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How to valuate patents | RW | Mathew

How to valuate patents | RW | Mathew

To thrive in the market, you need to aggressively innovate. Otherwise, you will not even be able to survive, forget about thriving. Innovation is what made Honeywell go from a retailer of heat regulatory systems to developing smart technology for climate regulation and home security systems. Lack of innovation is what forced the likes of Compaq, one of the largest PC sellers in the world during the 90s and 80s to shut shop in 2013.

Google bought Motorola Mobility and its 17,000 patents for $12.5 billion to protect its Android mobile OS from competitors. Thanks to its 1,100 digital photography-related patents, Kodak was able to sell those patents for a dozen licensees for $525 million, although it was expected to fetch much more than that.

The gene-splicing patent of two Stanford professors that was world-altering enough to launch the biotech industry, generated $255 millions. Within 24 years of the patent, more than 2,000 biotechnology companies had been launched.

Did you notice the difference in the monetary value of the patents? Everyone knows that all patents are not equal, some are more valuable than others. There are different factors which contribute to the monetary value of patents.

Your intelligence assets are usually in the form of patents. In this dog-eat-dog world of litigation and patent trolls, you need to secure your intellectual assets. Patents provide protection for businesses from their ideas being stolen by their competitors. Since it is an intangible asset, assigning a dollar value to it can be difficult. We can use a variety of methodologies to see if a patent would be a cash cow or not.

What are the instances when you need to assess the value of a patent?

Only when you know the value of your patents would you be able to make use of it appropriately. Knowing the valuation of patents becomes important when there are business transactions/situations such as the ones below:

When there are negotiations while selling or licensing intellectual property rights as it is essential to reach an agreement in good faith.
Patents can also be used as security for bank loans, it is imperative that you show them that the IP asset is of a particular value.
Organizations are legally bound to report their assets, even of those that are intangible.
For your internal team when they want to define strategies for patent protection.
When there is a patent conflict or dispute, in situations like this, knowing the correct value of the IP will enable you to claim fair damages.
While trying to evaluate the value of the company for an M&A, JV or when filing bankruptcy.

How to find the value of patents:

Businesses use different methods to find the value of patents, but most of them can be classified into two types: 1. Quantitative approach and 2. Qualitative approach.

The quantitative approach uses measurable data to calculate the value of patents while the qualitative approach relies on the prospective uses for a company which owns the patent.

Quantitative valuation includes metrics like the cost in obtaining the IP, cost of similar market transactions in the industry, cost of creating a similar technology, and so on. Qualitative valuation includes assessing the IP through a non-monetary lens, such as its technological impact, strategic impact, brand loyalty, and other intangible metrics that will help you come up with a credible value for the patent.

Quantitative approach to valuate patents:

There are four methods which are widely used to find patent values in the quantitative approach. We will talk about each one of them in detail, below:

Cost-based method:

The cost-based method works on the assumption that the costs incurred while developing the IP is directly related to how much it is worth.

Here, the replacement cost of the patent or the amount equivalent to replace the protection right on the invention is considered to be the cost of the patent.

In other words, how much would be paid to replace the patent is considered to be the replacement cost. Or how much would be spent in developing a similar patent is assumed to be the right value.

When we calculate the expenditure, we base it on the current prices. Some of the other cost sources that are included in the cost-based method are: material costs, labour costs, overheads, opportunity costs, profits that are lost when you bring it to the market at a later date, etc.

Income-based method:

In this method, the value of the patent is calculated based on the income that it generates for the patent owner. Even the cost savings that owning the patent will provide is considered when using this approach. When a business or an inventor is developing a product, it is with the hope that it will help increase their profits or at least save them a tonne of money.

Market-based method:

In this method, you need to keep an eye on the market transactions and see if there are any assets which are similar to yours. The comparison between your asset and a similar asset is made with regards to its utility, perception, technical superiority, and so on.

How can you find such data?

It will be available in the annual reports of companies.
Databases where royalty rates are available
Industry-specific publications
Court decisions where damages were discussed

The above sources can give you a fair idea of the rates. Based on the numbers that you get from these sources as well as based on the present market situation, you can arrive at a value that is reasonable to all the parties involved.

Option-based method:

It uses the options-pricing theory to determine the value of the IP. This method considers the options and opportunities related to the investment. When using the options pricing model, patents are valued using financial options. The key point in using a financial model to find the value of a patent is that even stock options provide exclusive rights to the owner while excluding others from using it (that’s how patents work too).

Qualitative approach:

In the qualitative approach that is used to find out the value of patents, there is no reliance on pure financial data. There are a multitude of factors that are used to determine the value of the patents in a qualitative approach. It could be assessing the various aspects that affect the value of the patent. Here are three methods that are widely used:

Value indicator-approach:

It uses rating methods like IP Quotient where the strength of the portfolio and the surrounding variables are assessed. Using this analysis, a qualitative rating is attributed to the patent. This data can be used to draw internal comparisons in assessing the value of the patent, but it cannot give you a decisive number.

Competitive advantage:

In this method, the competitive advantage that the business will get by owing the IP asset is taken into consideration. If it is just bragging rights, then it wouldn’t make any difference to your bottomline. Below are a few questions that you can ask:

Does it cause a significant shift in how your customers perceive you?

Will it increase sales?

Does the IP asset better the quality or performance of your product?

Rating approach:

Businesses can use a variety of parameters to assign a dollar value to patents. You should also determine the type of function that the IP is going to play for your business. Does it align with your objectives for the near future?

Qualitative methods are usually used for internal purposes as the number is arrived without taking financials into consideration. It is a great method if you want a sense of how it will fit into your portfolio by giving you an idea of the opportunities and risks involved. There are more common-sense inputs than hard data which will make a much better case to come up with a number.

Conclusion:

Now that you know that there are different methods which can be used to find the valuation of a patent, the method that you eventually choose should be binding on your business objectives. As seasoned professionals in this area, we would advise you to employ more than one method so that it is easy to corroborate them. Finding the value of IP can help you make significant business decisions which can alter your entire business trajectory.

If you need help with finding the value of a patent, get in touch with the Research Wire team and we will be able to assist you. We have processes and workflows in place to arrive at the value for a patent based on our extensive experience over the years.

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Different Patent Classification Techniques: When to use What!!

Different Patent Classification Techniques: When to use What!!

Patent classification is the most important phase for analyzing different technological trends. Patents are classified according to different parameters or different technological features present. It is to be noted that a single patent may disclose more than one technological feature and therefore, a patent can be classified more than once.

A technology classification/taxonomy can be defined before the start of the classification process or a technology classification/taxonomy is built progressively as patents are classified one by one.

Depending upon the requirements and the scope of the project, different patent classification methods can be used to provide different insights into the patenting strategies and market dominance of one’s competitors.

  1. Class-based bucketing: Based on a pre-defined taxonomy (according to the technology sub-domains of the product/service line of the client), different relevant IPC/CPC classes are identified. This class-based classification is then replicated onto the extracted patent dataset, thus classifying the patents into various categories and sub-categories.

For example: Let us consider Wireless and Broadcast communication technology (broad category). Various relevant classes can be identified such as H04W and H04H, and then, on basis of the definitions of its various child classes, they are put into different buckets (based on the taxonomy) representing different sub-categories such as

H04W80/00: Wireless network protocols

H04W88/00: Devices for wireless networks

H04W40/00: Communication routing

H04H20/00: Arrangements for broadcast

H04H2201/00: Aspects of broadcast communication

Publications having these classes are hence bucketed. In Class-based bucketing, a patent may be bucketed multiple times into different categories. The accuracy achieved in class-based bucketing is moderate and the time required is less to moderate depending on the number of categories present in the taxonomy.

  1. String-based bucketing: Based on a pre-defined taxonomy, strings are formed for each of the sub-categories using keywords specific to that domain and their linguistic synonyms. By analyzing hits of the strings, the strings are refined to avoid any noise that may come. After a few iterations, the desired dataset for a sub-category of technology is obtained.

For example, The string for Wireless and Broadcast communication can be as follows:

ALL=(((wireless OR broadcast) NEAR5 communicat*) OR (wireless NEAR5 protocol*) OR ((antenna OR radio) NEAR3 construct*) OR (remote OR distant OR tele* OR online)) OR (Communicat* NEAR3 (rout* OR path)) OR ((frequency OR amplitude) NEAR3 modulat*) OR (transceiver OR receiver OR transmitter) OR (base station))

 

Though the strings are very specific, a small percentage of the publications might go undetected by the search algorithm of the database because of linguistic barriers (since translations of some of the non-English publications might not be available). Due to this, keywords+ class-based strings are formed, giving optimized and reliable results. Hence, the patent portfolio is classified into various categories. Its accuracy is slightly less than that of class-based bucketing, but the time needed to invest in it is the same.

 

  1. Manual Bucketing: Each patent in the dataset is analyzed thoroughly by experienced researchers. Depending on the type of invention and the key features that the publication discloses, it is classified into one of the categories, according to the pre-defined taxonomy or a taxonomy that gets build up during the manual analysis process. When compared with the above two methods of bucketing, manual bucketing has the highest accuracy (human intelligence being the contributing factor) as well as it takes most of the time.

 

  1. Automated Patent Classification using the NLP model: The adoption of NLP and AI-based auto-classification of patents has been sporadic. Automation for patent classification not only helps to reduce human error but also accelerates the classification process. Keywords and synonyms are identified pertaining to specific sub-categories (according to the pre-defined taxonomy) and are fed into the Natural Language Processing model for context analysis and lexical semantics to determine the central idea behind the invention. Hence classifying the patent portfolio into different categories. The accuracy achieved using such a model is moderate and the time required is less.

 

Choosing one of the above-mentioned classification methods depends on the size of the portfolio, the accuracy needed and the time allotted to the project along with the budget of the client for competitive benchmarking and hence the resources (number of people) allotted to the project are decided accordingly. In the case of highest accuracy, we need manual analysis as even NLP is not enough to do that. NLP can be used for a helicopter view of the overall portfolio.

Depending upon customer needs, At ResearchWire Knowledge Solutions, we follow a strong methodology and robust process to evaluate patent data and deliver what the client requires. ResearchWire Team consists of experienced Patent and Data Analysts who come from different industries. We understand the client requirements well and deliver useful insights using advanced data visualization tools to make the client’s decision-making process more effective and easier.

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Whitespace analysis: A smart step towards research, innovation and securing patent rights

Whitespace analysis: A smart step towards research, innovation and securing patent rights

How to find whitespaces

Recently during a client discussion about White space analysis where it was pointed that in his technology domain, not many companies file for the patents. Therefore, it is inaccurate to find whitespaces just by analyzing patent data set.

So, the question was, what could be the smart way to find whitespaces in such cases.

Before jumping straight to the answer, let’s look at what the whitespace analysis actually is and how is it important for any company or organization to capture the market ahead of their competitors.

Whitespace analysis helps to identify overcrowded and sparse areas in a technology domain. It helps in identifying new opportunities for innovation in less competitive areas.

How to go about the whitespace analysis         

For any whitespace analysis, a scope is defined in terms of what is expected from the whitespace analysis. For e.g. whitespaces can be identified in terms of

Technology,

Applications,

Material, etc.

Similarly, many other parameters can be selected. After the scope is defined, relevant patents are identified using combination of keywords and classes. All the patents are analyzed then according to parameters defined. Patent classification is done according to different methods. Generally, after the classification is done, the areas with a smaller number of patent filings are considered as whitespaces.

But this approach may not give a full-proof idea about the whitespaces due to many reasons

  1. It is not necessary that company files for patent in a particular technology domain
  2. It may happen that technology is old enough and therefore the patents could not be captured into the dataset due to date restriction.

Therefore, a 360-degree analysis is needed to shortlist the whitespaces. Apart from the patents, it is important to look into the Non-patent literature which includes both the research papers and products available in the market for the related technology domain.

To answer the client’s question, we suggested that Whitespaces can’t be decided on the basis of the number of filed patents only. The inclusion of other literature is also necessary such as existing products, research work, etc. in the technology domain.

 

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Comparative intelligence for component manufacturers

Comparative intelligence for component manufacturers: Step to enhance business, market, and growth

Various companies present in the market are competing themselves at a high pace in terms of growth, business, sales, no. of assets, supply and demand chain, etc. Now a days, each company specifically the OEM (original equipment manufacturers) are manufacturing their products based on the supply chain which means that OEM is dependent on Tier 1 and tier 2 of the supply chain to manufacture and provide a complete product. For example, Automobile companies like Nissan, Toyota, and others (OEMs) are dependent on tier 1 suppliers which provide various components or systems to implement in the vehicles such as HVAC systems, solutions for implementing electric cars, haptic display enabled systems, automatic car parking systems for vehicles. There are lots of tier 1 suppliers in the domain which are running in the race to provide their services to OEMs. Now the biggest challenge arises when choosing the right Tier 1 supplier out of several Tier 1 suppliers in the market comes into the picture and which tier 1 supplier an OEM shall opt for him. Various types of analysis can be done to identify which tier 1 is best to select.

  1. Financial analysis: (Revenue-based such as no. of assets, net income (profit/loss), equity, etc.): Each company has its financial data that define growth in terms of profit and loss of a particular company. Hence to decide which Tier 1 supplier, an OEM should approach, financial analysis has to be performed for that particular company. Financial analysis can conclude the following data which is given below:
  • Revenue (Less than 100 million or more than 100 million)
  • of assets
  • Net Income (comparison with the last financial years to calculate net profit/loss):
  • Equity Margin
  • Production cost
  • Current price
  • Expenses and Liabilities
  • Cash flow
  1. R & D budget based:Each company invests some amount of its share to R & D for new advancements or inducements, whether it’s a manufacturing industry, software company, or any suppliers. The amount of R and D budget invested by a particular tier 1 can be the deciding factor for an OEM to approach a tier 1. For example, R & D budget of Bosch is high that means it is investing more money for R & D which means it is approaching new technology and developing an excess of equipment. Hence an OEM like ford or Nissan can approach Bosch for supplying components or technology to them.
  2. Technological advancement (new technology or innovation in the market):The first and foremost factor which an OEM will look for is the type of innovative technology, tier 1 is providing to them. Hence, those companies (tier 1) who are working majorly on new technologies or creating some innovative ideas to implement in their system, can be approached by OEMs to provide products to OEM. Example: Continental automotive AG is working on AI for vehicles. Hence, OEM can approach to them to implement the new innovative technology into vehicles.
  3. M/A activities:Merger and acquisition activities (like small companies (tier 1) collaborating with MNC (such as OEM), joint venture agreement between two companies, a small company being acquired by a big company) can be a deciding factor for an OEM to approach tier 1. A tier 1 company who have been approached by maximum no. of other OEMs, can be approached for supplying products or services to OEM. There are specific terms and conditions under which if there is a joint venture agreement between an OEM and a Tier 1, then any other company (OEM) cannot collaborate with tier 1 for supplying products to them. In this case, an OEM can approach the major competitors of the relevant Tier 1 suppliers.
  4. Opportunity Cost:The cost of product and services offered by a tier 1 is also a deciding factor by OEM to approach to a particular tier 1 supplier. A particular tier 1, provides their products and services at less cost, simultaneously maintaining product quality, services, the volume of production, timeline and other factors can be approached by OEMs for providing services to them.
  5. Share market (share sold by the companies or share in profit or loss): Each company holds a particular share market and different types of vendors; individuals or small startups buy the share of different companies to invest money in the required direction. Different types of tier 1 companies present in the market have a different share of market value. Particularly their market keeps on increasing or decreasing based on other competitors. Hence, those companies (tier 1) who have a high value of share market can be focused more on collaboration and other joint venture agreement purposes. The small companies whose shares are more and more bought by the other companies are much relevant for OEMs.
  6. Volume production rate & active market concerning region: A company (tier 1) which provides low volume production rate is the most relevant company rather than the other companies who directly focus on targeting high volume production. This is because lots of new concepts and ideas have to tested first in the pilot market before large volumes are necessary. Also, a small volume of production, in the beginning, provides the idea of market scenario whether this equipment can stay stable in the market or not and various types of demonstration has to be done. Therefore, the companies which are more focusing on low volume production rate, in the beginning, are more relevant than the companies who focus on large volume production. The market of a product manufactured by the company varies concerning geography. For example, a company A manufacture product in Russia but its market is highly active in Japan. Hence, an OEM in Russia cannot approach that company. Those companies who have a high market of components in respective companies, are highly favorable with government regulations and hence are highly relevant for OEMs.
  7. IP assets (IP portfolio): IP portfolio defines various types of patents or IP activity, that holds by a company. The small startups or other tiers 1 companies who have a high patent portfolio, more innovation in their respective technology domain or more licensing and intellectual legal activities are highly relevant. There are some of the IP factors that come into the picture for deciding which component manufacturer is more relevant.
  • Portfolio of patents filed by a company
  • Strength of the patents based on quantitative analysis
  • Licensing activates of a company
  • Products/ Application present in the market for patents
  • Patent reassignments activities

 

Hence, concluding all these factors into the picture, a particular manufacturing company (OEM) can intelligently decide its most relevant component manufacturer (tier 1), when a lot of comparative component manufacturers are exits in the market.

 

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