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¡Think Academic – Act Business!. Management of Intangible Assets in Higher Education. INTRODUCTION TO PATENT VALUATION. International Patents. PILA Kick-off Meeting, 19-20 January 2009. 3. International Patents. http://www.wipo.int/patentscope/en/patents_faq.html.

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Presentation Transcript
introduction to patent valuation
INTRODUCTION TO PATENT VALUATION

PILA Kick-off Meeting, 19-20 January 2009

international patents
International Patents

PILA Kick-off Meeting, 19-20 January 2009

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international patents1
International Patents

http://www.wipo.int/patentscope/en/patents_faq.html

A patent is an exclusive right granted for an invention, which is a product or a process that provides, a new way of doing something, or offers a new technical solution to a problem.

A patent provides protection for the invention to the owner of the patent. The protection is granted for a limited period, generally 20 years.

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what kinds of inventions can be protected
What kinds of inventions can be protected?

http://www.wipo.int/patentscope/en/patents_faq.html

It must be of practicaluse;

It must show an element of novelty, that is, some new characteristic not found in the body of existing knowledge in its technical field.

The invention must display an inventive step which could not be deduced by a person with average knowledge of the technical field.

Finally, its subject matter must be accepted as "patentable" under law.

PILA Kick-off Meeting, 19-20 January 2009

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who grants patents
Who grants patents?

http://www.wipo.int/patentscope/en/patents_faq.html

  • national patent office
  • regionaloffice that does the work for a number of countries
    • European Patent Office
    • African Regional Intellectual Property Organization
  • WIPO-administered Patent Cooperation Treaty (PCT) provides for the filing of a single international patent application

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how can a patent be obtained worldwide
How can a patent be obtained worldwide?

http://www.wipo.int/patentscope/en/patents_faq.html

At present, no world patents or international patents exist.

Application for a patent must be filed before a patent can be granted and enforced, in each country

Any resident or national of a Contracting State of the Patent Cooperation Treaty (PCT) may file an international application under the PCT

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where can i find patent information
Where can I find patent information?

http://www.wipo.int/patentscope/en/patents_faq.html

Procedural and substantive requirements for the grant of patents as well as the amount of fees required are different from one country/region to the other.

http://www.wipo.int/directory/en/urls.jsp

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where can i find patent information1
Where can I find patent information?

http://www.wipo.int/patentscope/en/patents_faq.html

Search patent applications and granted patents

WIPO: http://www.wipo.int/patentscope

Web-based databases:http://www.wipo.int/ipdl/en/resources/links.jsp

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what information does a patent document contain
What information does a patent documentcontain?

WIPO Guide to Using PATENT INFORMATION

Technical information from the description and drawings of theinvention;

Legal information from the patent claims defining the scope of the patent and from its legal status;

Business-relevant information from reference data identifying the inventor, date of filing, country of origin, etc.;

Public policy-relevant information from an analysis of filingtrends to be used by policymakers, e.g., in national industrial policystrategy.

PILA Kick-off Meeting, 19-20 January 2009

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sample patent application front page
Sample patent application front page

WIPO Guide to Using PATENT INFORMATION

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what information does a patent document contain1
What information does a patent documentcontain?

WIPO Guide to Using PATENT INFORMATION

Applicant. Name of the individual or company applying to have a particular invention protected;

Inventor. Name of the person or persons who invented the new technology and developed the invention;

Description. Clear and concise explanation of known existing technologies related to the new invention and explanation of how this invention could be applied to solve problems not addressed by the existing technologies;

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what information does a patent document contain2
What information does a patent documentcontain?

WIPO Guide to Using PATENT INFORMATION

Claims. Legal definition of the subject matter which the applicant regards as his invention and for which protection is sought or granted;

Priority filing. Original first filing on the basis of which further successive national, regional or international filings can be made within the priority period of one year;

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what information does a patent document contain3
What information does a patent documentcontain?

WIPO Guide to Using PATENT INFORMATION

Priority date. Date of the first filing from which the innovation is protected

Filing date. Date of submitting an individual patent application at a particular patent office and, therefore, the date from which the innovation is protected if the application issuccessful;

Designated states. If the application is regional or international, the countries to which the rights may be extended;

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what information does a patent document contain4
What information does a patent documentcontain?

WIPO Guide to Using PATENT INFORMATION

Legal status. Indicates whether the patent has been granted or not

Citationandreferences

Bibliographic data

Documentkindcodes

PILA Kick-off Meeting, 19-20 January 2009

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patent valuation
Patent Valuation

Step-by-step guide to patent valuation

PILA Kick-off Meeting, 19-20 January 2009

patent valuation1
Patent valuation

Valuation of a patent involves making judgments, explicitly or implicitly, about the future.

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step by step guide to patent valuation
Step-by-step guide to patent valuation

Practical step-by-step guide: Checklist patent valuation

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step by step guide to patent valuation1
Step-by-step guide to patent valuation

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a valuation application
A. Valuation application
  • Client
    • Person who assigned the patent valuation.
    • Engagement
      • Verbal
      • Written

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a valuation application1
A. Valuation application
  • Item to be valued (valuation object)
    • Protection patent
    • Licensable patent
    • Blocking patent
    • Exchange patent

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a valuation application2
A. Valuation application

PILA Kick-off Meeting, 19-20 January 2009

Item to be valued (valuation object)

22

valuation risks
Valuation risks

Market risks

Market acceptance

Market dynamic

Sales opportunities

Competition

Investment risks

Technical risks

Feasibility

Product integration potential

Technological progress

Legal risks

Protectability

Risk of litigation

Claims

(Spranger 2006)

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valuation parameter
Valuation parameter

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a valuation application3
A. Valuation application
  • Valuation subject
    • In general a valuation will be prepared from the perspective of the valuation subject.
    • This can be done for one party or for several.

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reasons for patent valuation
Reasons for patent valuation
  • Non-legal obligation
    • Transactions (Patent value as a basis for the selling price)
    • Controlling (Patent governance, part of company valuation)
    • Financing (Valuation for investors, loan security)
    • Phase of patenting
    • Valuation of legal costs

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reasons for patent valuation1
Reasons for patent valuation
  • Legal obligation
    • Accounting
    • Tax calculation
    • Value of a claim (patent infringement)
    • Adjustment of claims

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valuation purpose function of the evaluator
Valuation purpose, function of the evaluator
  • Evaluator as a consultant
    • Subjective value depending on the valuation subject
    • Selling or buying perspective
  • Evaluator as an intermediator
    • Subjective value depending on several valuation subjects
    • Patent value is a trade-off between the valuation subjects
  • Evaluator as an expert third-party
    • Valuation for accounting reasons
    • Valuation for tax basis

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valuation date
Valuation date

A valuation will be always prepared for a specific point in time.

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valuation methods
Valuation methods

PILA Kick-off Meeting, 19-20 January 2009

quantitative evaluation methods
Quantitative evaluation methods
  • Cost approach
    • What are reproduction or replacement costs?
  • Market approach
    • What is the value for a comparable patent?
  • Income approach
    • What are the possible future cashflows of the patent?
  • Hybrid forms

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cost approach
Cost approach
  • Reproduction cost method
    • This method considers the costs necessary to reproduce a duplicate of the asset
  • Replacement cost method
    • This method considers the costs in order to produce a asset with the same benefit.
    • Costs are based on the current market conditions.

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replacement cost method
Replacement cost method

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market approach
Market Approach
  • Market transaction method
    • This method is based on monitoring of an active market for intangible assets.
    • Thus, the monitored market prices need to be set for comparably priced assets.
    • Problem: intangible assets are not regularly traded on active markets

PILA Kick-off Meeting, 19-20 January 2009

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market approach1
Market Approach
  • Residual value approach of Parr
    • Basic idea: the patent value is the difference between the market value of the company (stock price) and the current value of the other assets
    • Problem:
      • Not all intangible assets are identifiable
      • Does the stock price represent the real company value?

PILA Kick-off Meeting, 19-20 January 2009

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income approach and other approaches
Income approach and other approaches
  • Income approach
    • Discounted cash flow method
    • Residual value approach
    • Relief-from-Royalty-Method
    • Incremental Cash flow Method
  • Other methods
    • 25%-Method
    • Conjoint-Analysis
    • Real options

PILA Kick-off Meeting, 19-20 January 2009

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discounted cash flow method
Discounted cash flow method
  • Cashflow (CF) is the difference between the yearly income and outflows which can be linked to the patent
  • The future cashflows need to be predicted and discounted for the valuation date
  • Required Parameters
    • Turnover that will be generated by the patent
    • Costs for usage of the patent
    • Run-time
    • Discount rate (risk-free rate + market risk rate + substitution risk and technical risk)

PILA Kick-off Meeting, 19-20 January 2009

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residual value approach
Residual value approach
  • Cash flows can not always be directly linked to a specific asset
  • In most cases a patent generates a cash flow in combination with other tangible or intangible assets
  • The calculation of the cash flows will be done for a specific product

PILA Kick-off Meeting, 19-20 January 2009

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residual value approach1
Residual value approach
  • With the residual value approach, fictive outflows from the total cash flow will be deduced in order to determine the cash flows for the patent
  • These fictive outflows can be seen as fictive compensation fees for usage of the asset

PILA Kick-off Meeting, 19-20 January 2009

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incremental cashflow method
Incremental cashflow method
  • The cash flows will not be estimated directly, but based on the difference between the cash flows of the valuation object with and without usage of the patent.
  • With this method, the surplus for the usage of the patent will be extrapolated
    • A profit-improving effect is induced by e.g. new patent drugs, which lead to a considerable increase of sales of existing drugs
    • Another possible improvement would be an increase in efficiency and thus cost reduction with the usage of the patent

PILA Kick-off Meeting, 19-20 January 2009

40

relief from royalty method
Relief-from-Royalty-Method
  • Basic idea: What is the licencing fee if you are not the owner of the patent
  • With ownership of the patent, the entrepreneur/innovator saves costs, which generates additional cash flow
  • The sum of all savings over the patent lifetime is discounted to the valuation date.  This is the patent value.
  • This method is the so-called hybrid method
    • Market based approach (licences fee)
    • Income based approach (sales)

PILA Kick-off Meeting, 19-20 January 2009

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calculation of the discount rate
Calculation of the discount rate

www.stern.nyu.edu/~adamodar/

  • Capital Asset Pricing Model (CAPM)

Kd = Cost of capital

Rf = Risk-free rate of return

β = β –Factor (e.g.: Webpage Damodaran)

Rm = Average market rate of return

Rm -Rf = Market risk premium

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risk consideration
Risk consideration
  • Substitution risks
  • Technical risks
  • Legal risks

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example 1 discounted cash flow method
EXAMPLE 1 Discounted cash flow method

(according to Ensthaler / Strübbe2006, P. 167 f.)

  • Parameters for the discounted cash flow method

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example 1 cash flow method
EXAMPLE 1 cash flow method
  • Calculationofthediscount rate

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example 1 cash flow method1
EXAMPLE 1 Cash- Flow method
  • Calculation of technicalrisks

PILA Kick-off Meeting, 19-20 January 2009

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example 1 cash flow method2
EXAMPLE 1 Cash flow method
  • Calculationofthe patent value

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example 2 relief from royalty method
EXAMPLE 2 Relief-from-royalty-method
  • The calculation of the relief-from-royalty-method is based on three steps:

1. Step: Identification of the revenues for the patent

2. Step: Identification of the royalty rate

3. Step: Calculation of present savings value

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example 2 relief from royalty method1
EXAMPLE 2 Relief-from-royalty method
  • Parameter for the Relief-from-royalty method(according to Spranger 2006)

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example 2 relief from royalty method2
EXAMPLE 2 Relief-from-royalty-method
  • Calculation of the Relief-from-royalty-method(according to Spranger 2006, P. 166)

PILA Kick-off Meeting, 19-20 January 2009

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patent valuation for start ups
Patent valuation for start-ups

Quelle: Spranger 2006; S. 156

  • In the earliest phases of high-tech start-ups there are no sales or only fee sales  mainly intangible assets

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finding of an adequate licencing rate
Finding of an adequate licencing rate
  • The problem
    • Patents are per defintion not 1:1 comparable this means that there is no exact equal rate
  • The solution
    • Range of fluctuation for the licencing rate can be defined per industry/field (international patent classification) (Range of fluctuation can be between 3.5 % and 6.5 %)

The practical method is a combination of qualitative valuation methods  the APUD Model

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the apud model from the university of d sseldorf
The APUD Model from the University of Düsseldorf
  • The valuation method considers all qualitative valuation factors
  • There are two main areas:
    • The patent: Within this area, factors like extent of protection, patent infringement and lifetime will be considered
    • The market of the product:Factors like technical feasibility, regulation, demand, substitution will be considered
  • The valuation will be done on a scale of 0 (bad) till 10 (very good)

PILA Kick-off Meeting, 19-20 January 2009

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the apud model from the university of d sseldorf1
The APUD Model from the University of Düsseldorf

PILA Kick-off Meeting, 19-20 January 2009

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the apud model from the university of d sseldorf2
The APUD Model from the University of Düsseldorf

e.g. 5,8%

adequate licencing rate according to the APUD Model

3,5%.................5%...............6,5%

e.g. range of fluctuation for

the daily lifetime demand of medicine

  • After the execution of the qualitative valuation according to the APUD Model, the adequate licencing rate for the new patent of the start-up can be defined

PILA Kick-off Meeting, 19-20 January 2009

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ip commercialisation
IP Commercialisation

In Higher Education

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ip commercialisation1
IP COMMERCIALISATION
  • In general two strategies can be seen at universities:
    • Commercialisation through the university itself
    • Commercialisation through public / private partners

PILA Kick-off Meeting, 19-20 January 2009

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ip commercialisation2
IP COMMERCIALISATION
  • Like corporations, universities have the following possibilities for commercialisation of patents
    • Registration of a patent => commercialisation through claim for compensation in case of patent infringement
    • Commercialisation through unlimited or limited royalties
    • Selling of the patent
    • Commercialisation through a company

PILA Kick-off Meeting, 19-20 January 2009

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internal preparation for patent commercialisation
Internal preparation for Patent COMMERCIALISATION

PILA Kick-off Meeting, 19-20 January 2009

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internal preparation for patent commercialisation1
Internal preparation for patent commercialisation

Project description

Time and milestone plan

Detailed financing plan

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project description
Project description

Which product or products should/could be developed from the patent?(List of possible applications)

What is innovative about the product or products?

What are the main strengths and weaknesses of the product?

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project description1
Project description

What is the target group/industrial branch for the product?What are the strengths and weaknesses for this industrial branch?

What is the market potential of the product for a specific target group?

Which market share (in what time) could the product reach for the target group?

PILA Kick-off Meeting, 19-20 January 2009

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product description
Product description

What are the product’s main competitors and why?

Are there already any experiences with similar products? First Mover?

Is it easy to imitate or substitute the product?

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time and milestone planning
Time and milestone planning

What are the main milestones for the current patent or the current state of research and development for the real product?

Are there any milestones which require legal steps? For example concession?

What is the earliest possible launch date for the product?

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time and milestone planning1
Time and milestone planning

What is the earliest possible time to generate sales?

What is the life cycle of the new product?

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cost planning and financial planning
Cost planning and financial planning

What are the costs for patenting in the past? Can these costs be directly linked to the development project?

What are the patent commercialisation costs?

PILA Kick-off Meeting, 19-20 January 2009

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cost planning and financial planning1
Cost planning and financial planning

What are the costs for launching the product? At least a systematic estimation?

Is it possible to link the costs to the time and milestone plan in a way comprehensible to 3rd parties?

PILA Kick-off Meeting, 19-20 January 2009

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important points in practice
Important points in practice

“Strategic Fit“ of the product and possibilities for the company

“Financial risk“ for the company until the product can be launched

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strategic fit
Strategic Fit

Strategic Investors in New Technology / Patents

Market entry

Geographicalexpantion

Customers

Technological environment

Market adjustment

Horizontal diversification

Development of new markets (international/ regional)

Development of new distribution channels in order to increase sales base

Development of new technologies and know-how

Development of competitive advantage

“Strategic Fit” has highest priority !

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practical exercises info memo
PRACTICAL EXERCISES: Info Memo

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practical exercises info memo1
PRACTICAL EXERCISES: Info Memo

Work in a group of 4 to 6 people

Prepare an info-memo in English for a research and development result which is going to be patented soon

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practical exercises info memo2
PRACTICAL EXERCISES: Info Memo

After the preparation of the info memos, the info memos will be exchanged between the groups.

Now each group takes on the role of a company, trying to understand the new patent and its potential value to the company?

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practical exercises info memo3
PRACTICAL EXERCISES: Info Memo

Now, half the group who prepared the info memo will meet with half the group who analysed the info memo. All open questions can be discussed with the aim of optimising the info memo.

PILA Kick-off Meeting, 19-20 January 2009

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contact to the market through the selling process
Contact to the market through the selling process

PILA Kick-off Meeting, 19-20 January 2009

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contact to the market
Contact to the market

Selection of the target group

Creation of the info memo

Contacting the short list and non-disclosure agreement

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selection of the target group
Selection of the target group
  • For the initial project description, milestone planning and cost planning there is a logical order whereby the patent can be most quickly commercialised with the lowest costs
  • Search for possible contact person(s) in the home country and abroad

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selection of the target group1
Selection of the target group

The result of the contact person search is the long list

From the long list, arguments for and against inclusion in the list will be discussed and the list will be shortened and reordered.

 The result is the short list.

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creation of the info memo
Creation of the info memo
  • Good information for the potential buyer through a memorandum (=Info Memo)
  • Info Memo
    • At least 2 pages and up to 3 pages
    • All relevant information

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contacting of the short list and non disclosure agreement
Contacting of the short list and non-disclosure agreement
  • Submission of the info memo to potential buyers on the short list
  • After about 2 weeks contact by phone:
    • Receipt of the info memo
    • Submission of the non-disclosure agreement

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selection process
Selection process
  • Typical selling process:
    • Private Sale – about 3 - 5 interested parties
    • Controlled Auction – about 8 - 15 interested parties
    • Public Auction – more than 15 interested parties

PILA Kick-off Meeting, 19-20 January 2009

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typical selling process
Typical selling process

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indicative offer and evaluatoin
Indicative offer and evaluatoin
  • Indicative offer as a basis for the selling process
  • Indicative offer includes:
    • Rough financial offer
    • Additional conditions
    • Requirements
  • As a result 3 to 5 letters of intent should be signed

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due diligence
Due Diligence

The 3 to 5 interested parties, who signed the LOI have the possibility to prepare a Due Diligence (DD):

Technical DD = Inspection of the functional/technical aspects of the patent

Legal DD = Evaluation of the legal aspects of the patent

Financial DD = Evaluation of the financial aspects of the patent

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licence agreement with execution and controlling
Licence agreement with execution and controlling
  • Main points of the contract negotiations:
    • Financial agreement
    • Main points for the execution
    • Controlling possibilities for the financial agreement
    • Minimum purchase / minimum sales

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timetable for patent commercialisation
Timetable for patent commercialisation

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incorporation of an enterprise for patent commercialisation
Incorporation of an enterprise for patent commercialisation

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incorporation of an enterprise
Incorporation of an enterprise

Common strategies for patent commercialisation in the USA and UK

Incorporation through university alone or with a partner

New patent-commercialisation fund

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typical problems
Typical problems

Are all three key competences within the company?Technical/financial/marketing

Is it possible to get the required capital through investors or grants within the start-up phase to develop the patent for a market launch?

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typical problems1
Typical problems

Is it possible to find 2-3 market niches for the product or process in which first fast sales can be easily generated?

Is it possible after the market launch to raise further capital (investor/grant) to finance the execution of orders?

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typical problems2
Typical problems
  • Is it possible to achieve a systematic structure for the internal organisation of the corporation which does not stifle the innovation of the research and development phase?
  • Is it possible to find high-performance distribution partners in order to reach and service global customers?

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entrepreneurship as a process
Entrepreneurship as a Process

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