Patent Valuation Made Easy with Hybrid Approach! – Webinar

Patents being intangible assets pose a challenge in determining their true value. Companies or inventors cannot negotiate a deal, i.e., M&A, licensing, or sale of patents, without knowing their true value. Patent Valuation, therefore, is pivotal in determining a company’s success.

Table of Contents

Key-points covered in this webinar (Patent Valuation Made Easy with Hybrid Approach!)-

  1. A brief overview of different patents valuation methods.
  2. Why is valuation of patents required?
  3. Sagacious IP’s proprietary approach to value a patent portfolio.
  4. How the valuation of a patent portfolio can be done cost-effectively.

Key-note Speakers

Aman Goyal, Assistant Manager – ICT Licensing, Sagacious IP
Abhinav Mahajan, Group Manager – ICT Licensing, Sagacious IP

Anchor

Faiz Wahid, Regional Head – Europe, Sagacious IP

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Webinar Transcript:

Faiz Wahid speaking- Hi everyone! This is Faiz Wahid, Regional Head Europe for Sagacious IP. I welcome everyone to this webinar.

As you know, Sagacious is a Research and Analytics firm focused on IP. It has a team of almost 300 IP professionals and has been in the business for the last 13 years. We have worked across multiple services. And, one of the key areas that we always get questions about is Patent Valuation.

And, today we are going to talk about this in a little bit more detail on the topic – Patent Valuation Made Easy with Hybrid Approach!

This is a very unique methodology which Sagacious team has developed. And, I am happy that we are going to speak today on this topic. To present it, I have two experts from Sagacious. They have been sort of developing and implementing this methodology for many of our clients.

Also, I am happy to welcome all the participants of this webinar. Your participation is very encouraging for this kind of knowledge sharing that we have started for a few years now. And, I hope that you’re all keeping safe and sound. Let’s start then.

Speaker’s Introduction

So, our first speaker for the session is Aman Goyal. He is Assistant Manager in the ICT Licensing team. Aman has over 6 years of experience in the Patent Licensing space. Particularly, in infringement searches, Portfolio Management, Directed Prosecution, Evidence of Use charting, etc.

And, I have Abhinav Mahajan, who is a Group Manager- ICT at Sagacious IP. He has over 8 years of experience in the IP field. Particularly, in Patent Monetization, valuation with technical expertise in the consumer electronics and telecommunications domain.

So, welcome Aman and welcome Abhinav.

Abhinav Mahajan speaking- Thanks Faiz for having me on this webinar.

Faiz Wahid speaking- Welcome, Abhinav.

Aman Goyal speaking- Thanks Faiz for the introduction. I also thank attendees to take out time for this webinar, looking forward to it.

Faiz Wahid speaking- Great! Thank you.

Introduction- Patent Valuation

Patent Valuation is an important aspect of multiple transactions or multiple activities within the IP domain. Whether you talk about tech transfers or litigation, settlements, licensing activities, etc., patent valuation is core to that. And, so this field has emerged for a long time. And, much of the stuff in this space, I would expect that it is having well-developed methodologies.

Patent Valuation itself has well-developed methodologies, etc. So, before we start the presentation for today, I want to invite some initial remarks from Aman and Abhinav. By that, I mean, initial remarks on why this particular topic is relevant today and why is it being talked about.

Aman, could you share your thoughts.

Initial Remarks- Aman Goyal

Aman Goyal speaking- Sure, Faiz. So, Faiz has rightly pointed out. There are multiple methodologies of this and it is the very reason this webinar is important. As we know in the industry, there are multiple methods to drive patent value. However, there is no standard. Lack of standardization creates uncertainty in terms of which method to choose and which factor to consider during valuation.

As a buyer, you don’t want to overpay or as a seller, you don’t want to undervalue your portfolio.

So, in this webinar, we will discuss the important factors to consider while performing the patent valuation. Based on our expertise in valuing patents, we have seen that certain factors have more weightage than others. And, the right choice of factors would help in driving the reliable value for the patent. It is not only about valuing a single patent; transaction takes place for patent portfolio.

We would also discuss how to value patent portfolio cost-effectively. And, you would be able to do so if you follow our suggested process.

Over to you, Faiz!

Faiz Wahid speaking- Thanks Aman for sharing that. Abhinav, what is your take on this topic?

Initial Remarks- Abhinav Mahajan

Abhinav Mahajan speaking- Sure. Aman has rightly pointed out that patent valuation is important for both sellers and buyers.

For example, while doing patent transactions, it’s impossible to get a deal done if the parties cannot agree on the price. As a buyer you will not be taken seriously if you significantly under grade. However, you still want to get a fair price.

Conversely, it is also true for the seller. It will be near impossible for him to close the deals if he will not negotiate near the market price.

And also, like all patents, they are unique in themselves and have varying relative strength. And, based on their technological and industrial landscape, and the market applicability of these patents, their value would vary depending on the multiple factors.

The demand of the technology varies from technology areas to different technology areas. However, there could be other factors as well which influence the overall value.

So, always assess the fair market value of the portfolio or the patent at the time of transaction. For example, if you are going to transact the patent, say, in 2 years of time. Then, there should be a factor which takes into consideration the fact that after 2 years, such could be the situation of the industry or such could be the situation of you. So, we should consider all these factors.

And also, the package size, number of EoUs and the technology area itself affect the price significantly. So, in this webinar we would discuss more on such factors that we shall consider in the valuation approach. And it’s an easy method. It would be very easy to understand what we are doing and what others can learn from it.

Agenda of the Webinar

Faiz Wahid speaking- Great! Abhinav, thank you both for setting the context for this webinar, and I think we can move ahead. But just before that, let me mention to our participants to keep sharing their questions as and when they have them during the session. And, they can also share their questions via the GoToWebinar question box on the right side of their presentation window.

So, I will pick up those questions and ask them to our speakers after they finish their brief talks.

Let’s now get started with the main part of our presentation. And, would like to invite Aman to take us through his presentation on Patent Valuation.

Over to you, Aman!  

Aman Goyal speaking- Thanks, Faiz. We have divided our webinar broadly into 4 sections.

  • Firstly, we will discuss what is patent valuation and why it is required.
  • Then, we’ll talk about common methods used in IP industry to value patent, and after that;
  • We will explain the valuation method that one can use in our studies that is hybrid approach or Q2 approach, as we call it.
  • Lastly, we will also discuss how to value patent portfolio in a cost effective matter.

So, I would suggest you to stay tuned till the end as we touch upon various aspects related to patent valuation.

Let’s start with patent valuation.

What is Patent Valuation & Why Is It Required?

The value of patent is the value of the future economic benefits it brings.

We are referring to patent which is an intangible asset. So, patent valuation is the process through which we can determine the monetary value of the patent.

There are numerous individual reasons for conducting an IP valuation.

Broadly, it can be classified under transactions where company need valuation while licensing a patent, selling them.  And, companies also need valuation for internal management of assets while raising equity or strategic financing. There could also be other purposes like financial reporting, liquidation, insurance, etc. So, there are many triggers for valuing the patent.

Commonly Used Valuation Methods

Now we will look into the methods which are generally being used while valuing patent.

We can broadly classify the patent valuation method under 2 subcategories: Quantitative methods and Qualitative methods.

Quantitative Approach

In the quantitative approach, there are 3 widely used methods – Cost method, Market-based method and Income-based method.

Let’s touch upon these methods briefly.

Cost-based method

There are 2 specific variants of cost method, the reproduction cost method and the replacement cost method.

When we say a reproduction cost, it contemplates the construction of an exact replica of the subject IP. And, in the replacement cost we contemplate the cost to recreate the functionality or utility of the subject IP but in a form that may be quite different from the subject IP.

Cost-based method could be useful in scenarios where we are valuing assets which are easily reproducible, like software. However, this method does not consider the unique and the novel characteristics of IP. Therefore, it usually does not incorporate the expected economic benefits for income generating potential of the IP assets.

Market-based Method

In the market approach, IP is valued by reference to recent market transaction for comparable assets, which provides credibility and objectivity. However, IP market is not very transparent and to determine these transactions or value, it’s not very easy.

This approach seems straightforward and can be very useful if exact comparisons are available. Example, licensing agreement related to similar technology which you are considering.

Income method

This method values the IP asset on the basis of the amount of economic income that particular IP asset or set of assets are expected to generate adjusted to their present value.

In the income method, DCF that is Discounted Cash Flow is being commonly used to determine the present value of all expected user cash flows adjusted for investors’ required rate of return.

And there are qualitative approaches also, in qualitative methods; we consider IP factors like forward citation, infringement encumbrances, etc.

We would explain them in detail in subsequent slides. Having analyzed the various approaches prevalent in the market, we believe that below mentioned approach shall be followed to value patent.

Hybrid Patent Valuation Approach

We call it hybrid patent valuation approach as it is considering both quantitative as well as qualitative factors. We also call it Q2.

In a patent portfolio, it is beneficial to bucket the patents in various relevant market base tech. For that, you might use your internal tech or one can perform quick review to bucket them. Then, for each bucket, we shall perform quantitative evaluation as well as qualitative evaluation to obtain the patent value.

Market & Market Price

When performing quantitative evaluation, we consider market price of the applicable patent and the rate of that particular tech area because bigger the market, higher would be the patent value.

Once we have determined the applicable market, then we should identify technology adoption.

Higher the adoption, higher would be patent value. Say the patent is related to Content Distribution Network market that is CDN market and helps technology related to pre-fetching. We know that pre-fetching is inherent to CDN and one can assign higher value to this patent.

We shall adjust the patent value based on the business transaction or business technology if data is available.

I have also mentioned previously that these market data for patent transaction is not readily available. You should try to adjust your value based on these factors. We shall analyze the market data of companies operating in the relevant market domain to obtain average gross profit, net profit and R&D investment. These things would help us to forecast the future cash flow that our patent can generate.

Then, we can use DCF to obtain the current value of all the future cash flows.

So, there are some factors which we can use in the quantitative evaluation.

Infringement

In qualitative evaluation we shall consider whether there is a widespread infringement, patent is given higher value if it has infringement, the higher, and the better.

If feasible, we shall also perform quick validity check of the patent to identify how strong the patent is.

We have seen that buyers are willing to pay premium if the seller has performed validity check on the portfolio or package he is trying to sell.

Claim Scope

Narrow claim scope are generally difficult to assert and decrease patent value.

Two broad claims would have validity issue and claim should be just right and we should look for claim to give the patent a reasonable IP value, then there are encumbrances which one can consider.

Encumbrances

If major players in the market are already part of encumbrance list, then buyer could have issue in using that patent against those companies. This would reduce the value in the eye of the buyer.

Then, we should combine the results from both the strategies to obtain the patent value. To discuss more on how we perform Q2 valuation, I would like to invite Abhinav to put his thoughts on these factors.

Abhinav Mahajan speaking– Sure Aman, thanks. So basically, as we have already discussed that this is kind of a unique approach that we are following.

So it’s very important to understand the importance of these factors and how we want to use them in our valuation approach.

I mean, these factors could have a different meaning or different importance for any particular individual or a company who is valuing the patents.

Let me just touch base again on different factors which are more important as compared to others.

Historical Data

For example, the number one is historical data. Usually we see that companies are already following the 25% thumb rule on calculating the royalty damages, but we also are aware that this is already defunct.

It’s important now to understand the historical data behind such transactions. For example, if you have patents related to a payment infrastructure patent and there were similar patents in the history which were transacted at certain value, this very important to understand at what values were those patents transacted and in what conditions were those patent transacted.

So, like different package sizes could yield different pricing and historically we have seen that average price per patent for smaller packages. For example, if you have a package ranging for patents, say 5 to 10 patents, and then it’s more as compared to the one with larger number of patents, say you have a portfolio of 50+ patents.

This also means that as a seller, you should focus on creating smaller packages such that buyers also have to spend lesser time and due diligence, and they also settle the deal quickly.

Databases for Historical Data

So, it’s important to also compare the past transaction data that is publicly available for similar patents as Aman pointed out, that’s not easily available publicly, but still there are certain databases like Royalty Range, ktMINE, and others are also there, which you can use.

And, while you’re using such databases to obtain the data points, it’s also important to consider the age of such data because the market varies from time to time.

And, if you see 2020, it was a very different story all together and there was a significant dip in the asking price of the patents. By asking price, I mean, at the price at which the patents were, say, for example, listed on a broker network.

So, usually the patent transact or the deal materializes at a price less than the ask price.

Also, like further, as a buyer exploring package, you would want to know how valuable the patents are compared to others in the technological area.

If you have a decision to make between two set of packages which pertain to similar kind of technologies, then you have to make a decision on which package you should buy and which you should let pass.

So, that kind of valuation should also be there depending on different factors, which could be like the average age of the patents in the portfolio.

Based on that, that could be one of the important factors for you to consider. For example, a package with a higher remaining life would be more useful for you in the coming years.

Accordingly, as you plan your future moves, you should also consider these factors into consideration.

Widespread Infringement

So, for the infringement point of view, like Aman mentioned the qualitative parameter, if you have a widespread infringement then obviously the value of the patent or the package is higher. Having Evidence of Use is also very important. I mean, EoUs confirm the technology is adopted, and then quickly direct the potential buyers to see the deal drivers in the portfolio.

And, statistically, again, I would refer here to one of the ROI reports, it was published by IAM. So, the value of a package with EoUs is seen that it’s like 60 to 65% greater than any similar package with no EoUs.

So, if you have two packages which are pertaining to the same technology area, but one of the packages has more number of EoUs as compared to other which do not have any EoUs or Evidence of Use in the industry, then that package is seen to be valued at 60 to 65% more amount.

Considering Encumbrances

Another important factor, like Aman mentioned, is to consider the encumbrances. Usually while companies they diverse their portfolio creating smaller packages. We see that these patents which are found in those smaller packages are already encumbered to a large number of companies as part of their previous licensing deals they make over the years.

So it’s very important to understand the encumbrances, understand what the value of the portfolio would be in respect to those encumbrances.

In layman language, encumbrance means that it’s an agreement which prevents a company buying a patent license or patent asset from obtaining royalties from a company that has already licensed the patent.

So, if someone has already licensed a patent, you cannot again obtain a licensing fee or royalties from those companies. So even if you’re buying the portfolio which is already licensed to someone, you cannot go after those companies.

HML

Therefore, these are the factors that you should also consider. So always do an HML of the companies where ‘H’ means high valued company, ‘M’ means medium valued and ‘L’ means low valued companies and the value is determined based on your position in the market.

So, if you are a company like X and Y is your direct competitor and Y is already encumbered, then Y is a high valued company in that particular portfolio’s encumbrance list.

Therefore, for a buyer it is important to know which high valued companies are already licensed.

So even if there is a widespread infringement where the value of the package is expected to increase, as we discussed earlier, the value of that package would now actually vary from buyer to buyer depending on what their objective is.

Current Value

As a buyer, it becomes very important to define the current value of the patents in context of specific situations. If you are looking to buy a package to prepare defense against specific competitors and these competitors are already licensed to that particular package, then the value of the package would drastically decrease for you, as you would not be able to protect yourself using these patents against your competitors.

The effect could be so much that you might not even want to buy these patents at all.

If the only companies that are potential targets for a license are already licensed, then the patent is essentially worthless. So that’s the meaning of doing this kind of analysis with respect to encumbrances.

So, over to you, Aman.

Average Cost For Valuation Study

Aman Goyal speaking– Thanks, Abhinav. In the industry, the average cost for valuation study per patent lies between 3,000 USD to 5,000 USD. In general, the patent portfolio that we receive for valuation study comprises around 17 to 25 patents.

If we take 20 patents as average, then the total cost per portfolio would come out to be around 60K (60,000) USD to 100,000 USD and it is a very huge cost. And, it is also one of the reasons that is prohibiting the firm from conducting valuation study.

Within the package, we have seen that there are patents which belong to similar technology area and applicable market is same. We can exploit that factor and reduce the cost substantially as we had done for one of our clients where we had performed the valuation study at less than half the price generally quoted by the firm.

I have mentioned that within a patent portfolio there are patents which relate to similar market domain and it is advisable to bucket the patent portfolio in different technology tag, say we have categorized them in both categories. Then we apply a hybrid approach to top two patents of each category.

We would identify the top two patents in each category during preliminary analysis where we choose those patents which have higher technology adoption, or widespread infringement and broader claim scope than the rest of the patents in each category.

Having obtained the value of top patents for each category, we then apply related valuation to remaining patents of each category. We will discuss it in detail in our case study.

Then, some of those values obtained for each patent to obtain the value of the patent portfolio.

Case Study

One of our clients approached us with a patent portfolio of 17 assets. We analyzed those patents to bucket them into 4 technology tags like Data Analytics, Cloud Computing, Search Engine and Customer Support.

Applying Hybrid Approach

Then, we applied hybrid approach to top two patents of each category as we have explained in previous slides where we have followed Q2 approach.

Now, the next aspect that we want to discuss here is how we have performed relative valuation.

Tagging Patents

In order to perform relative valuation, we have picked one of the patents tagged under cloud computing for discussion purpose.

A relative approach is similar to market approach adjusted for IP factor. As in market approach we value patent from similar transaction in similar technology. Here, we are considering average market value of the patent in similar market domain that is cloud computing.

Weightage Assigned to Different Parameters

Then we also use certain IP factors like infringement, technology adoption, claim scope and forward citation. We have given different weightage to each factor as per its importance. You can customize these IP factors as well as their weight, as per your needs. We have chosen these as they were essential for the portfolio under study. We have given infringement as highest weightage as patent having infringement command premium.

Scoring Patents for Each Parameter

Then, we have scored patent for each parameter out of 100. After giving the score we have obtained the final score by adjusting these values as per their weight. We have also obtained the score for top two patents in each category on similar front.

We then use that score to obtain the relative factor of the patent. This is then multiplied by the average patent value in the cloud computing market.

So, based on this table that we have used, where we have used different parameters, we have calculated the score for those patents on which we are not directly applying the hybrid approach.

We have applied the hybrid approach on the top two patents in each category and calculated the relative value of the remaining patents in each category using the relative valuation approach.

Then, we have summed up all these data to obtain the final value of the patent portfolio.

Reason for doing relative valuation and categorizing them is when we reuse the market data for patent in the same category saves a lot of analysis time. Also, the usage of relative valuation use the data cost effectively. As we have already obtained the quantitative data in the form of average value of the top two patents in a category, we only need to calculate qualitative data.

That’s why we do valuation of patent portfolio in a very cost effective manner. We are reusing the data and performing relative valuation.

In this way we are doing the patent portfolio study in a very cost effective manner and one can do this approach in our own study and we can change the parameter as per our needs also.

That’s it from my side. Over to you, Faiz.

Questions & Answers

Faiz Wahid speaking- Thanks Aman. I think that was quite an in-depth discussion, in-depth presentation on the topic, and I can see some questions flowing up based on what you were presenting, you and Abhinav.

So, let me move on to the questions. And this question focuses particularly more on the methodology that you talked about, the Q2 methodology.

How is Q2 analysis like the hybrid of quantitative and qualitative mix? How is Q2 analysis different from the regular financial valuation analysis?

Aman Goyal speaking- Financial analysis does not consider the technology adoption as well as the market applicability.

In Q2, we consider not only the target market, but also the share of the technology. Now, within the technology, we also consider market applicability.

Like, you have a patent related to mobile locking mechanism. But, there are multiple locking mechanisms. There are passwords, fingerprint, and facial recognition. There are technologies associated with in-display or at the back even within fingerprint. Our patent is relevant for on-the-back technology. Then, we will adjust the patent value for the market share of the on-the-back fingerprint technology rather considering the market value of the locking mechanism.

As the market value of locking mechanism would be quite large having multiple sub-layers not relevant for our patent.

So, this kind of analysis where we are using our IP domain knowledge to identify the right market area and using that for valuation make Q2 approach different from a simple financial analysis where we are doing it just based on the market to which the technology catered, not considering the layer which are related to that particular technology.

Faiz Wahid speaking- So, what you are saying is there is a much deeper technical assessment of the technology. And, its relative position with respect to the alternatives that might be available, not necessarily in the market, but in the technology that has been patented. So, basically you are also able to not only compare it with existing or available technologies in the market, but you’re also able to compare it with upcoming technologies that are not yet available in the market.

Thanks for sharing that, Aman.

The other question is for Abhinav now.

How do you assign weightages to different parameters when you are computing the valuation?

In the relative valuation, there are multiple parameters, how do you assign weightages to these different parameters when you are computing the valuation?

Abhinav Mahajan speaking– So, that’s a very good question, Faiz. As we discussed these parameters and weightages, these are based on our experience, and can be modified depending on different packages.

Example- Assigning Weightages to Different Parameters

For example, there are 2 packages of 5 patents each. The average remaining life of patents in each package is 10 years.

Package A, has all the patents expiring around the same time. Their average life is 10 years. Then this relative value, in valuation where we consider a factor called remaining life, won’t be that important because all patents are expiring around the same time.

But, there is another package where few patents are expiring in the next 3 years, others in 15 years. And, we have used hybrid approach to calculate the valuation which is expiring in 7 years. Then, to calculate the values of patents expiring in 2-3 years and 15 years, it’s important to consider the remaining life because it’s varying.

Also, patents are expiring in 3 years, 7 years and 15 years & because there is such a broad remaining life of the patent, this factor becomes important in terms of weightage also. There are other factors like infringement potential, which gets the higher weightage for obvious reasons.

A widespread infringement, would increase the valuation by many folds to 60-50%. A patent with no infringement mostly fails to catch any attention of the buyer.

We have seen a number of portfolios listed on the broker network which do not appeal interesting to anyone, even if their ask price is minimum.

These factors are important to consider and the assignment of weightages depends on your preliminary analysis of the portfolio.

Faiz Wahid speaking- It is a mix of heuristics based on expert opinion and the nature of your package, and then, those weightages will be justified through proper assumptions.

Abhinav Mahajan speaking- Yes! There has to be certain logic behind keeping those weightages.

Faiz Wahid speaking- Okay. So, follow up question for you.

Is there something like an average ask price for an asset?

You have been doing so many valuations. Is there something like an average ask price for an asset?

Abhinav Mahajan speaking- Patents have varying relative strength and market applicability, and this influences their valuation.

The valuation depends on the demand for them, which varies by technology area and the current market landscape and many other factors.

Considering the recent COVID time, there are more sellers than buyers. The patents are being transacted at very low price, unless there are a vast number of Evidence of Use charts that they have prepared.

So, average price per patent also varies by package size for smaller packages, like 4 to 5 patents. With good amount of EoU, average price per patent is somewhat around 150,000 USD to 200,000 USD. And, this goes as low as 30,000 or 50,000 when there is no infringement.

For larger packages with around 50 patents, the average price is somewhat around 50,000 to 80,000.

Again, this all depends on the applicable market area, the technology of the patents, and how the patents in the package apply to that particular market.

So, if there is infringement and there are Evidence of Use charts, then the value could increase by 60 to 65%. And, on the broker network you will see the listed average price. For smaller packages, it could be as good as 150,000 USD to 200,000 USD. This is the ask price. And, obviously the patent is transacted at a lower value than this.

Now, the value at which the patent is transacted depends on how the package has been constructed having all deal drivers mentioned in pitch-book.

Faiz Wahid speaking- Okay. Next is:

Is the value of the patent really independent of the IP portfolio of the acquirer or the buyer? And, is the value of the patent an absolute value always or can the same patent be worth differently to two different buyer portfolios?

Abhinav Mahajan speaking- Yeah, please. That’s a very interesting question. And, part of it was already explained in the webinar.

An important factor to consider here is the encumbrances. And, also the fact, when we value a patent, we should value the patent based on our specific situation.

So, for example, for a Company A, which is looking to buy a particular portfolio, the objective could be different from a Company B.

Now, how willing the company is to get that portfolio on board is a very important factor to understand here.

There could be one Company A which is looking to buy a patent to assert against a competitor, direct competitor. And there is a Company B, which is actually looking to buy a portfolio to maybe develop its own product line. So, Company A would be very aggressive in their pricing, and Company B could be a little aggressive with their pricing.

And, also the fact that we are considering the encumbrances, for Company B if the portfolio is already encumbered and because they are not going to use it against someone, it would hardly matter for them whether the patent portfolio is encumbered heavily or not, because they are developing their own portfolio.

However, for Company A, which we know is going to use it against some Company B or C, and then it becomes an important factor to consider here is that how well encumbered or heavily encumbered is the portfolio. Because there are very less chances that the company A would be able to use it against anyone if the portfolio is already well encumbered. So, depending on who the buyer/acquirer is, the valuation of the package, it depends on multiple factors.

What is Encumbrance?

Faiz Wahid speaking- Right! And, I think here you touched upon encumbrance. Can you please explain more on what an encumbrance is, maybe just for the benefit of our audience? As far as I understand it, it is when somebody else makes a claim on an IP.

Abhinav Mahajan speaking- Basically, with every patent licensing agreement, it’s an encumbrance. Because, it prevents a company buying a patent asset from obtaining royalties from a company that has already licensed the patent.

For example, if there was a Company A, which has already given a license to Company B. Now, in future time, say, Company A sell this patent to company C. Then, Company C does not have the right to again go after Company B to obtain royalties. Hence, B basically becomes encumbrance to that particular portfolio.

Faiz Wahid speaking– So essentially, it’s kind of an added limitation. The more the number of encumbrances, the lesser the sort of transferability is there.

Abhinav Mahajan speaking- Yeah. I mean, it’s value will be very less if you are not able to use it for further licensing. It could become completely worthless for you. If you see your competitors, emerging players in the market in which you are operating all are already encumbered. So, it becomes kind of worthless for you to acquire that patent for no use.

Unless you are looking to develop your own product line based on that portfolio, then obviously you should consider buying it.

Faiz Wahid speaking- Right! And, all this happens.

You also mentioned during the presentation, and this question probably relates to that. One of our participants is trying to understand what kind of databases we are using for historical data.

What all databases do we use for historical data?

Abhinav Mahajan speaking- There are a couple of databases that we use. But, there could be a number of other as well. It depends on you, which of the databases you feel you are comfortable exploring with.

We use ktMINE and Royalty Range. These databases are quite vast in terms of data points that they offer.

I feel that Royalty Range has better managed database of the data points of the past transaction.

And, both these databases, are very flexible in terms of their subscription model.

For example, you can get a yearly or a monthly subscription. They are more flexible in a way that you can also get a day’s pass. So, for example, you can get a day’s pass and explore the database. Say, you’re working on a project and for that; you take a day’s pass. You explore the database, get the data points. Then, you don’t have to worry about paying for the rest of the year.

These databases are very flexible. Royalty Range allows you to freely search. But, they charge for the data points. So it’s again, very flexible. They don’t charge you for the search part. They only charge you for the data points if they have it, or you find it in the search. So, it’s obviously good to use them.

But again, when you use them, consider the age of search data. You don’t want to use a patent transaction data of 2010, and then compare it to your portfolio now after 10 years. Because, the market has grown from 2010 to 2020 with a large amount of factors. And, there could be other factors. Like in terms of COVID, we have seen patents transacted at a very low value as compared to what it has been in the history.

End-Note

Faiz Wahid speaking- Wonderful! I think on that very practical input that, Abhinav, you provided, let me close the Q&A session. That brings us to the end of this overall session. I’m sure our listeners have great takeaways from this session. They will be able to use several of these pointers in their IP valuation efforts. So, thank you, Aman and Abhinav, for speaking on this topic and sharing your knowledge. And, I want to extend a very big thank you to our webinar participants once again. You helped us start on time & I highly appreciate that. And, thank you so much! Please join us in our next webinar and have a great day ahead. Thank you!

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