Valuatio on of Intell ectual Pro by Phili
Transcription
Valuatio on of Intell ectual Pro by Phili
4971 1 Carpinteria Ave e., Unit D Carrpinteria, CA 930 013‐1877 P Phone: +1‐805‐4 405‐3947 info@ @totaro‐associa ates.com Valuatio on of Intellectual Pro operty Asse ets How to Maximize M your y Sale Price (or Min nimize yourr Acquisition n Cost) by Philip Totaro, Principal, P Totaro T & Associates A In recent years intellectual capital, in n all its fo orms, has become of tremendous nce in the business b world. w Proac ctive comp panies and inventors h have known n this importan for years s, but the le everage tha at a patent, trademarkk, trade seccret or otherr know-how w can provide has certain nly increase ed. The nu umber of pa atent appliccations and d issued pattents has skyrrocketed in the past 15 5 years, tra ademark fili ngs are alsso up and th he rate at w which intellectu ual properrty (IP) as ssets are being assserted, lice ensed and even solld is astonish hing. Markets have been n created for f trading / sales of p patents and d most of u us are awa are of the business mode els of aggre egators, non n-practicing g entities an nd “trolls” o out there. B But if you are in the marrket to buy or sell IP assets a how do you know how mu uch to ask for if you’re a seller or where w to sett your limit if you’re a b buyer? One of the t best wa ays to sell is to put yo ourself into o the mindsset of the b buyer. How w will they make their dec cision to ac cquire an IP P asset? The pro ocess of divesting d IP P assets occurs in three pha ases. Firsst is a ma arket assessm ment and va aluation of the intellec ctual capita al, second is target id dentification n and sales terms negotiation, and last is the sales agre ement draffting, deal cclosure and d the transfer of assets. 1) Market M Asse essment an nd Valuation n e a valuatio on of IP as ssets there e are severral methodss which ca an be In orderr to provide employe ed. We hav ve taken so ome time to list and evvaluate the benefits an nd drawbaccks of each one. Certain methods have h been employed e w which I liken n to “shortccuts” since tthere es when larg ge numbers s of patents s or tradem marks are be eing evalua ated all at o once. are time I believe e the best method m invo olves good old fashion ned hard wo ork and ana alysis. storical” me ethod is a simplistic model m whicch takes intto account all direct ccosts The “his incurred d to date for technolog gy developm ment and IP P protectio on and attem mpts to reccover these co osts plus an n additionall componen nt for inflatio on compen nsation. Wh hile this me ethod can imp prove consistency with h historical patent sale es price tre ends, the d drawback to o the inventorr/creator is that there is i no correllation betwe een the exxpenditure o on the pate ent or tradema ark protectio on or the revenue ge enerating p potential off the eventual comme ercial product or service and a subject IP. The “ma arket” appro oach attem mpts to benchmark the e sale price e of IP asssets againsst the scope and a maturity y of your own. o Some e have like ened this to o home-buyying where e you search for f “comps”” in a neighborhood yo ou are look ing to buy tto help ben nchmark wh hat is a reasonable price e to pay fo or your ow wn home. In our casse, significa ant researcch is ©2011 1 Totaro & Associates All R Rights Reservved 4971 1 Carpinteria Ave e., Unit D Carrpinteria, CA 930 013‐1877 P Phone: +1‐805‐4 405‐3947 info@ @totaro‐associa ates.com required d to determine comparrable states s of techno ological matturity as we ell as the scope of IP pro otection. The drawbac ck is that prrices paid ffor sales of IP assets a are rarely m made public, so s benchma arking is no ot always easy. e To g go back to tthe home-b buying analogy, the house may look the sam me on the outside, b but the con ndition of tthe interior and foundation will mak ke all the diffference. Real R asset vvalue need ds to be like e for like. An analytical mode el utilizing analysis a an nd classificcation of cittations is a newer me ethod resulting g from robu ust tools wh hich were originally de eveloped for patent lan ndscaping. The thought is that the more forw ward citation ns your pattent has th he more valuable it sh hould be, since e it is likely y to be cons sidered a seminal worrk in your in ndustry. Th he problem with this is that t there are a many reasons a patent is cited as p prior art, an nd unless each forward citation is analyzed a on ne cannot determine d t he true worrth of the pa atent at han nd. I a to ools have a great plac ce in the IP landscapin ng space, b but they win nd up believe analytical being a poor meth hod for dete ermining an n appropria ate valuatio on. This ap pproach alsso is nt for trademarks sinc ce it is not possible to o use citatio ons in the evaluation of a irrelevan brand an nd the mark ks/logos wh hich go alon ng with it. Thereforre, I would propose th he method which is re eferred to a as the “inco ome” appro oach. This invo olves quantifying a ca ash-flow forecast base ed on future e income sttreams of th he IP asset’s commercia al use. This approach h will necesssitate the need for m market rese earch and ana alysis on pro ojected sale es and marrket share, volume pro oduction prricing as we ell as standard d profit marrk-up, which h must all be b placed in nto a cost m model. The reason this me ethod work ks the best is that savvvy potentia al buyers and corpora ations ct a simila ar model and a look a at the net present vvalue (NPV V) of will likely construc commerrcializing th he IP. One e compone ent of theirr purchase analysis iss to investigate whetherr the acquiisition costt of the IP assets m makes their NPV calcculation zerro or negative e. If that is the case, then they arre unlikely tto agree to the purcha ase. But, justt because you can fig gure out a positive N PV doesn’tt mean you u’re home free. The bes st approach is to selec ct a limit for the valuatiion price wh hich will no ot force the NPV calculatiion to resu ult in an internal rate of return (IRR) whicch falls below the buyer’s threshold for overa all internal project p approval. For most comp panies this IRR is typiically on the order o of 20 – 25%. Starting S with h a valuatio on price wh hich resultss in a 12 - 15% IRR and d working do own the price scale fro om there iss highly sug ggested. While th his method requires ad dequate ma arket know ledge and cost predicction capab bility I believe that for mo ost industrie es there is sufficient m market rese earch for a very educcated guess att worst. 2) Target T Identtification an nd Negotiatiion of Saless Terms This pha ase should be fairly se elf-explanattory, but it iinvolves ide entifying intterested bu uyers and atte empting to determine d their t valuattion method ds and IRR R threshold,, so that a price can be set s which is s equitable to both parrties. ©2011 1 Totaro & Associates All R Rights Reservved 4971 1 Carpinteria Ave e., Unit D Carrpinteria, CA 930 013‐1877 P Phone: +1‐805‐4 405‐3947 info@ @totaro‐associa ates.com Potentia al buyers may m be tho ose who you y can in nfer are inffringing on n the paten nt or tradema ark or even a company y who is loo oking to gett into the lin ne of business for the type of IP as ssets you possess. p Doing D some e homeworrk can usu ually turn up a reason nably compreh hensive lis st, but look king at the e marketpllaces for IIP asset ssale is ano other approac ch. Beware e that some e of these charge c feess to list and may also ccharge a fe ee for the sale. olvement off a law firm m representa ative who h has experie ence in IP a asset sales may The invo be nece essary at th his stage, but it will definitely d b be required d for the sa ales agreem ment drafting and review w, which occ curs next. 3) Sales S Agree ement Draftting and Tra ansfer of Asssets This ste ep should be b self-expllanatory as s well. Once a buyerr has been n identified then negotiattion of term ms will take place. Gra ant back liccenses (if d desired), tra ansfer of title as well as payment p terms should d all be a pa art of the disscussion. Templatte agreeme ents exist fo or this type of transacttion, but ha aving a lega al expert re eview and app prove draft and final language of such an n agreeme ent is stron ngly suggested. Upon ex xecution of the agreem ment the tra ansfer of assets will takke place in a manner llikely to have been negotiated and should s be outlined o in tthe agreem ment. Conside ering Work king with a Law Firm or Brokerr? ers are inclin ned to involve a law firrm or a bro oker who sp pecializes in n this Most IP asset selle t n to act on their behallf. Understtand that a broker / m market makker is type of transaction likely to ask for 20 0 – 30% of the take frrom the assset sale, b but law firm ms might assk for even mo ore, betwee en 35 – 50 0%. The in nvolvement of a legal profession nal is not on nly a good ide ea, but might be required since someone s w with very goo od knowled dge of contracts and tran nsfer of own nership is essential e to this effort. However, a few cave eats exist to o this type of arrangemen a nt: 1) Iff you do wo ork with eith her a brokerr or lawyer it would be e highly reco ommended d that th he partner selected s for this type of o effort is w willing to acccept deferrred payme ent of services ren ndered until after the asset sale e is completed. How wever, som me of hem do ask k for a retainer up fron nt and som me may askk to be com mpensated even th in n the event that the as sset sale is not comple eted. 2) Additionally, A it is recom mmended that for the involveme ent of a leg gal professional, you make pa ayment to the t lawyer / firm on a pre-negotia ated flat fee e basis or o on an o those specific se ervices rend dered in re egards to ssales hourly rate basis for only agreement drafting d and d review. Otherwise, the law firrm may be inclined to o ask fo or a large percentage p of the asset sale as payment fo or their serrvices rende ered, and it is my belief that they would d be asking g for more than the va alue they w would add to this effort e given their limited d involveme ent. ©2011 1 Totaro & Associates All R Rights Reservved 4971 1 Carpinteria Ave e., Unit D Carrpinteria, CA 930 013‐1877 P Phone: +1‐805‐4 405‐3947 info@ @totaro‐associa ates.com If you want w a lawy yer handling g the negotiation for yyou, then it might be ok to settle for their term ms, but you u don’t have e to give aw way half you ur gains if yyou don’t w want to. Don’t Have a Trad demark or Patent Yett? Whetherr you’re an individual entreprene eur / invento or or a larg ge corporation you will find it pays to t have trad demarks re egistered an nd patents issued, or at least ap pplications filed. Ideas arre intangible e assets which cannot be easily valued. Pa atents and trademarkss are a form of o tangible asset a that has h certain capital costt associated with prossecution and d the business s value the IP creates s. The more e you have e to offer a b buyer in tan ngible IP asssets the more e it will increase your valuation. v Simple S as tthat. Also, so ome advice for those in ndividuals out o there w who “have a great idea a that they want to sell to o a compan ny.” This is a great dre eam to havve, but the m more home ework and e effort you put into presenting a pottential buye er with com mprehensive analysis the more llikely you will be to see success. If you’ve tried to ap pproach com mpanies be efore and have been turrned away, think about your sales s method. You can n cash in on your great ideas if you havve the righ ht tools at your disp posal. Knowing g what you’re getting yourself y into o will prepa are you vs. being shoccked and fe eeling taken ad dvantage off later. About the Author s the Princ cipal at Tota aro & Asso ociates, a cconsulting ffirm focuse ed on Mr. Philip Totaro is on strategy y, competitive intellige ence, produ uct develop pment and patent sea arch. innovatio Mr. Tota aro has ex xperience in i strategic c planning as well ass creating and protecting intellectu ual capital. He has worked forr such com mpanies ass General Electric, United Technologies Corp poration an nd most re ecently he e oversaw Intellectual Property and Competitive Asses ssment for Clipper Windpowe er. He has helped d cultivate and dispositiion over 450 4 innovattions, and his asses sment hass led to ovver 250 issued patents. His strate egic market analysis has led to th he funding jjustification n of over $5 500M in R&D investmen nt and the developme ent of multi-million dollar produ uct and service offerings s. He has s provided legal and technical d due-diligence for ove er $1B in M M&A, including g the rec cent takeo over of Clipper C Windpower by United Technolo ogies Corpora ation. To fin nd out more e or get in to ouch pleasse visit www w.totaro-asssociates.com. ©2011 1 Totaro & Associates All R Rights Reservved