Patent Valuation: Improving Decision Making through Analysis

Available in our e-library on M&A at IMAA!

Authors: William J. Murphy, John L. Orcutt, Paul C. Remus

Publisher: John Wiley

Year: 2012, May

ISBN: 978-1-118-02734-9

Content

In today’s economy, patents tend to be the most important of the intellectual property (IP) assets. It is often the ability to create, manage, defend, and extract value from patents that can distinguish competitive success and significant wealth creation from competitive failure and economic waste. Patent Valuation enhances the utility and value of patents by providing IP managers, IP creators, attorneys, and government officials with a useable resource that allows them to use actual or implied valuations when making patent-related decisions.

• Involves a combination of techniques for describing patent valuation
• Includes descriptions of various topics, illustrative cases, step-by-step valuation techniques, user-friendly procedures and checklists, and examples
• Serves as a useable resource that allows IP managers to use actual or implied valuations when making patent-related decisions

One of the most fundamental premises of the book is that these valuation skills can be made accessible to each of the various decision makers in the patent process. Patent Valuation involves narrative descriptions of the various topics, illustrative cases, step-by-step valuation techniques, user-friendly procedures and checklists, and an abundance of examples to demonstrate the more complex concepts.

Table of Contents

Preface ix

Acknowledgments xiii

PART ONE Foundations for Patent Valuation and Decision Making 1

CHAPTER 1 Valuation Basics 3

What Is Value? 5

The Valuation Process 7

Identifying the Subject Matter of the Valuation 9

Valuation Misconceptions 12

The Three Basic Valuation Methodologies 16

Limitations on Rationality in Valuation and Decision-Making Exercises 20

References 20

Notes 21

CHAPTER 2 Patent Basics 23

What Is a Patent? 26

Anatomy of a Patent 32

Criteria for a Patent 33

Transferring Patent Rights 36

Nationality of a Patent 39

References 40

Notes 40

CHAPTER 3 Using Valuation Analysis to Improve Patent Decision Making 43

Patent Decisions 45

Maximizing, Optimizing, and Satisficing: How Much to Invest in Valuation Analysis 52

Preliminary Portfolio Valuation Audit: A Practical Valuation Technique 58

References 65

Notes 65

CHAPTER 4 Disassembly 67

Disassembly and Decision Trees 69

Using Disassembly to Develop Higher-Quality Data 75

Using Disassembly to Understand Data Better 84

References 86

Notes 87

PART TWO Patent Valuation Techniques 89

CHAPTER 5 Preparing for the Valuation 91

Understanding the Bundle of Legal Rights 91

Ownership Interest in the Patent 93

Description of the Patent Rights 99

Encumbrances on the Patent Rights 100

Understanding the Patent Rights’ Neighborhood 102

Exploiting the Patent Rights 103

References 117

Notes 119

CHAPTER 6 Income Methods: Discounted Future Economic Benefits Analysis 121

Basic Arithmetic of the Discounted Future Economic Benefits Analysis 124

Garbage In, Garbage Out: The Challenges Lay in the Inputs, Not the Math 131

Projecting Future Net Economic Benefits 133

Developing Projections from Analytical Analyses 143

Estimating the Discount Rate 151

References 159

Notes 160

CHAPTER 7 Advanced Income Methods: Incorporating the Value of Future Decision Opportunities 161

Option Contracts and Their Value 164

Real Options 168

Valuing Patents Using Option-Pricing Insights 170

Using Decision Trees to Incorporate the Value of a Patent’s Future Decision Opportunities 174

References 185

Notes 186

CHAPTER 8 Market Methods 189

Markets and Patent Rights 191

Competitive Exchange 198

Comparable Transactions 205

Alternatives to the Core Market Methods 207

References 214

Notes 216

CHAPTER 9 Cost Methods 219

A Few Accounting Principles 220

Cost of Development: Questionable Valuation Tool 224

Cost of Reasonable Alternatives: Establishing a

Maximum Price 227

References 230

Notes 231

PART 3 Patent Valuation in Practice 233

CHAPTER 10 Pricing Patent Licenses 235

Payment Structures 236

Determining the Price for a License 246

Less Formal Valuation Techniques for Setting Royalty Rates 248

References 264

Notes 265

CHAPTER 11 Patent Infringement Damages 269

U.S. Legal Framework for Calculating Damages in Patent Infringement Cases 271

Lost Profits 275

Reasonable Royalty 285

Additional Patent Damages Matters 297

Answering the Sue or Settle Question 299

References 306

Notes 307

CHAPTER 12 Unlocking the Potential Value within Patents 313

Keeping Pace with Economic Changes 316

Patents as Collateral for Secured Loans 317

Securitizing Patents 325

References 333

Notes 334

CHAPTER 13 Valuation in Patent-Based Tax-Planning Strategies 337

Examples of Patent-Based Tax-Reduction Strategies 339

Transfer Pricing 344

Determining Transfer Prices for Patent Rights 348

References 358

Notes 359

About the Authors 363

Index 365