A comparative evaluation study on intellectual property valuation methods

Intellectual property valuation is a major topic that have significant effect on technology development, innovativeness, R&D, and manufacture based R&D, return on investment/income and completion performance in technology development and innovation ecosystems. Therefore, the awareness about IP and IP valuation is essential for growth and competitiveness of companies, universities, public institutions and government agencies. According to Triple Helix technology development ecosystem approach, The Universities have a pioneering role for value adding R&D activities. Therefore, R&D management and intellectual propery management are key roles of University Technology Transfer Offices (TTOs). The activities of TTOs in Turkey and all over the world underlined and proved the importance of the commercialization of IPRs in deployment and diffusion of technologies and innovations. The intellectual properties may be valued for various purposes such as making strategic decisions, merger and acquisition processes of companies including joint venture, negotiations and transactions to sell or license intellectual properties, court proceedings, taxation purposes etc. As can be seen from the Science and Technology Indicators (STI) statistics, in recent decades there is a significantly increasing trend in the number of global patent applications and registrations/grants which proved the fact that IP awareness has reached a certain level. This increase in patenting and IP awareness also had been evident for Turkey. As perceptions and initiatives regarding the registration of technology, invention, intellectual property rights show a rapid rise in Turkey in recent years. Therefore, intellectual property issues were addressed within the scope of several state policies for Universities and Industries to support technology oriented growth. To know the value of an owned IP portfolio is strategically important for owners and inventors whether they are legal entitities or natural persons. At this point, the purpose of the valuation and the preference of the appropriate valuation method gains importance and worths being searched about as they affect both the effectiveness of applications and business results. There are many methods which are based on quantititative or qualititative analyses to value an IP. There exist a large variety of sources ont the definition or application process of the IP Valuation methods in literature, but there is still room for research for applications, related cases and preference criteria of each method as the theoretical and practical publications are very limited. Application of some methods requires high level expertise and know how about IP valuation. Before starting the IP valuation process there are some fundamental prerequisite steps such as setting the purpose of valuation, acquiring deep knowledge about the IP technology being valued, definition of the type of the process of patent application, defining TRL of IP, identifying the available data and etc. All fundamentals affect the preference for the valuation methods. Even if the valuers meet almost all requirements of a valuation method, they may still not be able to use the method effectively because of its difficulties/challenges. As well, the opposite condition can also may apply. Moreover, in literature, there are limited studies about patent valuation practices in developing country contexts. Similarly limited number of studies are available for the patent valuation in Turkey. Besides this, IP valuation experience and knowledge of experts are insufficient in Turkey. All types of quantitative methods were not explored by comparing all methods relatively with each other and also the experience and competency of experts in all of the IP valuation methods were not searched as a whole. In general, the comparisons of IP valuation methods were made and main evaluation approaches were exemplified in categories of cost approach, market approach, income approach and sometime advanced method. Therefore, a study based on experiences and knowledge of experts is essential because of the fact that the preference of the appropriate valuation method is highly important for all actors in technology transfer ecosystems. To fulfill the gap of knowledge, the main goal of this thesis study is to explore the practices of patent valuation methods and determine the applicability and preferences of the quantitative IP valuation methods in different contexts and in various cases of IP ecosystems of technology transfer. based on the experiences and knowledge of experts in this field. For this aim, within a qualitative research methodology which utilized the experiences of the IP valuation experts and professionals in technology transfer ecosystem in Turkey, USA and Europe, data were collected about level of expert knowledge, level of usage for different quantitative IP valuation methods, the purpose of using different IP valuation methods, challenges or benefits of applying the methods in patent valuation, the appropriate sectors to apply the different patent valuation methods, the combined application of the valuation methods. For verifying the research, I counducted structured in-depth interviews with IP valuation experts from Universities, TTOs, Patent Offices or Intellectual Capital Firms and national or international patent organizations at various meetings and conferences. As well, a two-round Delphi survey was made for gaining more insights on the experts' perceptions about the IP valuation methods by taking the literature review and expert opinions into account. Survey questionnaire was designed by the dimensions and concepts that were derived from theoretical background/literature. The Delphi survey consists of 18 questions which are focusing on 18 quantitative valuation methods, namely Reproduction method, Replacement method, Sales comparison method, Comparable Profit Margin Method, Discounted Cash Flow Method, Incremental Income Method, Profit Split Method, Maximum Achievable Method, Technology Factor, Return on Investment Ratio, Relief from Royalty Method, Rules of Thumb, the 5% of Sales Method, Profit Differential Method, Risk Adjusted NPV Method, Probability Tree Analysis, Monte Carlo Method and Real Option Pricing Method. Total of 15 experts participated to the Delphi survey. Findings reveal that replacement cost, reproduction cost, sales comparison, DCF, the 25 percent rule, comparable profit margin and RFR methods are widely preferred and known IP valuation methods which are priorly expressed by the respondent experts of this study. Advanced valuation methods are much rarely known and used when compared to previously stated methods. According to our participant experts' opinions, Cost methods, "the 5% of sale" method and "Rules of Thumb: 25% percent rule" method are easy to apply. Survey and interviews showed that "Patent pending technologies" or "nonproprietary technologies" can also be valued by replacement method, reproduction method and sales comparison method (which are mostly referred methods for this kind of valuations). In order to make effective and well-supported estimates of an IP value, more than one valuation method which can be selected according to the objectives and different situations and qualitative parameters should be considered because of their indirect effect to the valuation. For Universities' IP valuation processes, the replacement cost, the 25% percent rule, the 5% of sales, reproduction cost, sales comparison and RFR method were commonly indicated by the respondent experts and occurred as widely preferred methods. DCF method was found to be a preferred method to value start-up's patents. On the other hand, the technologies at 6th or higher Technology Readiness Levels are generally stated as most suitable for valuation. However, suitable TRLs are changing for each valuation method and requires further elaboration. Keywords: Intellectual Property Rights, IP Valuation Methods, Delphi Method