IPmetrics specializes in helping clients value, litigate, and commercialize intellectual property. It was established in 2000 in San Diego, California and provides services such as IP valuation, expert witness testimony, and monetization strategies. The company uses various techniques to value IP assets including cost, market, and income approaches. It also assists with IP litigation damages assessment and marketing IP assets for sale, licensing, or joint ventures.

1. Intellectual Property Valuation
and Monetization
Fernando Torres, MSc
Chief Economist,
IPmetrics LLC

2. IPmetrics® specializes in helping IP
owners and their attorneys value,
litigate and commercialize all types
of intellectual property.
Established in 2000 in San Diego,
California
IP Consulting Services

3. Valuation
Expert Witness
Monetization
IP Consulting Services

4. Valuation
IP Valuation

5. Valuation
• Due diligence for a transaction
• Setting a sale price
• Determine royalty rates
• Defining a maximum offer
• Securitization assessment
• Transfer pricing among affiliates
• Purchase price allocation on acquisition
• Return on Investment assessment
• Impairment testing (FASB / IFRS)
• Use as collateral for a loan
• Assess potential litigation risk/damages
Why value IP?

6. Valuation
• Shareholders
• Licensees
• Management
• Tax authorities
• Equity and debt markets
• The media
• Creditors
• IP in-house counsel
• IP litigators
Who is interested?

7. Valuation
• Inventory
• Prioritize
• Classify
• Technology, marketing, content, operational
• Define / research market(s)
• Select methodology based on IP type, data available,
purpose, timing, and budget
• Financial/economic modeling
• Sensitivity analysis
• Report conclusions
What is the process?

8. Valuation
• Obvious
• Trademarks, Patents, Copyrights
• Less obvious
• Slogans, Characters, Packaging
• Obscure
• Trade secrets, Non-compete agreements, Business
methods, Knowledge bases
Initial inventory types of IP

9. Valuation
Intangible Assets
Intellectual Property
Data & Customer
Knowledge & Vendor
TRADE Bases Relations
PATENTS
MARKS
COPY TRADE Internet Proprietary
RIGHTS SECRETS Assets Software
Classification

10. Valuation
• Different according to purpose
• Fair market value (FMV) refers to the value in an ideal
market, and is most often used for tax-purposes and
litigation. In the USA, it is based on the tax authority’s
definition
• Fair value (FV) is defined in a concrete situation and
is most often used for financial reporting purposes
following the guidelines of the FASB (USA) and IFRS
Standard of value

11. Valuation
• Fair market value (FMV):
• The price at which property would change hands
between a willing buyer and a willing seller, neither
having to buy or sell, and both having reasonable
knowledge of all the relevant facts. (IRS Pub. 526)
• Fair value (FV):
• The price that would be received to sell an asset in an
orderly transaction between market participants at the
measurement date price. (FASB ASC 820)
• Orderly = not in liquidation, risk-adjusted
• Market participants = independent,
knowledgeable, willing
Definitions

12. Valuation
• Fundamental principle – Measure value by the net
present value of the future economic benefits of owning
the IP
• Owners will only be willing to sell if the price is greater
than their IP’s value as they perceive it
• Buyers are only willing to purchase if the price is less
than the value they anticipate getting from the IP
• There is a market for IP if the owners’ prospects for
value are less than what potential buyers forecast
Methodology

13. Valuation
• The Cost approach to valuation seeks to measure value
by quantifying how much money would be required to
replace the service capability of the IP asset
• How much does it cost today to obtain IP with
equivalent utility
• Consider that utility today may be less than original
(depreciation)
• Original (historical) cost is irrelevant
• Market value of IP is = current value of the service it
provides
• Example of application - software
Valuation methods: Cost

14. Valuation
• The Market approach directly measures value looking at
what others in the market have judged it to be. For IP, its
assumptions are not often satisfied:
• Active market
• Not enough transactions
• Public market
• Not enough knowledge of prices, availability
• Comparability
• IP is unique by definition
• Time adjustments
• Value changes over time
• Example - Franchises
Valuation methods: Market

15. Valuation
• The Income approach considers the income producing
capability of the asset. The value of IP can be measured
by the present value of the net economic benefit to be
received over its remaining useful life.
• Amount and timing of income (net of expenses)
requires forecasting the underlying business
• Risk of achieving the income stream must be
estimated
• Apply net present value (discounting) technique
• Examples – Licenses, patents, content contracts
Valuation methods: Income

16. Valuation
• Technology-specific methods are useful in special
circumstances, but fall under either market or income
approaches.
• Tech-Factor – Measures the portion of a business
unit’s overall market value that is attributable to the
utilization of the underlying technology adjusting the
NPV of the benefits by a series of qualitative factors
reflecting the competitive environment
• Real options approach – Extends consideration of
flexibility (retained rights vs. implementation) and
useful for un-commercialized technologies
• Game theory – Specifically used for negotiations
when the value of alternatives can be estimated
Alternative methods: Technology

17. Valuation
• Technology: Improved corn-oil extraction in Ethanol
production
• Client: Asset-based lender to the technology licensor
• Standard of value: FMV and “Net orderly liquidation”
• Patent portfolio: 7 US patents + 14 applications in 3
technology fields (oil separation, oil enhancement, protein
separation)
• Priority: Focus on issued patents in oil separation and
enhancement
• SWOT analysis: Regulations in Ethanol production
require implementing new corn oil extraction techniques
(S), industry specific/limited licensees (W), litigation, new
regulation requirements (O), Larger competitors (T)
Valuation example

18. Valuation
• Methodology: Income approach, royalty income method.
• Revenue forecast: Three scenarios (base, low, high)
assuming different market penetration and success in
litigation
Example

19. Valuation
• Discount rate: 31.7%
• Risk-free rate (10-year treasury bonds) 1.65%
• Equity risk premium (US markets) 6.14%
• Industry Beta ( ) Industrial organic chemicals 1.02
• Size premium micro cap 11.77%
• Intangibles risk patents & litigation 12.0%
• DR = Rf + (Er) + Size + IP
• Scenario probabilities:
• Low – currently licensed (30%), Base – expand by 4.3
mgy (50%), High – expand by 9.7 mgy (20%)
Example

20. Valuation

21. Valuation
• Conclusions:
• Fair market value of the patent portfolio:
• Current licensees and expansion to existing plants
• Engineering revenue (installation/maintenance)
• Patents expire mid 2025
• US$58 million
• Net orderly liquidation:
• Maintain current licensees (18) under contract
• No additional engineering services revenue
• US$30 million
Example

22. Expert Witness
IP Expert Witness

23. Expert Witness
• Main types of IP litigation:
• Infringement
• Patent
• Trademark
• Copyright
• Trade Secrets
• Rights of Publicity
• Contracts
• Licensee underperformance
• Unfair business practices
• Attorney negligence
IP Expert Witness

24. Expert Witness
Is there a lot of litigation?

25. Expert Witness
• IP damages expert services
• Consultant to potential plaintiff / defendant
• Expert report (plaintiff)
• Rebuttal report (defendant)
• Testimony
• Deposition(s)
• Trial
• Settlement advice
Expert services

26. Expert Witness
• Patent Infringement (Title 35 U.S.C. 284)
The court shall award a successful claimant damages
adequate to compensate for the infringement [lost
profits], but in no event less than a reasonable royalty,
plus interest and costs.
• In addition:
• Enhanced damages (up to 3x) if willful
• Attorneys’ fees (in exceptional cases)
IP Damages – main types

27. Expert Witness
• Trademark Infringement (Title 15 U.S.C. 1117a)
The Plaintiff shall be entitled, subject to the principles
of equity, to recover
(1) defendant’s profits,
(2) any damages sustained by the plaintiff, and
(3) the costs of the action.
• In addition:
• Enhanced damages (up to 3x) if willful
• Attorneys’ fees (in exceptional cases)
IP Damages – main types

28. Expert Witness
• Copyright Infringement (Title 17 U.S.C. 504)
The copyright owner is entitled to recover the actual
damages suffered by him or her as a result of the
infringement, and any profits of the infringer that are
attributable to the infringement and are not taken into
account in computing the actual damages.
• Alternatively
• Statutory damages: no less than $750 per work and
up to $30,000 as the court considers just
• In addition:
• Attorneys’ fees (in exceptional cases)
IP Damages – main types

29. Monetization
IP Monetization

30. Monetization
• Due diligence support
• IP asset inventory
• Asset prioritization
• Monetization strategy consulting
• Sale, license, joint venture
• Marketing IP assets
• Marketing materials development
• Strategic and financial buyers database
• Contact tracking, website support
• Offers management, auction support
• Highly experienced in trademarks and wireless and
internet-based technologies
IP Monetization services

31. Thank you

32. Social media
www.ipmetrics.net
@ipmetrics
@FTorresMSc
For additional questions or materials,
email:
ftorres@ipmetrics.net
Contact information