Valuing+IP+and+technology

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 Module 5. Valuing IP and technology.
**Value of the patent**

By the value of the patent is understood the future commercial benefit that can be extracted by the use of the patent. It has monetary and non-monetary value. Its monetary value depends on the reason why it is patented and who is owner of the patent. It would be different if patent belongs to bankrupt company asset than the patent is part of the ongoing production. Evaluating the innovation validates the ability of company to commercialize the new technology. In that sense it is rather evaluated the cluster of familiar patents than an individual patent. Its non-monetary improves image or brand of the company.

According to EPO (European Patent Office) the indicators for the patent value are:  the number or forward citation the patent family size the lifespan of a patent the outcome of oppositions to the patent application the number and quality of claims

<span style="font-family: Arial,Helvetica,sans-serif;">**External link:** <span style="font-family: Arial,Helvetica,sans-serif;">http://ec.europa.eu/internal_market/indprop/docs/patent/studies/patentstudy-report_en.pdf


 * Measuring patent value**

<span style="font-family: Arial,Helvetica,sans-serif;">Standard methods for capital investment valuation like WACC, DCF and NPV are not suitable for IP valuation. IP is intangible asset, created by knowledge and evaluated by market demands and economic rules.

<span style="font-family: Arial,Helvetica,sans-serif;">There are few methods for IP valuation. One of the most popular and widely used method is based on ROV (Real Option Value). <span style="font-family: Arial,Helvetica,sans-serif;">ROV dynamically manage risk and flexibility of the innovation, taking in account uncertainty about demand, uncertainty about future product standards, uncertainty about future regulatory environment and uncertainty about future moves. It consists of four steps:
 * 1) <span style="font-family: Arial,Helvetica,sans-serif;">Basic case calculation without flexibility (NPV/DCF)
 * 2) <span style="font-family: Arial,Helvetica,sans-serif;">Modeling uncertainty, building an event tree.
 * 3) <span style="font-family: Arial,Helvetica,sans-serif;">Decision tree creation, incorporating managerial flexibility
 * 4) <span style="font-family: Arial,Helvetica,sans-serif;">Conduction of real option analysis.

<span style="font-family: Arial,Helvetica,sans-serif;">The other methods are: Cost approach; Income approach; Market approach; Hybrid approach; Royalty rate method. More extensive readings about IP valuation the interested reader can find on the following links: <span style="font-family: Arial,Helvetica,sans-serif;">http://www.wipo.int/sme/en/documents/ip_valuation.htm

<span style="font-family: Arial,Helvetica,sans-serif;">http://www.iphandbook.org/handbook/chPDFs/ch09/ipHandbook-Ch%2009%2002%20Potter%20Technology%20Valuation.pdf

<span style="font-family: Arial,Helvetica,sans-serif;">There are no wrong or right valuation methods. Each of them has some strengths and weaknesses. It is wise to use several methods when valuating IP asset. This provides different viewpoints and is useful check of consistency in assumptions and human errors that occur relying on only one method.



<span style="font-family: Arial,Helvetica,sans-serif;">**Valuation of Intellectual Property** <span style="font-family: Arial,Helvetica,sans-serif;">[]