David Blackwell - What is your IP worth

Report
University of Kentucky
Commercialization Pathways Workshop
Part II, March 11, 2014
What is your IP worth?
David W. Blackwell
Professor of Finance and Dean
Gatton College of Business and Economics
1
Commercialization Pathways
• Sponsored Research
• License to Industry
• Startup Company
• How do you decide?
• What’s best for the inventor?
• What’s best for UK?
Source: Von Allmen Center for Entrepreneurship
2
Commercialization Pathways
1
2
3
4
Sponsored research
License to industry
License to product startup
License to development startup
1
Industry
Partner
UK
2
Startup
M
A
R
K
E
T
4
3
Source: Von Allmen Center for Entrepreneurship
3
Commercialization Pathways
1
2
3
4
1
UK
2
patent expenses
progress payments
royalties
equity
Sponsored research
License to industry
License to product startup
License to development startup
1st
lab funding
rights to license
M
A
R
K
E
T
Industry
Partner
patent expenses
progress payments
royalties
progress payments
royalties
Startup
4
3
Source: Von Allmen Center for Entrepreneurship
product/service sales
4
Client Stories
(UK)
UK Royalty
Distribution
UK
patent expenses
royalties
equity
progress payments
licensee
after repayment of patent expenses
• 40% inventors
• 20% inventors’ department(s)
• 20% inventors’ college(s)
• 20% UKRF
Source: Von Allmen Center for Entrepreneurship
5
Client Stories
(UK)
UK Royalty
Distribution
Simplified Example
after payment of patent expenses
$5
patent expenses
royalties
equity
progress payments
UK
$5
$2
$1
$1
$1
$100 sales
5% royalty
licensee
after repayment of patent expenses
• 40% inventors
• 20% inventors’ department(s)
• 20% inventors’ college(s)
• 20% UKRF
Source: Von Allmen Center for Entrepreneurship
6
1
Client Stories
(UK)
Sponsored
Research
Benefits
• Provides funding for UK research
• Creates early industry partnership
Challenges
• In many cases, hard to find company willing
to do
• Potential conflicts on IP ownership
• Company usually has first rights to license,
potentially limiting commercialization
options
Example where it is the preferred approach
Energy opportunity where…
• industry partner does not have internal research expertise
• commercialization can only be done by industry
• funding required is very large and time to market is long
• heavy regulatory requirements
7
2
Client to
Stories
(UK)
License
Industry
Benefits
Challenges
• Creates ongoing royalties for life of
patent
• Many companies want further along in
development before licensing
• Minimizes UK & inventor resources in
commercialization process
• Need to monitor licensee keeps focus on
commercialization
• Doesn’t contribute to local/state economic
development
Example where it is the preferred approach
Agriculture opportunity where…
• UK IP has large market opportunity and first office action is positive
• commercialization can only be done by industry
• funding required is very large and time to market is long
• regulatory requirements
Source: Von Allmen Center for Entrepreneurship
8
3
Client
Stories Startup
(UK)
License
to Product
Benefits
• Offers inventor opportunity to
participate in bringing product to
market, and to own equity
• Startup controls priorities
Challenges
• Inventor must carefully manage potential
conflict of interest with UK responsibilities
• Finding the right management team is hard
• Raising money is a continual challenge
• Contributes to job creation and
economic development in Kentucky
Example where it is the preferred approach
Engineering opportunity where…
• UK IP has large market opportunity
• SBIR/STTRs and angel funding can bring to market or to next funding stage
• Time to market is relatively short
• Strong management team is available with both technical and business
experience
• No regulatory requirements
9
Source: Von Allmen Center for Entrepreneurship
4
Stories (UK)
License Client
to Development
Startup
Benefits
• Offers inventor opportunity to
participate in bringing product to
market, and to own equity
• Increases license value by being further
along in commercialization stage
Challenges
• Inventor must carefully manage potential
conflict of interest with UK responsibilities
• Finding the right management team is hard
• Raising money is a continual challenge
• Contributes to job creation and
economic development in Kentucky
Example where it is the preferred approach
Medical device opportunity where…
• UK IP has large market opportunity
• SBIR/STTRs and angel funding can bring to prototype and hopefully early
clinical results
• Time to license to industry player is a few years, and target licensee(s) have
been identified
• Strong management team is available with both technical and business
experience
• Minimal/moderate regulatory requirements
10
Client Stories (UK)
Startup Distribution
Simplified Example
$5
patent expenses
royalties
equity
progress payments
UK
$100 sales
Startup
equity
? share of profits
$5
$2
$1
$1
$1
after repayment of patent expenses
• 40% inventors
• 20% inventors’ department(s)
• 20% inventors’ college(s)
• 20% UKRF
Source: Von Allmen Center for Entrepreneurship
11
Commercialization Pathways
Guidelines
Startup
License
Time to market
< 3 years
>7 years
Funding required
<$10 million
>$50 million
Regulatory requirements
Low
High
Proposed product
Complete solution
Add-on to market leader
Inventor involvement
High
Low
never this clear cut, right solution depends
on individual circumstances
Source: Von Allmen Center for Entrepreneurship
12
$1 billion in sales since the late 1980s!
13
Source: http://spectrum.ieee.org/semiconductors/devices/super-soaker-inventorinvents-new-thermoelectric-generator
Lonnie Johnson
“Rocket Scientist”
(Former nuclear engineer for the Strategic Air Command)
14
Super Soaker Inventor Invents New
Thermoelectric Generator
Lonnie Johnson has moved on from highpowered squirt guns to a chip that converts
heat from the sun--or anything else--into
electricity
Among the potential applications are at utilityscale solar thermal farms and for plug-in
hybrid vehicles, in which the device would use
waste heat from the car’s internal combustion
engine to help power the car’s electric motor.
Johnson even envisions a day when
miniaturized versions will power consumer
electronics. Imagine your laptop producing
power from its own waste heat, your cellphone
being charged as you hold the handset against
your face, or an implantable medical device
exploiting the difference in temperature
between, say, your chest cavity and the skin on
your arm.
Source: http://spectrum.ieee.org/semiconductors/devices/super-soaker-inventor15
invents-new-thermoelectric-generator
Is it in your personality to do a start-up?
• “Unstoppable skill at selling!”
– Ron Popeil: Veg-o-Matic; Pocket Fisherman
• Are you a business innovator?
– Lonnie Johnson: Super Soaker; thin battery technology
(Excellatron); miniature “heat pump;” process that
converts thermal energy to electrical energy using a nonsteam process which works by pushing hydrogen ions
through two membranes, with significant advantages over
alternative systems
• Are you a talented manager?
• Are you a risk taker?
• Do you have access to capital?
Source: Forbes, Should You License or Produce Your Invention?, 10-24-2006
16
Source: Gene Quinn, http://www.ipwatchdog.com/2011/05/20/to-license-or-tomanufacture-that-is-the-question/id=17036/
17
Determination of Royalty Rates
• Profitability of the IP and how the profit is shared between
licensor and licensee (income approach)
– 25% of profits rule (heuristic starting point)
– Impact of uncertainty
– IP typically used with other assets; thus, how to apportion?
• Market based approach (comparables)
– Royalty rates in arm’s length transactions on similar IP
– Difficult to find “comps”
• Structure of the license agreement
– Duration
– Exclusivity
– Lump sum payments
Source: Tim Heberden, Intellectual Property Valuation and Royalty Determination,
Chapter 4 of International Licensing and Technology Transfer: Practice and the Law
18
Source: Profitability and royalty rates across industries: Some preliminary evidence, KPMG
International, Global Valuation Institute, 2012
19
Source: Profitability and royalty rates across industries: Some preliminary evidence, KPMG
International, Global Valuation Institute, 2012
20
How valuable is the IP?
• How important is the invention?
– Transformative—gene splicing?
– Incremental—adding squeaky noise to a toy?
– Citations to your patent?
• Is the patent well constructed?
– Does the patent protect the IP?
• Market dynamics and licensing strategy
– Competition
– Structure of deals?
21
What determines the profitability of
the IP?
•
•
•
•
•
•
•
Uniqueness
Know-how
Design-around
Number of suitable licenses
Risks of two parties
Level of investment by each party
Incremental profitability relative to industry
norms
22
Example Profit Split
Source: Tim Heberden, Intellectual Property Valuation and Royalty Determination,
Chapter 4 of International Licensing and Technology Transfer: Practice and the Law
23
Source: Tim Heberden, Intellectual Property Valuation and Royalty Determination,
Chapter 4 of International Licensing and Technology Transfer: Practice and the Law
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ktMine Royalty Rate Resource Guide 2013
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ktMine Royalty Rate Resource Guide 2013
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ktMine Royalty Rate Resource Guide 2013
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ktMine Royalty Rate Resource Guide 2013
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ktMine Royalty Rate Resource Guide 2013
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ktMine Royalty Rate Resource Guide 2013
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ktMine Royalty Rate Resource Guide 2013
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ktMine Royalty Rate Resource Guide 2013
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Legal Requirements for Patent Validity
that Relate to the Economic Value of IP
• Utility
• Novelty
• Nonobviousness
33
Selected Georgia-Pacific Factors
•The rates paid by the licensee for the use of other patents comparable to the patent-in-suit;
•The nature and scope of the license, as exclusive or non-exclusive, or as restricted or non-restricted in terms
of territory or with respect to whom the manufactured product may be sold;
•The licensor’s established policy and marketing program to maintain its patent monopoly by not licensing
others to use the invention or by granting licenses under special conditions designed to preserve that
monopoly;
•The commercial relationship between the licensor and the licensee, such as whether they are competitors in
the same territory in the same line of business, or whether they are inventor and promoter;
•The effect of selling the patented specialty in promoting sales of other products of the licensee; the existing
value of the invention to the licensor as a generator of sales of its non-patented items; and the extent of such
derivative or convoyed sales;
•The duration of the patent and the term of the license;
•The established profitability of the product made under the patent; its commercial success; and its current
popularity;
•The utility and advantages of the patent property over the old modes or devices, if any, that had been used
for working out similar results;
•The nature of the patented invention; the character of the commercial embodiment of it as owned and
produced by the licensor; and the benefits to those who have used the invention;
•The portion of the profit or of the selling price that may be customary in the particular business or in
comparable businesses to allow for the use of the invention or analogous inventions;
•The portion of the realizable profit that should be credited to the invention as distinguished from nonpatented elements, the manufacturing process, business risks, or significant features or improvements added
by the infringer;
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