July/August 2009 / Intellectual Property
Patent Valuations Before M&A Deals
Intellectual property is an increasingly important factor in mergers and acquisitions, and in today’s economy there are bargains in the market. The value of IP, however, is difficult to assess. The author suggests strategies for making this assessment and applying it in the context of negotiations. Generally speaking, she writes, “the value of a patent portfolio lies in its potential to either generate revenue or exclude competitors from the technical estate defined by its patents.”
One potential component of future value is licensing. To ascertain its potential value, consider both market size of potential products and risk. In this context risk means likelihood of infringement. It is ascertained by evaluating the underlying legal documents. The author distinguishes between “pioneer” and “improvement” patents and how each may generate value.
Valuation of patents also involves considerations of time — including the lifetime of the patent — as well as timing. For example, a patent that allows early entry into a market where early entry is critical has added value. Other considerations include product life cycle, the relationship of a generated product to larger company technology systems, and administrative issues, such as verification and maintenance of the patent.
