The document discusses intellectual property issues and valuation methods to consider. It recommends performing a patent search before beginning research to avoid infringement. It also advises keeping careful lab notebooks to document inventions and determine priority dates and inventorship. The document outlines several basic valuation methods including cost, market, and income approaches. It then describes some specific IP valuation methods such as the 25% rule, industry standard royalty rates, real options method, and competitive advantage valuation.
Wurz Financial - Wealth Counsel to Law Firm Owners Services Guide.pdf
Intellectual Property Issues for Consideration When Having a New Idea
1. Intellectual Property Issues
for Consideration PLUS
Valuation Methods
Demetris C. Hadjisofocli
Executive Director, Entrepreneurship Frontier Network, Ltd.
Managing Director, Innovade, Ltd.
2. IP Precautions
Perform patent search before beginning research
Keep careful lab notebooks and write down every
possible notation and action from the very
beginning
Avoid known/legal issues that will prohibit the
registration of a patent
Protect against patent invalidity
3. IP Valuation Methods
Basic Valuation Methods
Cost method
Market method
Income method
Selected IP Valuation Methods
25% rule
Industry standard royalty rates
Real-Options method
Competitive Advantage Valuation
5. Perform Patent Search
Before Doing Research
Patent owner’s rights
Exclusive right to make, use, sell and import
Unauthorized use of patent subject matter in
research=patent infringement
No general experimental use exemption to patent
infringement as in most other countries
Limited experimental use exemption for drugs and
medical devices subject to FDA approval
6. Perform Patent Search
Before Doing Research
Beyond avoiding infringement, patent searches can
also be helpful
To learn from work of others
To improve on successful approaches
To avoid unsuccessful approaches
To engineer around potential problems
8. Keep Careful Lab Notebooks
Lab notebooks necessary to determine
Who has priority to an invention
Who is named as an inventor
9. Keep Careful Lab Notebooks
Who has priority to an invention
US patent law; priority goes to first to invent
All other countries; priority goes to first to file
Who is the first to invent
First person to conceive of an invention and then
diligently proceed to reduce the invention to
practice
First person who conceives of an invention (A) will
prevail over the first person to reduce the invention
to practice (B) if the first person who conceives of
the invention (A) is diligent from a date prior to the
other person’s (B’s) conception of the invention until
his/her (A’s) reduction to practice
10. Keep Careful Lab Notebooks
Priority Example
A conceives of invention on 1/1/2000
A reduces invention to practice on 1/1/2004
B conceives of invention on 1/1/2001
B reduces invention to practice on 1/1/2003
A will prevail over B, if A is diligent in reducing the
invention to practice from a date prior to 1/1/2001 until
1/1/2004
11. Keep Careful Lab Notebooks
Definitions
Conception
Formation of a definite idea for the complete and
operative invention
Reduction to practice
Actual reduction to practice
Building a working prototype of the invention
Constructive reduction to practice
Filing a patent application sufficient to enable one
skilled in the art to make and use invention
Diligence
Reasonable and continues effort directed toward actual
and/or constructive reduction to practice
Fact sensitive determination in each case
12. Keep Careful Lab Notebooks
Lab notebook are critical to establish
Date of conception
Date of reduction to practice
Diligence during required period of time
Lab notebooks should document all information
relevant to the invention (ideas, experiments,
instruments, procedures, formulas, calculations, etc.)
Every page should be signed and dated by the
inventor
Every page should be witnessed and dated by two
non-inventors who understand the work
All entries should be in ink; errors should be crossed out
with a single line to remain readable
Electronic lab notebooks (date/time stamp) can be
used
13. Keep Careful Lab Notebooks
Who is an inventor
An “inventor” is the person who conceives
of an idea that is included in the patent
claims
A sole inventor must conceive of all the ideas
included in the patent claims
A joint inventor must conceive of at least one
idea included in at least one patent claim
A person who reduces an invention to
practice is not an inventor unless during the
reduction to practice he/she conceives of
an idea that is included in the patent claims
Failure to properly name inventors in a
patent application can render the patent
invalid
14. Keep Careful Lab Notebooks
Lab notebooks are critical to determine who is an
inventor and who should be named as an inventor
in the patent application
Named inventors can be changed after patent
application is filed; unless there was a knowing and
wrongful omission or inclusion of inventors in the first
instance
16. Avoid Statutory Bar To
Patent Issuance
Patent cannot be obtained in the U.S. if
Inventory known or used in U.S., or patented or
described in printed publication in U.S. or
foreign country, prior to the date of invention
claimed by applicant
Invention patented or described in printed
publication in U.S. or foreign country, or in
public use or on sale in U.S., more than one
year prior to patent application date
There is no statutory grace period in foreign
countries
Strict novelty; any publication, public use or sale
prior to patent application date will bar foreign
patent issuance
17. Avoid Statutory Bar To
Patent Issuance
Acts of patent application or third party
can bar patent issuance
Acts that can bar patent issuance
Public use
Can be very negligible and still bar patent issuance
Limited exception for “experimental use”
Experimentation must be technical, not marketing
Experimentation must be evidenced by written records
On sale
Offer of sale to single person can bar patent issuance
Offer of sale can occur prior to reduction to practice
License of technology is not an offer of sale
18. Avoid Statutory Bar To
Patent Issuance
Acts that can bar patent issuance (cont.)
Printed publication
Any document available to public regardless of
location or form is a “printed publication”
Doctoral theses are available to public at time they are
properly catalogued in library
A document is not available ion public
At time of thesis review and defense
At time of submission for peer-review publication
If recipient is under duty of confidentiality
Public presentation
Papers, slides, posters = printed publication
Unless audience is under a duty of confidentiality
19. Avoid Statutory Bar To
Patent Issuance
To constitute a statutory bar, the printed publication
must enable one skilled in the art to practice the
invention
Reporting what an invention can do, but not how the
invention does what it does, is generally not an
enabling disclosure
21. Protect Against Patent Invalidity
A patent can be invalidated for inequitable
conduct during the patent application
process
Two elements of inequitable conduct
Patent applicant must misrepresent or fail to
disclose material information to PTO
The misrepresentation or failure to disclose must be
intentional
Most common misrepresentations
Critical dates; Inventors
Most common failures to disclose
Prior art; offer of sale; printed publication
Patent Act requires patent application to sign
an oath that applicant believes he/she is the
first inventor of the claimed invention
22. Protect Against Patent
Invalidity
The Patent Act requires the patent
application to contain a written
description of the invention “in such full,
clear, concise and exact terms” as to
enable any person skilled in the art to
make and use the invention
Every element of invention claims must be
enabled in the patent application
specification
Failure to provide an enabling disclosure
will renter claim(s) invalid
24. Basic Valuation Methods
Cost Method
Value of an asset is the cost to replace the asset with
an identical or equivalent asset
Can count for physical depreciation and functional
obsolescence
BUT…. Cost does not equal value
Nuclear powered aircraft
Small percentage of patents have any value
25. Basic Valuation Methods
Market method (real estate appraisals)
Value of an asset is price paid for comparable assets
Conditions necessary for market method
Public exchange market
Sufficient number of recent exchanges
Standardized exchange terms
Price of exchanges available to public
None of these conditions exist for IP assets
26. Basic Valuation Methods
Income Method
Value of an asset is the net present value
(NPV) of the future income expected to be
received from the asset
Discounted cash flow (DCF)
Dollar today worth less than dollar tomorrow
Income method useful for IP assets
associated with a revenue stream (Licensed
patents)
Income method is not useful for IP assets
prior to licensing or commercial use
28. IP Valuation Methods
25% Rule
Licensor should receive 25% of licensee’s gross
profit from the licensed technology
25% rule is not a valuation method, but a rule-
of-thumb for splitting IP value between a
licensor and licensee
25% rule does not account for quality of
technology, its state of development,
additional investment and future risk
25% rule is not useful where the licensed
technology is a component part of a product
or process
29. IP Valuation Methods
Industry Standard Royalty Rates
The value of an IP asset is determined by the royalty
rates paid for similar assets in past transactions
Some companies provide royalty rate information
for different industries for a fee
Two main problems
Industry definitions are generally very broad
Health care; computing
Industry royalty rate ranges are generally very large
1% to 25%
Also problems similar to 25% Rule
Standard royalty rates do not account for quality of
technology, state of development, additional investment,
future risk
30. IP Valuation Methods
Real Options Method
Value of IP asset is the value of future options
regarding further development of the IP asset
Options are a series of “go” or “no go” decisions
Each stage of development provides additional
information about technology
The decision to proceed with development does not
depend upon the risk adjusted final NPV
The decision to proceed with the next stage of
development depends upon whether the risk
adjusted incremental gain in NPV, if the next stage
of development is successful, is sufficient to justify the
cost of undertaking the next stage of development
31. IP Valuation Methods
Competitive Advantage Valuation (CAV)
The value of an IP asset is determined from the IP asset’s
competitive advantage with respect to an average substitute IP
asset
Seven basic steps
Calculate NPV of total profits in technology’s intended market over time
Disaggregate NPV into portion of profits attributable to technical intellectual
property assets
Define price/performance parameters that determine success in the
intended market
Calculate competitive advantage by comparing IP asset to an average
substitute IP asset on price/performance parameters
Extrapolate from IP asset’s competitive advantage to predicted market
share in intended market
Calculate value of IP asset from value of technical intellectual property
profits in intended market and predicted market share in intended market
Adjust IP asset value for technical, market and intellectual property risks
32. IP Valuation Methods
CAV (cont.)
Benefits
Links principal value drivers in intuitive way
Easy to use and understand
Can be used in multiple valuation contexts
Scalable for simple and complex valuations
Neutral as between licensors and licensees
Limitations
Default formulas and values are generalized for all industries
Technical, market and intellectual property risk adjustments
can greatly alter valuation results