IP valuation in the context of technology transfer
IP valuation is the process of identifying and measuring potential benefits and risks of an intangible asset. IP valuation is important for business planning, licensing, acquisitions, mergers, investments, joint ventures and loans. Valuation methodologies are important, because funding institutions are often willing to consider investment in research and innovative technologies, but lack the methodology with which to assess the value of IP assets.
Evaluation of IP is a process of estimating the value of the technology based on its technical advantages (how well and innovatively it solves the problem), market applicability (whether there is a market need), and the level of “freedom of operation” for industry partners (whether there are similar protected inventions and potential danger of IP infringement).
Valuation of IP is projection of the potential value that the technology may generate in the specific market and context, taking into consideration the risk and changing value of the money over the time.
TOs are evaluating technologies when deciding on IP protection and commercialization of new academic inventions. Due to this process, TTOs focus on the inventions that have the highest chance to succeed on the market – which is often only 20% of research disclosures.
IP valuation is considered as one of the most complex issues in the process of IP commercialization as it is very volatile and subjective. IP valuation, at least in its quantitative approach, appears as a scientific calculation. However, it is only an estimation depending on the experience of the valuator in the particular area and his or her ability to make technical, market and IP projections in the future (except in litigation where valuation of the lost benefit would be done based on past events and existing market data). In addition, the value of an intangible asset further depends on the context, thus the same asset can simultaneously have different values in different contexts.
Valuation process can be challenging for multiple reasons, starting with the fact that universities and R&D institutions often deal with early-stage technologies, very far from market penetration and use, which makes any projection of the future benefit extremely risky – at this stage it is very difficult to define potential fields of use and thus to identify a suitable market in which technology would be exploited. The other impeding element is the lack of IP professionals with appropriate skills to conduct IP valuation.
There are two major IP valuation approaches:
1. Qualitative IP valuation
Qualitative IP valuation of an invention is based on defined criteria related to technical, IP and market requirements in order to determine if the research result is valuable for further investment and IP commercialization, usually done in pre-commercialization phase.
2. Quantitative IP valuation
Quantitative IP valuation is the process of measuring the potential benefit and risk that can be generated by an IP under assessment.
The quantitative approach, which aims to give monetary value to IP, has a number of developed methodologies associated with it, among which the most used are:
- Cost Method
- Market Method
- Income Method (which has numerous variations such as Discounted Cash Flow, Monte Carlo program, Real Option etc.).
Unfortunately, there is not one IP valuation model that fits all needs, especially since the ability of the invention to provide value depends on the context, market maturity, potential partners, specific sector etc. Depending on the context (IP audit, tax reporting, fundraising), the same technology may simultaneously generate different value. Further complexity comes from the subjective approach of every valuator, that is why the estimation is always expressed in a range of values.
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