Les tendances lourdes de la valorisation - WIPO


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Third WIPO
INSME International Training
Program: Financing your business with
Intellectual Property


Major trends in IP monetization


Geneva, December 1
, 2010


Sylvain Roy, High Spin Licensing



5 themes highlighting world trends

in IP licensing and IP monetization


Growing volume of activity


Growing complexity and specialization




Increasing strategic value


National specificities, reduced international



Theme #1: Growing volume of activity

(and lots of place for further growth)

IP is considered as

as it should be

rather than monopoly

IP is becoming routinely traded, and IP trade is
increasing in volume, worldwide

Transnational companies spread knowledge and
are responsible for the bulk of licensing activity

Companies are no longer using IP solely as a
defensive tool, and see IP monetization as an
attractive value added activity that can increase
the ROI for R&D and market development which
have already been spent for existing products


Sources: EPO

Why business loves patents 1/2


Provisional protection of an innovation (pending appl)

Building monopoly position; blocking other from
entering a market

Assembling portfolio of rights to create financial
strength (and improving balance sheet)

Getting a seat at the table for standards setting

Creating marketing messages and becoming more
visible in the market


Sources: EPO

Why business loves patents 2/2


Generating license income

Building a base for infringement claims (“troll” model)

Preventing lawsuits

Measuring the performance of the company or

Communicating innovativeness to investors

Avoiding the feared, but unknown, consequence of
not patenting


Sources: Ernst & Young; Athreye and Cantwell, 2005; The Economist

Intellectual property receipts, US$bn

Licensing should further grow

US$110 billion


US$500 billion

(including copyright and trademark)

The IP licensing market

has exploded in the last 20 years worldwide



The technology licensing market

is a fraction of the larger IP licensing market



Growing volume of patents, but

relatively few patents are being monetized

10,000 new patents are issued every


Only a fraction of patents and disclosures end up
having any economic value; it is generally agreed
that only 5
10% of issued patents have a significant
commercial value

Patent rights generally have value if :

Revenues + Volume + Infringement


Sources: OECD; Milken Institute

(competition proving the
vitality of the market)


Growing volume of patents, but

relatively few patents are being monetized


Less than 3% of patents
generate royalty income

Less than 50% of
licensed patents generate

average revenue per
license of

(Switzerland, 2000)


Sources: Harvard Business Review; McKinsey & Co., Nov. 2002 survey

Substantial growth can result from better

IP management and licensing practice

Intellectual Property is still a significantly untapped

Innovating companies can increase their operating
income by 5
10% from the sale or license of patents
and proprietary technologies

Few companies earn more than 0,5% of their
revenue from licensing



Theme #2: Growing complexity and

Still, bottleneck issues limit monetization

Increased competitive research, development
costs and compliance costs encourage IP trade

A growing secondary market for IP increases
overall market efficiency

More players are becoming able to identify and
grab under
valued IP

IP issues and strategies are becoming leading
indicators of company performance


Globalization and consolidation of R&D

R&D has become increasingly concentrated to take
advantage of economies of scale and clusters of

Transnational firms are changing the way innovation
is transmitted and leveraged around the world; their
share of R&D spending is increasing dramatically

Some industrial companies will transform partially or
completely into R&D companies, taking advantage
of relative growing value of IP



Bottleneck issues affecting IP monetization

IP protection costs
(not all inventions worth protecting)

harmonization of patent rules
(US first to invent vs. EU first to
file patent systems)

(biotech patents remain un
harmonized across EU on gene
sequences, stem cells) (claims of issued patents can vary from one country to
but there is a drive toward Global consistency

Patent complexity and patent claims incertitude
upstream pioneer patents)

(large number of claims are granted twice) (claims of
issued patents can vary from one country to another)

reported royalties
(affecting up to 88% of deals; nearly 50% of
licenses have under
reported royalties in excess of 25%)

Lack of valuation guidelines


Sources: Invotek



New players and innovative business models

Secondary, speculative markets :

IP banks buying patents and reselling at profit

IP securitization (sale of IP for a pricing based on future
royalty income; e.g. David Bowie’s portfolio)

Dedicated commercialization


IP showcases, on


IP auctions (Ocean Tomo, eBay)

Enforcement speculative market:

“IP trolls” (buys patents and seek royalties)

equity funding research dedicated to generate and
exploit IP (Intellectual Ventures)


IP value now provides a benchmark

to evaluate companies performance


Equity indexes used to cover portfolios of large industrial
and technology companies:

Jones Industrial Average (1896)

Standard & Poor’s 500 (1957)

NASDAQ Composite Index (1971)

Ocean Tomo 300

10 year performance tracking data

New index:

Ocean Tomo 300™ Patent Index (2006)

covers a portfolio of 300 companies that
own the most valuable patents relative to
their book value


Theme #3: Interdependence

Trends today is away from independence and
toward a vital need for the talent of others

Considering increasing costs (for research and for
inventive activities), companies don’t rely on
their own capability to fill the product pipeline

Competitors engage in overlapping research and
product development, and license each other’s

Revolutionary IP
driven deals are now done
across industries



Privileged relationship and legal vehicles

Licensing (grants of rights)

Options (access to future technology)

Technology transfer (assignment of ownership)

Donation and divestiture (with or without tax incentive)

Hybrid agreements (often complex and sophisticated):
option/license, joint
venturing, cross
corporate partnering, co
promotion or co
arrangements, strategic alliances and consortium



Strategic alliances among competitors

Companies are learning and accelerating innovation
pace through acquisition and partnering

Partnering topics includes:

Joint R&D, product development

Joint commercialization

Patent Pools
(Framework for agreement among patent holders to license their IP
to one another or to aggregate and cross
license IP rights)

Joint litigation (avoiding “patent trolls”)

(Pharmaceutical and Biotech: Co
dev deals have increased 25
fold since the
early 1980’s; emphasis now on shared manufacturing rights, shared promotion
rights, shared profits from commercialization)


Theme #4: Increasing strategic value

IP has generally become a corporate priority and IP
strategies are more aligned to core businesses

IP licensing justifies distinct, and often performing,
business units

Rapid evolution of best practices, regarding notably
contractual clauses and “win/win” negotiations

Increased selectivity, notably in the willingness to
trade non
core patents

Increased willingness to enforce patents; litigation
determines ultimate disposition conditions


Now emphasis on individual patent value instead of
“batch” or portfolio valuation

Main factors influencing individual patent value:

Legal factors
: scope of the technical disclosure (description,
drawings); interpretation of claims (width, reach and clarity)

Market factors
: correlation between the patent and products
and market needs, existence of transaction on comparable
patents and technologies

Financial factors
: contributing value of the patents to profit
margin, market share or reduction of manufacturing costs

Again, no value without
Revenues + Volume + Infringement

Higher value of IP contributes to selectivity



There are 100+ factors influencing pricing of licensing
deals and royalty payments, among which:

Stage of development of the technology

Access to ongoing R&D via grantbacks and grantforwards

Structure and spread of payments

Warranties, indemnification

Exclusivity, territories, etc

There is no such thing as average industry royalty rates!

Royalty is the last element to be covered during

Several non
IP factors can influence

the value of a licensing deal




Examples of
IP licensing successes

(Chemistry industry)

Eastman Chemical Co.: in 1999
2002, closed 20 license
deals worth $50m plus $100m in NPV

Bayer: 350 business units contributes to IP; offers
technology packages (each contains 3
5 patents plus
supporting information); each success is worth $1
at a profit margin averaging 78%

DuPont IP monetization results (2001):

$377m in royalty
income (2% of total revenues, but contributed to 23.3%
of total DuPont profits!)



Examples of
Corporate IP strategies

(Chemistry industry)

Proctor & Gamble: all technologies are more or less
available for Out
licensing; value contribution of
licensing would make it among its top
10 brands

DuPont: strong success in licensing to China and India;
creates technology specifically for licensing

Dow Chemicals Co.: emphasizes strategic patenting
and uses IP strategy to direct R&D priorities; Dow has
fewer technologies to offer on licensing (Dow downsized
its estate from 20,000 to 10,000 patents (1992), saving
$40m over 5 years in patent
maintenance fees alone)


MIT: has been spinning
off companies for 50 years;
strong in engineering and physical sciences, #1
university in number of start

UC San Francisco: focus on licensing technologies
that have a substantial impact

U of Florida: high income relative to research
expenditure, focus on developing clinical or
commercial applications from basic science


Examples of Academic
IP strategies

(U.S. Universities)


Theme #5: National specificities,

reduced international discrepancies

IP is still mostly traded among large corporations

United States still ahead in almost all areas of IP

Europe: top
down approach to research financing,
uneven access to capital

Developing countries are fast growing patent filers,
their industrial champions grab assets through MnA;
China no1 filing country (2005 onward)

Relative harmonization of IP rules, but important
discrepancies in enforcement


Examples of regional discrepancies

(Biotechnology industry, 2003)


U.S. leads in invention disclosures, patents filed and
granted, licenses executed and licensing income

European universities surpass their U.S.
counterparts in start
ups established

United States and Europe have an equal total
number of companies, but...

Number of persons employed: US = 2 x EU

R&D spending: US = 3 x EU

Venture capital raised: US = 3
4 x EU

Access to debt finance: US = 4 x EU


National specificities: a snapshot

U.S. / Canada


United States

dominates research and high tech industries, due in part to direct and
indirect role of government in setting environment for innovation

R&D funding driven by national security concerns

unmatched academic entrepreneurship, leads the world in availability of
venture capital but shortage of funds for fundamental research

revolutionizes the management of intellectual property


performing research networks, fastest growth for external patent
applications and industrial R&D investment among G7

shortage of skilled managers able to grow high tech start
ups; gaps in the
risk capital system for financing early
stage ventures

first in terms of cost competitiveness for biomedical R&D, second highest
number of biotech companies (world)


National specificities: a snapshot




innovation policy characterized by layers of complexity, but made great
progress in terms of government funding for research; scores 5th in R&D
spending (world)

highly individualistic and entrepreneurial spirit, but the country is risk
averse (partly due to high tax rates)

high number of scientists, goal to raise R&D investment to 3 percent of
GDP by 2010

pool of large innovative transnational corporations

United Kingdom

abundant capital: strength in public spending (and charities funded
research), and by far the largest private equity and venture capital market
in Europe (2

only to US)

relatively fewer patents and fewer start

majority of university spin
offs are unsustainable (mostly in
pharmaceuticals, biotech and high technology)


National specificities: a snapshot

performing small countries



high innovation, highest biotech density worldwide, thanks to renowned
universities, tax environment and banking system

ranks 2
, worldwide in

active patents per residents, strong in health,
pharmaceuticals, medical technology, IT, electronics and instruments


great emphasis on exploitation of research results


good start
ups incubation up to prototype phase; innovates but added
leaves (mostly to United States)

specialized military units generated 3,000 start
ups, strong interdisciplinary
technologies (mathematics, physics, computer science)


National specificities: a snapshot



China should be at the center of any IP strategy

first country in terms of patent application filing (ahead of JP, US, EU and PCT)
since 2005 (480’000+ filings!!)

issued Chinese patents,


245'161 (original Chinese patents 153'060; foreign patents 92'101);





Chinese Technology Trade Market (TTM)

enormous growth in TTM, from US$ 3,75 b (1996) to 22,73 b (2006)

patent based deals was US$ 1,69 b, 11% of IP based deals, 7% of total

about 65% of deals involve Know How, related to outsourced technology
development and technical service contracts

surprisingly, transactions are mainly between domestic organisations




lack of framework to commercialise technologies for trading (overall level of
commercialisation is low, roughly 10%)

inadequate IT infrastructure

no established professional Chinese technology trade agents

inadequate laws on technology transfer and poor enhancement leading to
loopholes and irregularities in the market and lack of confidence by IP owners.


National specificities: a snapshot


Critical Success Factors for business in China

Knowledge about doing business in China.

The right technologies that are valuable to China.

A tailored business model that is based on long term partnership.

Flexible approaches to cater for the carried needs by Chinese



Other risks and Problems

how (trade secret) is hard to protect in China.

many IP lawsuit cases involve know
how leak from former employees.

different interpretation of “contract”.

the government policy is “market in exchange for technology” so Chinese
regulations tend to protect licensees.

contract risks: contract renegotiation, “clever” accounting and contract
interpretation, foreign exchanges control for payments under licensing

National specificities: a snapshot



IPR situation


Negative aspects

general lack of awareness of and respect of IPR

rapid improvements to laws but enforcement is weak

poor quality and potential corruption of local judiciary

high cost and lengthy legal process for IP cases

risk assessment is difficult.

Positive aspects

increasing press and media coverage for IPR protection

gradual knowledge base improvement about IPR

no longer just a “foreigner’s problem”

business secrets are protected under Chinese regulations

establishment of IP special courts and training of judges.



Any patentability or novelty search should include a
search of Chinese patents









Searching Chinese patent databases

no complete update/coverage information available

relevant information may be overlooked when searching with English
keywords/applicant names

machine translation tools still in development stage

certain functions are currently only possible via the Chinese interfaces:

always combine different (free) sources

use both English and Chinese interfaces whenever possible/necessary

compare the results (e.g. different machine translation results).


IPR situation


Final remarks for IP owners

(and for their IP counsels and consultants)

Know what you have
(assess your IP importance and value)

Know where you stand
(assess the IPR landscape relevant to your
key business)

Aim for the best and prepare for the worse

Define winning exploitation strategies to secure
market shares, involving your IP and third
parties IP

Develop a wider network of expertise connected to
the market

for assessment and implementation of IP monetization

where internal resource collaborates with specialized
external firms


Thank you!

Sylvain Roy

Managing Partner



+41(0) 78 741 4321


High Spin Licensing is a licensing agency focusing on
developing markets for patents and technologies worldwide

Please refer to us should you need to:



technologies and IP rights.