Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Caserta, December 1st 2005, Guido von Scheffer IPB AG WIPO-ITALY INTERNATIONAL SYMPOSIUM ON INTELLECTUAL PROPERTY AND THE COMPETITIVENESS OF SMALL AND MEDIUM-SIZED ENTERPRISES IN THE TEXTILE AND CLOTHING SECTORS How to Use Intellectual Property to Access Finance? A Practical Example IP Bewertungs AG (IPB) Heimhuder Straße 81, D Hamburg Hotline +49(0) Value from Knowledge

Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Corporate Assets intangible AssetsTangible Assets Corporate Knowledge Innovation & Intellectual Assets Human Capital Intellectual Property Rights Patents, Brands, Trademarks & Others IPRs play a Major Role within Intangible Assets generates

Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 A Patent... is a validated right, granted and guaranteed by the government, provides the patent owner – in return for disclosing his innovation – the exclusive right to commercially exploit his invention (monopoly right), can usually be kept in force for 20 years (Renewal fees), offers (almost) all features of a common tangible asset e Billion USD t Increase of worldwide yearly patent-based licence fees Patents are the Most Tangible Intangibles

Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Reporting Financing R&D-Controlling Competitor’s Targeting Taxation Indirect Use Self-Interest Competitor’s Exclusion Licensing Sale Freedom to Operate Direct Use Using Patents as Business Tools How to set a price for an unique asset? Patent

Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Market Approach Income Approach Valuation How to Access Finance? Valuation Patent Multi-period Excess Earnings Method Relief from Royalty-Method Incremental Revenue Method Quantitative Method Fundamental Method

Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 InfrastructureYear of construction Square meters SituationStorey height Market Approach Quantitative - 1

Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Backward Citations and technical details Description For a Patent Application it is necessary to cite all other patents and scientific publication. Determinates a. Age b. Type (Own- / Others) c. Citing Person (Applicant / Patent Office) d. Region e. … Availability From Date of Grant Please Note: One separate indicator does not reflect a significant correlation on patent values. Empirical studies: Carpenter, M., Cooper, M., Narin, F., 1980, Linkage between Basic Research Literature and Patents, Research Management (March), S Narin, F., Noma, E., Perry, 1987, Patents as Indicators of Corporate Technological Strength, Research Policy 16, S Lanjouw, J.O., Schankerman, M., 2000, Characteristics of Patent Litigation: A Window on Competition, CEPR WP Lanjouw, J.O., Schankerman, M., 1999, The Quality of Ideas: Measuring Innovation with multiple Indicators, NBER Harhoff, D., Scherer, F., Vopel, K., 1999, Citations, Family Size, Opposition and the Value of Patent Rights, Munich, Boston, Mannheim, Ludwig-Maximilians-Universität München, Harvard University, ZEW Mannheim. Harhoff, D., Reitzig, M., 2000, Determinants of Opposition against EPO Patent Grants: The Case of Pharmaceuticals and Biotechnology, CEPR WP Reitzig, M., 2002, Improving Patent Valuation Methods for Management – Validating New Indicators by Understanding Patenting Strategies, LEFIC WP Sample indicators:  Backward Citations  Forward Citations  Claims  Patent Family  Litigations  others... Patent value Market Approach Quantitative - 2

Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 The result is a Value-Distribution for a single patent family as well as for the whole portfolio. The patent values in general are logarithmic. The determined Value-Distributions are also logarithmic. Therefore the median is the most reliable value estimation for financing. Market Approach Quantitative - 3

Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Advantages  Objective fair market value due to realized market transactions  Consistent and efficient due to objective and automated data selection of bibliographic patent data from public databases  Patent holder is not involved in the process  Efficient for large portfolios including strategic patents Disadvantages  Only the market price of the patent itself is valuated, not the potential income that the patent holder might be able to generate  Potential of young patents and patent applications is underestimated  Statistically uncertain for a single-patent-valuation Conclusion  Significant correlation between construct of indicators and patent values is empirically proven  If an objective and consistent valuation without involving the patent holder and for a competitive price is needed this is an appropriate valuation system Market Approach Quantitative - 4

Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Quantitative Valuation Addressing Qualitative Valuation Purchase Realization Utilization Market Approach Income Approach Valuation How to Access Finance? Utilization Patent Multi-period Excess Earnings Method Relief from Royalty-Method Incremental Revenue Method Quantitative Method Fundamental Method

Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Process of investing Addressing Sample: Companies Identifying most innovative companies from public databases Reducing the number of patents to be considered Patents that have survived legal oppositions / Re- examined Patents / Reissued Patents Patent is cited by others Patent Family Size > 1 other Quantitative analysis of legal status Active / Passive Contacting patent owners Availability: Yes / No Charges or Restrictions: Yes / No Individual Inventors Insolvencies & Liquidations Companies Investment Assets Others Patents In most companies only 20% of the patent portfolio is restricted for any licence, but 80% of the company’s licensing potential is unused.

Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Patent‘s Market Value Patent‘s in business Patent‘s out of business Portfolio Structuring Quantitative Analysis Check & Sell Cash Cow – Check Licensing options Check & Drop Cash Cow – For internal use only

Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Portfolio Structuring Qualitative Valuation Attributes Analysis: Examination of patents regarding formal legal mistakes Stability Analysis - One: Examination of backward citations and state of the art Stability Analysis- Two: Examination of current legal disputes Research on relations to other patents regarding the patents‘ attributes Research on similar patents by using the primary claim‘s attributes Research on similar patents by using backward citations Identification of companies who own related patents Identification of potential infringements within the activities of these identified companies (product analysis) Consultation of a patent attorney to obtain a „second opinion“.

Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Portfolio Structuring Purchase (optional) & Realisation Carrot Licensing Stick Licensing Auction True Sale others

Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Patent Value Funds How to Involve Financial Markets Public Funds Portfolio 2 Portfolio 1 Portfolio x Portfolio Incubator x Portfolio Incubator 1 Seed-Funds Licensee 2 Licensee 1 Licensee x Structured Portfolios / Revenues Licenses Royalties Licenses Royalties

Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Jack Sample ltd.:  Innovative in a classical business sector  Employees: 245  Revenue: 30 Mio EUR  Credit line needed: 3,5 Mio EUR Financing Situation of Innovative SME’s Example – Jack Sample ltd.

Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Profit&Loss Revenues 30 Mio EUR Profit 1 Mio EUR Jack Sample ltd. is characterized by significantly high R&D expenditures. From the banks point of view these expenditures are incalculable. R&D Expenditures 3 Mio EUR Financing Situation of Innovative SME’s Example – Profit & Loss Material Expenditures 12 Mio EUR Personnel Expenditures 11 Mio EUR Other Expenditures 3 Mio EUR

Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Balance Sheet Equity Debts Cash IP Based Financing Financing Situation of an Innovative SME The company’s collaterals are affecting the bank’s calculation of the credit-price. The more securities the company can offer the less expensive the dept financing will be. But innovative SME’s are short of “Classical Assets”! Current Assets Fixed Assets Collaterals / Securities

Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Balance Sheet Stock 6 Mio EUR Equity 2 Mio EUR Debts 16 Mio EUR Fixed Assets 2 Mio EUR Cash 2 Mio EUR Collaterals / Securities IP Based Financing Financing Situation of an Innovative SME Patents 12 Mio EUR Valuated patents can be used as assets and lower the company’s financing costs significantly. Receivables 8 Mio EUR

Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Market- Approach Patent- Valuation Methods for IP-based Financing Depending on the investors earn-risk-ratios Income- Approach Market- Approach Income- Approach Patent Application Granted Patent EquityLoans © IPB AG

Guido von Scheffer, IPB AG, Brussels, September 27 th 2005 Caserta, December 1st 2005, Guido von Scheffer IPB AG WIPO-ITALY INTERNATIONAL SYMPOSIUM ON INTELLECTUAL PROPERTY AND THE COMPETITIVENESS OF SMALL AND MEDIUM-SIZED ENTERPRISES IN THE TEXTILE AND CLOTHING SECTORS How to Use Intellectual Property to Access Finance? A Practical Example Thank You for Your Attention. Further Information: