Friday, 15 November 2019

Valuation intellectual property

We are specialized in valuing intellectual property (IP). The knowledge on the value of intellectual property is needed not only for tax and accounting purposes (Purchase Price Allocation) but also in litigation when infringement has happened, to set up license agreements or in case of capital budgeting for patent portfolio’s. Determining the worth of intellectual property is a complicated task. We have ample experience with valuation of intellection property in these different contexts.

Economic Damages in Intellectual Property

How to quantify economic damages in intellectual property is complex. The leading principle in patent litigation is that of adequately compensating the patent owner for the infringement. The adequate compensation can be calculated in various ways like the reasonable royalty rate method or the lost profit method. Each party to the dispute will regard the facts and circumstances leading to the compensation differently. For instance, what is with reasonable probability, the effect of the infringement on price erosion of the patented products, on increased costs or for instance on lost add on sales? We are  are experienced in preparing various analyses and reports that address the different measures of damage to adequately to assist in patent litigation cases. We can provide expert testimony as required. We assist companies of all sizes and we operate cross border.

With a valuation/ loss report of your IP, made by specialists with a broad expertise in valuation, you will have more negotiation power in disputes regarding the value of IP as well as an unbiased view on the value of IP when completing IP related transactions.

License agreements and funding of emerging technologies

As most projects with emerging technologies are considered to be risky, the most likely funding instruments are license agreements and equity funding. The negotiation between the holder of the patent and the licensee (or other funding party) is a balancing act of getting the best deal, long term relationship and certainty of funds. We provide expert support to speed up this process, to provide an independent view on the case and to assist in getting the deal done.

Licensing is a logical business decision for (early stage) companies, as this will secure funding bottlenecks and can considerably reduce the risk profile. Most early stage companies are unfamiliar with negotiations with license parties and are often content knowing that the funding is secured regardless of the cost of capital (ea dilution of their equity stake).

We offer support in this field by providing comprehensive valuation of patent, a funding need overview with different funding strategies (which can range from equity issuance to licensing structures with several embedded options) of the project. This detailed analysis leads to insights in the full spectrum of outcomes which can be used to optimize the risk/reward structure for licensing deals.

 

Capital budgeting and R&D portfolio optimization

To make sure that the utilization of a patent and R&D portfolio is optimized, management of intellectual property should take into consideration the value of the IP assets in decision making. An optimization of the patent and R&D portfolio can only take place if there are constraints in place such as R&D capacity or funding, and optimization objectives for instance maximizing value, shortest time to cash, biggest rate of success or highest market dominance.

The most common decision making method for portfolio optimization involves simply ranking with initiatives on selected key measures which are aligned with the overall company objective. Elements are for instance the strategic fit (existing and pipeline development of the company), the economics of an initiative, the technical risks involved of the initiative or even safety or supply chain elements. More comprehensive techniques involve simulations whereby the initiatives are not viewed in isolation but with mutually dependencies of success of the projects.

We use a strong qualitative and quantitative approach in order to gain maximum shareholder value at all stages of development for our clients.  Over the last years we have been working on several patent and R&D portfolio optimization projects in several industries.

Accounting and tax purpose

In recent years, the value of companies has been shifting from tangible assets to intangible assets, which makes it even more important for stakeholders of companies to have insight in the value of IP assets within the company. Not only for patent litigation valuation is of importance, with the introduction of tax planning involving intellectual property, the valuation of intellectual property became critical in non-litigation circumstances as well.

For accounting and tax purposes two cases can generally be distinguished: externally acquired intellectual property and self-generated IP. Externally acquired IP is mostly capitalized (IAS 38). The acquisition price is used to determine what value the IP will have on the balance sheet. However, when the IP is part of a company takeover, further IP valuation is necessary to allocate the correct part of the acquisition price to IP, this is done by the application of PPA (purchase price allocation). Purchase price allocation is applied to make sure that every part of the transaction will be allocated the correct value. To make sure this is properly done, the purchased IP should be subjected to a solid valuation.

Internally generated IP is mostly expensed and would benefit from valuation in the case of an acquisition. However, internally generated IP can be capitalized as well. In that case valuation will take place and is mostly done by a historical cost analysis (IAS 38). Accounting for IP also impacts taxation, while IP might be amortized or expensed as R&D costs, depending on whether the IP is capitalized or expensed.  Either way, valuation of IP is important for accounting and tax purposes, to make sure that the figures on the balance sheet and income statement are correct.

Our Certified Patent Value Analysts (CPVA) are familiar with the necessities of a purchase price allocation process and are keen to support you.

For more information please contact Pieter van ProoijenPieter van Prooijen : 0031(0)6 301 54 753