Patent Evaluation Process
Evaluating patents objectively, IPB AG provides maximum transparency. No matter which purpose the valuation is needed for: financing, licence transactions, co-operations, fiscal matters or other reasons.
Our evaluations are approved by credit institutes and other capital providers, accountants as well as international tax authorities. Should you be interested in further information about this subject, here you will find a description of some patent evaluation methods.
The price varies depending on the purpose of the evaluation, for example: complexity or the extent. That is why we offer you two different types of evalution:
IPB-Patent-Fact-Sheet
We developed the IPB-Patent-Fact-Sheet to make a quick and sufficient evaluation of patents. It is easy to understand and informs about the main patent data, the protected technology, potential markets and licensees as well as the economic value.
IPB-Patent-Due-Diligence (IPB-PDD)
IPB-PDD is the fundamental and profound examination of a portfolio analysing the technical, economical and juristic details of a patent or portfolio part in consideration of a broad internal and external state-of-the-art-inquiry. In order to meet great qualitative expectations, the juristic evaluation is always performed by specialised patent attorneys. In consideration of their economic effect, the results of the patent attorneys are experienced in creating IPB-PDD.
Patent Evaluation Methods
In general the first question before starting patent evaluation should be the question of the value itself: Do I need a cost-value ("I spent two millions for my invention."), an income-value ("We are going to earn about 50 millions with this patent in the next 15 years.") or do I need a market-value ("I am able to sell this patent for five millions, if I want to.")? Due to these three different values there are three different evaluation approaches known as classical enterprisevaluation: cost-, income- and market-approach. IPB AG is offering all of these types as patent evaluation methods.
Cost-Approach
Regarding the cost-approach the patentsī value is equal to the costs for the patent-related R&D costs. This fundamental idea is the core element of all cost-approaches. There are several variations of cost-approaches like discounting the amount of costs by using e.g. the rate of inflation or taking a look at the replacement costs.
The main disadvantage of this approach is that it is not really useful for financial transactions, because either the amount of cost is too high so that the patentsī value is overestimated or the amount of cost is too low so that the patentsī value is underestimated. That means the average evaluation always fails. Anyhow a cost-approach can be very useful for operation management and controlling.
Income-Approach
Regarding the income-approach the patentīs value is equal to the amount of the future revenues the patent-holder is going to earn by using his patent. By discounting these patent-related revenues on the evaluation date the present value can be calculated. The resulting present value is considered as the patentīs value.
The use of the income-approach has two challenges: First the need to have a large database for a reliable outlook on the future revenues for the patentīs lifetime. The second major problem is that there is a need to know exactly which part of the productsī revenue is related to the monopoly right of a specific patent. In some industries like the pharmaceutical sector this might be easy: There is one active ingredient of a product having one certain market protected by one patent. But when it comes to automotive industries things look pretty different: To find a "one-to-one"-relationship between a patent, a product and a certain value in most cases is impossible.
The need for reliable data makes an income-approach patent evaluation in most cases quite expensive and - depending on the dataīs source - subjective. Therefore the income-approach is not that useful for financial transactions especially the evaluation of collaterals. But e.g. for equity investors who are interested in their (future) return on investment (ROI) an income-approach might deliver the information needed and therefore the "right" value.
There are several variations of income-approaches like the real-options-approach. But in general problems and benefits delivered are the same as discussed above for the "simple" discounted-cash-flow-approach.
Market-Approach
At least nine out of ten economists would say that a market-value is always the most reliable and robust value for every kind of asset. It shows what the buyer is willing to pay for the asset and what the seller wants to receive at the same time. So the general idea is to find a similar patent that has already been priced and traded. The actual value/price is differentiated out of historical transactions. But with this approach there are two major problems: First it is not that easy to gather data of patents which are already priced and traded. Second every patent is unique and only a few are at least a little similar.
In order to solve the first problem IPB AG has gathered numerous data of patents that are already priced and traded e.g. from expired license agreements, remunerations of employeesī inventions, patent sales (e.g. out of liquidations), etc. With this number of data the IPB AG specialists located value indicators hidden in nearly every patent document. With the help of regression analysis significant correlations between indicators and values were identified. Today these parameters are fed into a multivariate-regression-model in which each parameter is supplemented with a īpersonalī beta-indicator. The beta measures the impact of each parameter on the patent value. IPBīs evaluation result is not a single price calculation. It is a value distribution which shows the probability of realization on the y-axis and the respective value-interval on the x-axis.
One of the advantages of this evaluation method is that IPB is able to collect at least 95% of the relevant data out of public databases. So IPB is able to evaluate any patent portfolio without involving the owner. The advantage of objectivity is not only interesting in order to convince any investor or bank but also to collect information about e.g. M&A-targets.
Another advantage is the value distribution which shows the investor his whole chance-risk-profile and which puts banks in the position that they are able to calculate the value-at-risk which is essential for the credit calculation.
The IPB-model has been audited by chartered accountant KPMG at the beginning of 2004. The auditors certified the applicability to validate patent portfolios as collaterals in the financial sector.