Below are a few notes that I took from IncreMental Advantage's Intellectual Property Valuation Seminar which took place in New York City on March 28:
- The strength of the market that is addressed by the patent is an important driver of the value of the patent.
- According to ThinkFire, the highest prices can be achieved in selling patents when between 26-75 patents are sold together. There is resistance to paying a high price for a few patents ("We are not going to pay $3 million for 2 patents") and buyers believe that low value patents are bundled together when a large number of patents are sold simultaneously.
- Patent brokerage fees range from 1% to 10% of the expected licensing value.
- Licensees are resistant to paying high fees because it is they that take on the risk of commercializing the license.
- It is a good idea to shop patents to the competitor of a company that might be most interested in the patent. This is a good strategy to achieve higher values for your patents.
- Generally speaking, patents that have about 10 years of life remaining have the most value. It is better when the patents' priority dates is earlier than its issue date.
- Patents that promise to champion soon to emerge breaking technologies usually do not garner the highest prices.
- Most IP experts believe that there is little chance that researchers will demand significantly higher compensation packages even though their innovations may contribute hundreds of millions of dollars in revenue to their companies. However, in Germany, inventors' compensation is much more closely correlated to the commercial value of their research.
- The accounting for the development / acquisition of intangible assets is inconsistent: R&D is expensed. Software development for software companies is an asset. Buying R&D is an asset while developing R&D internally is expensed and is not considered an asset. No expenditures on intellectual capital--other than for research and development--is reported separately to investors. Thus, investors do not know about expenditures on IT, brand development or employee training. R&D expenditures are not defined. Companies can include costs for testing and maintenance in R&D as investors like to see high expenditures on IP.
- By not disclosing much information about the intangible assets resident at their companies, managers are plagued with Akerlof's Lemon Discount. The Lemon Discount means that investors will place a lower valuation on an asset or security when there is a lack of information.
- One practical nuance to citation analysis is to remove excessive self-citation. About 25% self-citation is acceptable.
- It is important to note that there is significant citation inflation. Ten years ago, the average patent had 8 references. Now, the average patent has 22 references. One reason for this citation analysis is that the Office of Patents and Trademarks is placing asterisks on patent applications for citations that are merely citations of interest. Applicants are also placing more citations on their applications to provide full disclosure.
- Pending patents in the form of continuation patents are extremely valuable because they can correct problems (perhaps in terms of prior art) associated with previously issued patents.
These are some of the issues that are regularly discussed at IncreMental Advantage's Intellectual Property Conference Series. To purchase the audio proceedings from the most recent Intellectual Property Valuation Seminar or to attend a future conference, contact Neomi Barazani at 609-919-1895 ext. 100 or neomi@incrementaladvantage.com.
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