative companies from public databases § Patents Insolvencies & Liquidations Individual Inventors Reducing the number of patents to be considered Patents that have survived legal oppositions / Re-examined Patents / Reissued Patents § Patent is cited by others § Patent Family Size > 1 § other Quantitative analysis of legal status Companies Others § Active / Passive Contacting patent owners § Availability: Yes / No In most companies only 20% of the patent portfolio is § Charges or Restrictions: Yes / No restricted for any licence, but 80% of the company’s licensing potential is unused. Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 §
Portfolio Structuring Quantitative Analysis Check & Sell Check & Drop Patent‘s out of business Cash Cow – Check Licensing options Cash Cow – For internal use only Patent‘s in business Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Patent‘s Market Value
Portfolio Structuring Qualitative Valuation § Attributes Analysis: Examination of patents regarding formal legal mistakes § Stability Analysis - One: Examination of backward citations and state of the art § Research on relations to other patents regarding the patents‘ attributes § Research on similar patents by using the primary claim‘s attributes § Research on similar patents by using backward citations § Identification of companies who own related patents § Identification of potential infringements within the activities of these identified companies (product analysis) § Consultation of a patent attorney to obtain a „second opinion“. Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 § Stability Analysis- Two: Examination of current legal disputes
Portfolio Structuring Purchase (optional) & Realisation § Carrot Licensing § Auction § True Sale § others Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 § Stick Licensing
Patent Value Funds How to Involve Financial Markets Portfolio Incubator 1 Portfolio 1 Licenses Portfolio 2 Seed-Funds Portfolio x Structured Portfolios / Revenues Licensee 1 Licenses Public Funds Licensee 2 Royalties Licensee x Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Portfolio Incubator x Royalties
Financing Situation of Innovative SME’s Example – Jack Sample ltd. : § Employees: 245 § Revenue: 30 Mio EUR § Credit line needed: 3, 5 Mio EUR Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 § Innovative in a classical business sector
Financing Situation of Innovative SME’s Example – Profit & Loss Profit&Loss 12 Mio EUR Personnel Expenditures Revenues 11 Mio EUR 30 Mio EUR R&D Expenditures 3 Mio EUR Other Expenditures 3 Mio EUR Profit 1 Mio EUR From the banks point of view these expenditures are incalculable. Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Material Expenditures Jack Sample ltd. is characterized by significantly high R&D expenditures.
IP Based Financing Situation of an Innovative SME Balance Sheet Cash Collaterals / Securities Fixed Assets Debts The company’s collaterals are affecting the bank’s calculation of the credit-price. The more securities the company can offer the less expensive the dept financing will be. But innovative SME’s are short of “Classical Assets”! Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Current Assets Equity
IP Based Financing Situation of an Innovative SME Balance Sheet Fixed Assets 2 Mio EUR Cash 2 Mio EUR Stock 6 Mio EUR Valuated patents can be used as assets and lower the company’s financing costs significantly. Receivables 8 Mio EUR Patents 12 Mio EUR Debts 16 Mio EUR Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Collaterals / Securities 2 Mio EUR Equity
Patent- Valuation Methods for IP-based Financing Depending on the investors earn-risk-ratios Granted Patent Income. Approach Market. Approach Patent Application Income. Approach Equity --- Loans Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 © IPB AG
Caserta, December 1 st 2005, Guido von Scheffer IPB AG WIPO-ITALY INTERNATIONAL SYMPOSIUM ON INTELLECTUAL PROPERTY AND THE COMPETITIVENESS OF SMALL AND MEDIUM-SIZED ENTERPRISES IN THE TEXTILE AND CLOTHING SECTORS How to Use Intellectual Property to Access Finance? Thank You for Your Attention. Further Information: www. patent-value. net www. patent-funds. com Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 A Practical Example
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