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About

Editor-in-Chief,   Anatole Krattiger

Editorial Board

Concept Foundation

PIPRA

Fiocruz, Brazil

bioDevelopments-   Institute

CHAPTER NO. 9.2   Technology Valuation: An Introduction
Editor's Summary, Implications and Best Practices

Krattiger A, RT Mahoney, L Nelsen, JA Thomson, AB Bennett, K Satyanarayana, GD Graff, C Fernandez and SP Kowalski. 2007. Editor’s Summary, Implications and Best Practices (Chapter 9.2). From the online version of Intellectual Property Management in Health and Agricultural Innovation: A Handbook of Best Practices. MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available online at www.ipHandbook.org.

© 2007. A Krattiger et al. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncommercial purposes is permitted and encouraged.

Editor's Summary

Determining the value of a technology—especially a new technology—is important, very complicated, and necessarily risky. There are several methods of determining the value of technologies. This chapter provides an overview of these methods, especially in regards to their applicability to agricultural technologies. The chapter also discusses a hypothetical negotiation between a university and a corporation, provides sample figures, and a spreadsheet (in Miscrosoft® Excel® for the user to see how various results are obtained depending on different inputs and assumptions.

Essentially, the chapter reviews five approaches to valuing technology:

Costs Approach: The pricing of a product is based on the cost of developing that product. This approach is rarely used to assign a value to a technology because the cost of developing a product is not usually correlated with the value of the IP that was used to develop it.

Income Approach: The value of a technology is determined by a pure income approach whereby future anticipated revenues (cash flows) are discounted to present value. The big drawback to this approach is that, for a new technology, there will be no sales, market, or cost data that can be used to predict future revenues.

Market Approach: The value of a technology is based on the value of a similar or comparable technology. The inherent weakness of this method is that it is difficult to find a comparable technology if the technology in question is truly novel.

Hybrid Approach: The value of a technology is determined by a combination of the income and market approaches. This method provides both the benefits, as well as the drawbacks, of both methods.

Royalties Approach: In this case, the value of a technology is calculated based on royalty rates that have been applied to similar technologies. With this method, the inventor would typically receive a return on sales of the final product and is often used to share the risk between the inventor and the developer.

Regardless of what method of technology valuation is used, the assessor should have the foresight to see where the new technology could be applied and how useful it might be, and should be familiar with the adoption rates of the given technology in a defined market. The value of both formal (statutory such as patents) and informal IP (such as know-how) should also be known so that negotiation mistakes are avoided.

There is no single best method for technology valuation, and different methods may be used for different technologies within the same organization. Successful technology valuation depends on accurate estimates about how successful a product will be and how much it will sell for. If you can make accurate estimates, you have a good chance of bringing a technology to market, building a trustworthy relationship with your licensees and increasing your chances of making more technology transfer deals in the future.

Key Implications and Best Practices

Given that IP management is heavily context specific, these Key Implications and Best Practices are intended as starting points to be adapted to specific needs and circumstances.

For Government Policymakers

  • Careful IP management creates business opportunities. The careful valuation of intellectual property is an important aspect of institutional IP management.
  • Governments should be very cautious and not impose certain valuation approaches nor specific values and terms of licensing and spinout terms. Each deal is highly context specific and the more government and institutional policies are prescriptive, the less original and beneficial deals can be worked out.

For Senior Management (university president, R&D manager, etc)

  • There is no single best method for valuating technology. Traditional valuation methods such as the cost approach method are not appropriate for valuating IP.
  • Institutions should be very cautious and not impose certain valuation approaches nor specific values and terms of licensing and spinout terms. Each deal is highly context specific and the more government and institutional policies are prescriptive, the less original and beneficial deals can be worked out.
  • Above all, the technology transfer officers need your backing. Set the ground rules together, if necessary review major deals, and above all lend the licensing executives your full backing once a deal has been approved and signed.

For Scientists

  • Keep a detailed record of your research procedures. Your records may help determine inventorship and may provide clues as to the value of your innovation.
  • Your technology transfer office can help you understand the potential value of technologies developed in your program.

For Technology Transfer Officers

  • Since there is no single best way to assess the value of a technology, the most important thing is for all parties to agree on the valuation method that will be used.
  • Better data always means more accurate IP valuations.
  • Regardless of what method of technology valuation is used, the assessor should have the foresight to see where the new technology could be applied and how useful it might be, and should be familiar with technology adoption rates.
  • Determining the value of a technology is only one element of the larger game of negotiation. Negotiations are successful only if all parties are satisfied with the outcome and wish to form partnerships in the future.
  • Because the specific value of a technology/invention is often uncertain, try to negotiate field of use licenses as much as possible. This will allow you to potentially capture value further down the road when the technology’s impact and application becomes more evident.

Krattiger A, RT Mahoney, L Nelsen, JA Thomson, AB Bennett, K Satyanarayana, GD Graff, C Fernandez and SP Kowalski. 2007. Editor’s Summary, Implications and Best Practices (Chapter 9.2). From the online version of Intellectual Property Management in Health and Agricultural Innovation: A Handbook of Best Practices. MIHR: Oxford, U.K., and PIPRA: Davis, U.S.A. Available online at www.ipHandbook.org.

© 2007. A Krattiger et al. Sharing the Art of IP Management: Photocopying and distribution through the Internet for noncommercial purposes is permitted and encouraged.