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
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.
