Tuesday, May 05, 2009

Patent Valuation Practices of Europe's Top 500

Martin A. Bader and Frauke Rüther, on behalf of PriceWaterhouseCoopers, surveyed the top 500 patent applicants of the EPO to determine valuation procedures and methods. It has been known for a while now that the management of intangible assets is an important element of strategic corporate management that is constantly increasing in significance.

As a consequence of International Financial Reporting Standards (IFRS), intangible assets, including patents, have to be listed according to certain prerequisites on a corporate balance sheet. Regulators, as well as potential stakeholders and investors, are constantly looking for accurate and transparent valuations for determining portfolio worth. This study hopes to shed some light on this topic by seeing what the largest EU patent holders do.

At the outset, more than 90% of the interviewees emphasized the importance of innovations and patents for corporate success. With regard to patents alone, only 58% of the interviewees cited that patents were important to their business. 57% of the companies interviewed indicated that "value-oriented innovation management" is firmly entrenched in their organization; only 12% answered this question in the negative.

Despite the fact that IP requires some regular management and valuation, the interviewees
indicated that monetary valuations are conducted "relatively rarely." Also, 44% of the companies stated that they use a cost-oriented valuation process (as opposed to a value-oriented process) for normal valuation "events" (disputes, transfers, taxation, etc.). According to the authors,

This result is surprising since particularly the management who frequently asks to be informed about the potential value contribution of their patents will find it difficult to infer it from this method. It is also surprising in the light of the importance of value-oriented innovation management . . . The path from a currently dominating risk and cost approach in patent portfolio management and patent valuation to an at least application dependent opportunity and market or income based approach still seems to be steep and breathtaking for Europe’s top enterprises.

With regard to timing of valuation of patents and technologies, the survey presented a number of "events" and asked the participants to answer on a scale of 1 (never) to 5 (often) when valuations would occur. The results are as follows:

Maintenance of patent (3.8)

Compensation of employee (3.6)

Control of R&D (3.0)

Distribution of budgets (3.3)

Cross-licensing (2.8)

Strategic alliances (3.1)

Purchase/ Sale of company (2.6)

External reporting (2.5)

Compensation for damages (2.5)

Loan Collateral (1.4)

Voluntary information (2.1)

Debt / Equity financing (2.0)

Liquidation, insolvency(1.3)

Transfer pricing (2.5)

Transfer of functions (2.0)


In addition to these statistics, the report includes other statistics and some useful summaries of the 3 most common valuation methods: (1) market approach, (2) income approach, and (3) cost approach.

Read/download a summary of "The Patent Valuation Practices of Europe’s Top 500" (link)

1 Comentário:

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