IPwe’s Valuation Methodology
In contrast to other economic goods, patents have 3 peculiarities that make their evaluation/valuation challenging that IPwe’s Valuation Methodology takes into account:
1. Patents are unique
2. Patents are created deliberately abstract
3. Patents are territorially limited
Patent valuation can be grouped into 3 dogmatic groups:
1. Market-based approach
2. Cost-based approach
3. Income—based approach*
IPwe’s Smart Intangible Asset Management solution utilises an income-based valuation approach.
The different established valuation approaches vary largely in their angle of assessment, the key metrics that they’re based on, & the amount of data that needs to be provided by the asset owner. This leads to a drastic variation in results.
Our Patent Valuation Model integrates patent & financial data from multiple data sources in a relief from royalty model**.
By automatically feeding the model & applying a uniform qualitative standard of assessments to all valued patents, it eliminates the inherent subjectivity associated to income-based valuations.
IPwe’s core innovation comes from pre-aggregating cleaned & normalised data in the model so as the only input parameter required to carry out the valuation is the target patent number. This results in a previously unattainable level of accuracy in valuation for a process that usually takes significant time and triggers high discovery costs.
Our algorithm carries out the following steps automatically to obtain a sophisticated economic valuation of the target patent:
1) Extracting input data (CPC codes etc…)
2) Market mapping
3) Qualitative analysis of the target patent and the whole peer group in the market 4) Calculating the remaining useful life
5) Forecasting of attributable revenue & annual growth
6) Determining risk-adjusted discount rate
7) Determining applicable royalty rate
8) Determining pre- and after-tax royalty savings
9) Output: DCFA of royalty savings over remaining useful life
IPwe’s Valuation Methodology provides a new perspective for an intangible asset that is rarely valued at scale.
To gain a more in-depth insight into the mechanics of our valuation, a detailed published review can be obtained through IPwe’s website or by contacting one of its analysts.
* Income-based approach: Value an asset based upon the past, current, or expected cash flows of the asset.
** Relief from Royalty Model: Calculate value based on the hypothetical royalty payments that would be saved by owning the asset rather than licensing it.
IPwe Analytics, IPwe’s Valuation Methodology
For most of the scenarios stakeholders face, IPwe Analytics is an excellent tool to provide initial guidance and to refine & help more precisely define relevant areas for further inquiry.
Patent Quality (Q) process imitates the process that an expert would follow when asked to identify the set of the most important patents related to one or more patents describing a particular technology.
IPwe operationalises this process by using a random-walk-with-restart (RWR) model***, which is a stochastic process on networks****, and in its simplest form computes for each network node the steady state probability that a random walker will end up on that node.
In doing so, IPwe Analytics gets a very good insight as to how the relative positioning between the asset and its peers looks like, how early the asset is in the filing cycle, how many peers accept the asset as leading in the technology area by citing it, and how the structure of the asset is composed (what is protected, and potential fallback positions).
This process is more reflective of what a patent expert would use to define the quality of a patent.
Patent Validity (V) is a term that encompasses the various ways a patent can be rendered unenforceable in a court or administrative process.
IPwe evaluates validity through considering each claim of a patent separately on an element-by- element basis, ensuring all art nodes are linked.
The methodology IPwe Analytics use to identify prior art is superior to other methods because by the Art Classification Node***** , IPwe Analytics focuses on the subset of patents or non-patent literature that humans directly or in-directly determined to be relevant.
IPwe Analytics rely on a curated dataset of over 130 million patents & patent application records dating as far back as the early 1900s to analyse all art relevant to a patent.
This accumulation of patent data, alongside over 2 million articles & journals and regular downloads from the internet, amass into the ‘IPwe Analytics Prior Art Library’- a leading database for patent analysis.
*** Random-walk-with-restart: An algorithm which provides a good relevance score between nodes in a weighted graph.
**** Stochastic: Presence of a random variable.
***** Node classification models: Aim to predict non-existing node properties based on already classified nodes.
Financial ratings focus is usually on considerations of purely financial ROI & the associated risk hedging. However, rating types have also emerged whose reference object is quality of companies & financial instruments.
In these cases, the risk assessment is based on what happens if the reference object does not meet the quality benchmark.
There are no such ratings for IP & especially inventions. If the assessment costs more than the financial benefit gained, then the assessment won’t take place.
These times have changed for IP. AI has enabled batch-scoring across whole industries and blockchain tech completes this technological breakthrough by providing an unbroken & unforgeable chain of evidence through tokenisation.
The core metrics for IPwe’s patent-based ratings are on a high-level, patent performance, patent opportunities, & patent risks. This is completed through a patent-to-patent based assessment & comparison.
Importantly, IPwe’s ratings are broken down into industries as cross-assessment of the assets can be misleading.
Only stacks of patents belonging to the same technological area are compared with each other in IPwe’s ratings.
Once the target portfolio is split into the respective industries it belongs to, the rating methodology takes a bottom-up approach, from the individual inventions up to the aggregated technology level.
Each invention has a total of 11 attributes associated with it that are structurally relevant for the rating, with each attribute having a score ranging between 1-100:
1) Average Validity Score
2) Average Quality Score
3) Transaction Likeliness
4) Drop Likeliness
5) Patent Family Age
6) Key Markets
7) Technology Hotness
8) Family Grant Saturation
9) Key Market Grant Saturation
10) Enforcement Territories
11) Enforcement Territories Grant Saturation
The attributes are absolute values important for strategic decisions.
All of this is summarised with ratings scaling from AAA-D, providing a high-level understanding of the asset’s financial quality.