Intangible Assets and Finance

Kazuyuki MotohashiProfessor, Department of Technology

Management for Innovation, The University of Tokyo

Outline of Lecture

• Value of IP: Conceptual framework

• Firm’s IP use strategy: variations by firm size, industry and strategic focus

• How to measure IP value

• IP and finance: some examples of institutional arrangement

Value of patent

• Intrinsic value of inventions: how to measure?

• The value of patent is unique for everybody? If it is not the case, technology market will emerge.

• Is there any value added by patenting? :why patent and why not patent?

Mini Case

Case 1: If you are small company producing auto parts where you can use this new material?

Case 2: If you are large auto company and will heavily use this technology by yourself.

Case 3: If you are large auto company, but outsources auto parts production to subcontractors, who may use this technology.

R&D group in your company has just invented new material which is very light as well as strong. Will you patent this invention? or keep it in trade secret? Why?

Upsides and downsides of patenting

patenting Trade secret

upsides • Prevent your competitors from using your technology

• Possibility in licensing out

• Can keep your technology secret from your competitors

downsides • Your invention information become publicly available

• Needs patent fees

• Risk of your competitor’s imitation

• Risk of your competitor’s invention of the same technology and patent it (then you cannot use this technology anymore)

6

IP strategy indicators by JPO survey

Unused(a)

Internal Use but Not License (b)

Internal Use and License

(c)

License but notInternal Use

(d)

Cross License (cd1)Royalty License (cd2)

Not wiling to license(a1)

List of Indicators

NO_USE: a/All --- BLOCK: a2/aOWN: (b+c)/(b+c+d)LICENSE: (c+d)/(b+c+d) --- CROSS: cd1/(c+d)

--- FEE: cd2/(c+d)

7

Cross Section Looks (1)

# of firms No-USE Block (*) ＯＷＮ LICENSE FEE CROSSBy Year

2001 770 55.2% - 83.2% 19.9% 48.2% 21.3%2002 655 56.5% - 84.6% 17.5% 55.6% 22.3%2003 664 55.3% 68.1% 86.9% 13.1% 44.0% 19.1%2004 704 55.5% - 87.7% 11.4% 59.9% 19.0%2005 723 54.5% - 87.9% 11.1% 57.7% 19.6%

all samples in 2005 3065 49.5% 68.1% 87.2% 12.5% 55.5% 16.7%By Start Year

-1950 1,053 51.6% 71.1% 89.3% 8.3% 55.6% 16.7%1951-70 820 47.7% 70.3% 92.4% 8.6% 55.1% 20.6%

1971-90 546 44.1% 64.4% 91.0% 10.7% 47.9% 25.5%

1991- 534 50.3% 62.0% 88.6% 14.2% 63.0% 18.9%

By Employment Size-30 344 47.5% 50.6% 77.9% 22.7% 65.7% 3.6%

31-100 353 37.5% 66.5% 92.5% 8.1% 53.4% 16.4%

101-200 360 37.8% 77.0% 95.6% 6.1% 45.1% 10.2%

201-1000 1,156 46.8% 74.3% 92.2% 7.1% 51.2% 18.7%

1001- 735 60.8% 65.4% 86.6% 13.3% 60.3% 21.1%

8

Cross Section Looks (2)

# of firms No-USE Block (*) ＯＷＮ LICENSE FEE CROSS

By IndustryFood Industry 168 56.7% 64.5% 87.7% 7.6% 65.2% 10.3%

Textile, Pulp, paper, publishing 88 47.8% 80.5% 88.1% 4.3% 60.1% 20.9%Chemicals (excl. Drugs) 380 50.3% 76.2% 92.3% 7.1% 59.8% 14.3%

Drugs 85 67.6% 47.0% 75.8% 22.2% 66.0% 2.8%Metal and metal products 196 44.6% 71.0% 92.8% 6.2% 48.4% 13.8%

General machinery 286 43.6% 76.0% 96.1% 4.2% 48.6% 24.7%Electronics and electrical 466 49.8% 67.2% 90.8% 11.3% 45.8% 32.3%Transportation machinery 157 56.8% 64.4% 93.5% 6.0% 69.4% 15.0%

Precision machinery 109 48.5% 74.6% 90.3% 6.2% 33.8% 42.4%Other Manufacturing 236 43.2% 75.7% 93.3% 7.9% 55.0% 23.4%

Construction 154 52.3% 62.8% 82.1% 21.1% 64.4% 8.4%ICT services 124 63.3% 44.8% 92.1% 6.4% 50.0% 12.5%

Wholesale and retail 258 36.7% 76.1% 94.2% 8.1% 37.5% 4.2%Financial services 34 32.9% 33.3% 78.3% 25.0% 75.0% 0.0%

R&D and related service 214 54.8% 43.3% 63.4% 32.4% 79.1% 0.0%Other services 110 56.1% 26.1% 38.6% 63.2% 73.7% 5.9%

How to measure IP value?• Market approach

– Market transaction data (licensing deals)

– Stock performance by IP announcement

– Patent quality index by bibliometric information• Citations

• Patent breaths (claims) and families (intl. application)

• Post (pre) grant opposition and infringement

• Income approach– (Expected) Discount Cash Flow (DCF) method

• Real option approach

Value of drug licensing deals(in US, million US$)

(Kinukawa and Motohashi, 2009)

DCF Method(in case of pharmaceutical compound)

(Expected) cash flow after launch

T

tt

t

r

CFCV

1 )1(

Discounted sum

Marginal value of patenting?

• Yes, particularly for SMEs and start-up companies (with existence of information asymmetry)

• Empirical studies suggest that Patenting start-ups are more likely to receive Venture financing

• However, patent as collateral for loan? Not likely, because there are substantial uncertainty in value actualizations

• There are some institutional solution for financing out of IPs

Intellectual Property Trust System

Userlisence

Entruster Trustee

patentlisence

trust

lisence fee

Could be securitized-Investor 1

-Investor 2 …

IP license insurance scheme

Japanese Company(Licensor)

Foreign Company(Licensee)

NEXI(Nippon Export and

Investment Insurance)

(1) Payment of Premium

(4)payment of insurance money

(2) license

(3) delay of payment