Thursday, 29 August 2019

Welcoming Dr. Roya Ghafele to the IP Finance Blog!

IP Finance is delighted to announced that Dr. Roya Ghafele, the Director of OxFirst, will join our permanent team of bloggers.  I’ve pasted a short bio of Dr. Ghafele below.  Dr. Ghafele is planning to author a series of posts on IP valuation and management.  Please find her first post on IP valuation below.  We are very excited to have her join us!  

Here is her bio:

Dr Ghafele has been the Director of OxFirst, an award winning IP law and economics consultancy, since 2011. In addition, she has held academic positions in International Political Economy and Business with Oxford University since 2008 and was also a tenured Lecturer (Assistant Professor) in IP Law with Edinburgh University. Prior to that she had post-doctoral assignments at Harvard and U.C. Berkeley. From 2002-2007 she worked as an Economist with the U.N.’s World Intellectual Property Organization (WIPO) and the OECD. She started her career with McKinsey in corporate finance.

Her Ph.D. was awarded the Theodor Koerner Research Prize by the President of the Republic of Austria. Dr. Ghafele was trained at Johns Hopkins University, School of Advanced International Studies, the Sorbonne and Vienna University. During the course of her studies she was fully funded by the Austrian Government because her academic merits were continuously of outstanding quality. She is native in German and fluent in English, French and Italian.

Specialties: IP valuation, FRAND Royalty Rate Determination, IP and Competition Economics

Here is her first post: 

IP valuation – Why it Matters

The major challenge does not seem to be that patents or other forms of intellectual property cannot be valued or that IP disposes of any intrinsic features that would prevent its valuation. The challenge is that many IP managers are still rather ignorant when it comes to the valuation of intellectual property.  This can have a series of adverse effects. On the one hand, intellectual property may be inadequately managed. On the other hand, others in the company may in all honesty wonder what the bottom-line contribution of IP is to business. Without an adequate understanding of the value of intellectual property, much IP risks gathering dust and not being put to work in the most effective manner.

This raises the question how intellectual property can be valued. While there are many different methods that allow to value intellectual property, there currently exist three overarching principles that allow to value IP assets. These principles are in no way different from the valuation of any other assets, be they tangible or intangible in nature. These are the income, market and cost approach. Each of these methods offers different insights. Hence, depending on the situation, they can complement each other. The income method, measures value in terms of future revenues that can be generated from the asset. It looks at upcoming revenue streams and seeks to determine the current value of these assets. As the method is hinged on an outlook of what the future may hold, it is crucial to determine the discount rate, which reflects risks and probabilities associated with such potential future income. This method can be quite helpful if one is keen on enhancing the management of a patent portfolio. It gives the manager an insight as to how much the IP could potentially generate. This can help formulate a forward-looking IP strategy. The market method again looks at comparable rates that kind of similar IP could fetch in somewhat similar market transactions. As such the insight gained is what a typical rate could be for the IP. Such a method can give a helpful first insight when one is for example seeking to sell or license IP. It can allow to understand if one’s asking price is somewhat in the range of what others have wanted. That being said, it can be challenging to find such information and the method says nothing about the specific worth the patent has in a specific business context. The cost method again can help determine costs associated with IP creation. This can be useful when seeking to minimize costs in an IP Department.  

Each of these paradigmatic approaches have their strengths and weaknesses. They also vary in terms of the effort needed to find relevant information. But overall, they can help optimize expected results from intellectual property. Important to know is that any IP valuation is an off-book valuation and this makes it harder to systematically make use of data which has undergone the scrutiny of controlling. To the keen IP manager this is however nothing but a small stumbling block that should not prevent her to systematically manage IP for value generation.

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