Caserta, December 1st 2005, Guido von Scheffer IPB AG
How to Use Intellectual Property to
Access Finance?
A Practical Example
Guido von Scheffer, IPB AG, Brussels, September 27th 2005
WIPO-ITALY INTERNATIONAL SYMPOSIUM ON INTELLECTUAL PROPERTY AND THE COMPETITIVENESS
OF SMALL AND MEDIUM-SIZED ENTERPRISES IN THE TEXTILE AND CLOTHING SECTORS
IP Bewertungs AG (IPB)
Value from Knowledge
Heimhuder Straße 81, D-20148 Hamburg
Hotline +49(0)40-8222-07-00
www.patent-value.net
IPRs play a Major Role within Intangible Assets
Corporate Assets
intangible Assets
Corporate Knowledge
Human Capital
generates
Intellectual Property Rights
Patents, Brands, Trademarks & Others
Innovation &
Intellectual Assets
Guido von Scheffer, IPB AG, Brussels, September 27th 2005
Tangible Assets
Patents are the Most Tangible Intangibles

is a validated right, granted and
guaranteed by the government,

provides the patent owner – in return for
disclosing his innovation – the exclusive
right to commercially exploit his invention
(monopoly right),

can usually be kept in force for 20 years
(Renewal fees),

offers (almost) all features of a common
tangible asset.
Increase of worldwide yearly
patent-based licence fees
Billion USD
500
100
t
1990
2000
2015e
Guido von Scheffer, IPB AG, Brussels, September 27th 2005
A Patent . . .
Using Patents as Business Tools
Patent
Indirect Use
Self-Interest
Financing
Competitor’s
Exclusion
Reporting
Freedom to
Operate
R&D-Controlling
Licensing
Competitor’s
Targeting
Sale
How to set a price
for an unique asset?
Taxation
Guido von Scheffer, IPB AG, Brussels, September 27th 2005
Direct Use
How to Access Finance?
Valuation
Patent
Income
Approach
Market
Approach
Relief from
Royalty-Method
Quantitative
Method
Multi-period
Excess Earnings
Method
Fundamental
Method
Incremental
Revenue
Method
Guido von Scheffer, IPB AG, Brussels, September 27th 2005
Valuation
Market Approach
Quantitative - 1
Year of construction
Square meters
Storey height
Situation
Guido von Scheffer, IPB AG, Brussels, September 27th 2005
Infrastructure
Market Approach
Quantitative - 2

Backward Citations

Forward Citations

Claims

Patent Family

Litigations

others . . .
Backward Citations and technical details
Description
For a Patent Application it is necessary to cite
all other patents and scientific publication.
Determinates a. Age
b. Type (Own- / Others)
c. Citing Person (Applicant / Patent Office)
d. Region
e. …
Availability
From Date of Grant
Please Note:
One separate indicator does not reflect a
significant correlation on patent values.
Empirical studies:
Carpenter, M., Cooper, M., Narin, F. , 1980, Linkage between Basic Research Literature and
Patents, Research Management (March), S. 30-35.
Narin, F., Noma, E., Perry, 1987, Patents as Indicators of Corporate Technological Strength,
Research Policy 16, S. 143-155.
Lanjouw, J.O., Schankerman, M., 2000, Characteristics of Patent Litigation: A Window on
Competition, CEPR WP 2042.
Lanjouw, J.O., Schankerman, M., 1999, The Quality of Ideas: Measuring Innovation with multiple
Indicators, NBER 7345.
Harhoff, D., Scherer, F., Vopel, K., 1999, Citations, Family Size, Opposition and the Value of
Patent Rights, Munich, Boston, Mannheim, Ludwig-Maximilians-Universität München, Harvard
University, ZEW Mannheim.
Harhoff, D., Reitzig, M., 2000, Determinants of Opposition against EPO Patent Grants: The Case
of Pharmaceuticals and Biotechnology, CEPR WP 3645.
Reitzig, M., 2002, Improving Patent Valuation Methods for Management – Validating New
Indicators by Understanding Patenting Strategies, LEFIC WP 2002-9.
PatentW Patentfamilie
value = e

1 * I1 + 2 * I2 + 3 * I3 + . . . +20 * I20


Guido von Scheffer, IPB AG, Brussels, September 27th 2005
Sample indicators:
The result is a Value-Distribution for a single patent family as well as for the whole portfolio.
The patent values in general are logarithmic. The determined Value-Distributions are also logarithmic.
Therefore the median is the most reliable value estimation for financing.
Guido von Scheffer, IPB AG, Brussels, September 27th 2005
Market Approach
Quantitative - 3
Market Approach
Quantitative - 4

Objective fair market value due to realized market transactions

Consistent and efficient due to objective and automated data selection of bibliographic patent
data from public databases

Patent holder is not involved in the process

Efficient for large portfolios including strategic patents
Disadvantages

Only the market price of the patent itself is valuated, not the potential income that the patent
holder might be able to generate

Potential of young patents and patent applications is underestimated

Statistically uncertain for a single-patent-valuation
Conclusion

Significant correlation between construct of indicators and patent values is empirically
proven

If an objective and consistent valuation without involving the patent holder and for a
competitive price is needed this is an appropriate valuation system
Guido von Scheffer, IPB AG, Brussels, September 27th 2005
Advantages
How to Access Finance?
Utilization
Valuation
Patent
Utilization
Income
Approach
Market
Approach
Quantitative
Valuation
Relief from
Royalty-Method
Quantitative
Method
Qualitative
Valuation
Multi-period
Excess Earnings
Method
Fundamental
Method
Purchase
Incremental
Revenue
Method
Realization
Guido von Scheffer, IPB AG, Brussels, September 27th 2005
Addressing
Process of investing
Addressing
Sample: Companies
Investment
Assets
Patents
Insolvencies
& Liquidations
Individual
Inventors

Patents that have survived legal oppositions / Reexamined Patents / Reissued Patents

Patent is cited by others

Patent Family Size > 1

other
Quantitative analysis of legal status

Active / Passive
Contacting patent owners
Companies
Others

Availability: Yes / No

Charges or Restrictions: Yes / No
In most companies only 20% of the patent portfolio is restricted
for any licence, but 80% of the company’s licensing potential
is unused.
Guido von Scheffer, IPB AG, Brussels, September 27th 2005
Identifying most innovative companies from public
databases

Reducing the number of patents to be considered
Portfolio Structuring
Quantitative Analysis
Patent‘s
out of business
Check & Sell
Cash Cow –
Check
Licensing options
Check & Drop
Cash Cow –
For internal use only
Patent‘s in
business
Guido von Scheffer, IPB AG, Brussels, September 27th 2005
Patent‘s
Market Value
Portfolio Structuring
Qualitative Valuation
 Attributes Analysis: Examination of patents regarding formal legal mistakes
 Stability Analysis - One: Examination of backward citations and state of the art
 Stability Analysis- Two: Examination of current legal disputes

Research on similar patents by using the primary claim‘s
attributes

Research on similar patents by using backward citations

Identification of companies who own related patents

Identification of potential infringements within the activities of
these identified companies (product analysis)
 Consultation of a patent attorney to obtain a „second opinion“.
Guido von Scheffer, IPB AG, Brussels, September 27th 2005
 Research on relations to other patents regarding the patents‘ attributes
Portfolio Structuring
Purchase (optional) & Realisation
 Carrot Licensing
 Auction
 True Sale
 others
Guido von Scheffer, IPB AG, Brussels, September 27th 2005
 Stick Licensing
Patent Value Funds
How to Involve Financial Markets
Portfolio
Incubator 1
Portfolio 1
Licenses
Portfolio 2
Seed-Funds
Portfolio x
Structured
Portfolios /
Revenues
Licensee 1
Licenses
Public
Funds
Licensee 2
Royalties
Licensee x
Guido von Scheffer, IPB AG, Brussels, September 27th 2005
Portfolio
Incubator x
Royalties
Financing Situation of Innovative SME’s
Example – Jack Sample ltd.
Jack Sample ltd.:
 Employees: 245
 Revenue: 30 Mio EUR
 Credit line needed: 3,5 Mio EUR
Guido von Scheffer, IPB AG, Brussels, September 27th 2005
 Innovative in a classical business sector
Financing Situation of Innovative SME’s
Example – Profit & Loss
Profit&Loss
12 Mio EUR
Personnel Expenditures
Revenues
11 Mio EUR
30 Mio EUR
R&D Expenditures
3 Mio EUR
Other Expenditures
3 Mio EUR
Profit
1 Mio EUR
From the banks point
of view these
expenditures are
incalculable.
Guido von Scheffer, IPB AG, Brussels, September 27th 2005
Material Expenditures
Jack Sample ltd. is
characterized by
significantly high
R&D expenditures.
IP Based Financing
Financing Situation of an Innovative SME
Balance Sheet
Cash
Collaterals /
Securities
Fixed Assets
Debts
The company’s collaterals are affecting the
bank’s calculation of the credit-price.
The more securities the company can offer
the less expensive the dept financing will be.
But innovative SME’s are short of “Classical
Assets”!
Guido von Scheffer, IPB AG, Brussels, September 27th 2005
Current Assets
Equity
IP Based Financing
Financing Situation of an Innovative SME
Balance Sheet
Equity
2 Mio EUR
2 Mio EUR
Cash
2 Mio EUR
Stock
6 Mio EUR
Valuated
patents can
be used as
assets and
lower the
company’s
financing
costs
significantly.
Receivables
8 Mio EUR
Patents
12 Mio EUR
Debts
16 Mio EUR
Guido von Scheffer, IPB AG, Brussels, September 27th 2005
Collaterals /
Securities
Fixed Assets
Patent- Valuation Methods for IP-based Financing
Depending on the investors earn-risk-ratios
Granted
Patent
IncomeApproach
MarketApproach
MarketApproach
Patent
Application
IncomeApproach
Equity
---
Loans
Guido von Scheffer, IPB AG, Brussels, September 27th 2005
© IPB AG
Caserta, December 1st 2005, Guido von Scheffer IPB AG
WIPO-ITALY INTERNATIONAL SYMPOSIUM ON INTELLECTUAL PROPERTY AND THE
COMPETITIVENESS OF SMALL AND MEDIUM-SIZED ENTERPRISES IN THE TEXTILE
AND CLOTHING SECTORS
How to Use Intellectual Property to Access Finance?
Thank You for Your Attention.
Further Information:
www.patent-value.net
www.patent-funds.com
Guido von Scheffer, IPB AG, Brussels, September 27th 2005
A Practical Example