Wednesday 20 May 2020

Reflecting Forces at Work in an IP Valuation

OxFirst Ltd.

Investing wisely in IP

More than ever before, there is a need to invest wisely in technology. No matter which technology one looks at, the adequate management of the underlying IP is crucial so to commercially succeed.
An IP valuation looks at business legal dynamics from a quantitative perspective. In doing so, it allows to put substantive legal aspects in a business context and establish a bridge between law and economics. The IP department by consequence has a chance to stop being perceived as an esoteric cost centre and has the chance to become drivers of business success.

For this to happen a sort of ‘translation exercise’ needs to happen, whereby a patent right can become a patent asset. Even if it does not make the leap to be an asset and it becomes visible that it really is a patent liability, then this still has a massive business proposition. IP which bears no business proposition can be eliminated, which helps save costs.

Elements of an IP Valuation

An IP valuation is structured into three parts. An IP due diligence, a business assessment of the IP and an in-depth analysis of the role of the IP within the larger competitive environment.

The IP valuation consists of an initial due diligence followed by a strategic assessment of the various opportunities provided by the IP to maximize profits. It also helps manage costs, which many companies may find important in the current situation.

Recognizing Forces at Work in an IP Valuation

Using Professor Porter’s framework of ‘forces at work’ is a very helpful step to grasp IP from a business perspective. Translated to the peculiar features of IP law, such forces at work can consist of regulatory challenges, technology challenges, potential new market entrants, as well as competitive dynamics in the market.

Regulatory challenges may for example be Supreme Court decisions, such as the E-Bay vs Merck exchange decision in the United States, which put an end to automatic injunctions. Instead injunctions are issued after the verification of a multi factor test, which Patent Assertion Entities may find difficult to pass.

Technology challenges may pertain to the actual tech solution itself. Is this novel technology even be doable by nature? For example, is it even possible to offer a vaccine for a virus or does a virus not even respond to a vaccine?

Potential new market entrant may be in a position to offer a better market solution. They may be able to offer a faster, cheaper or more effective solution. At times, there may also be novel tech solutions, which make existing ones entirely obsolete.

Competitive dynamics in the market may pertain to issues such as vertical or horizontal integration. Does one single company operate in the same market that it also sells its tech solutions to? If so, can this have an effect on the value of its IP and that of other market participants?

The assessment of these forces at work helps determine a potential net value for the IP at stake. In doing so, it allows to establish a relationship between the IP and the business environment it is situated in. However, such analysis is not just narrative in character. The valuation of the IP allows to quantify such forces at work. This is an amazing value proposition as it helps understand potential returns and sets them in relation to risk.Unsurprisingly, this allows a firm to reorient its strategy and sets the baseline for the entire business strategy, not just the narrow circle of the IP strategy itself. A firm can be in a position to maximize revenues, while at the same time minimize its costs.

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