Patent Valuation

WILLIAM J. MURPHY is a Professor of Law and Chair of the Commerce and Technology Law Graduate Program at the University of New Hampshire School of Law (formerly the Franklin Pierce Law Center), one of the top schools of intellectual property in the country. Murphy cofounded UNH Law's Intellectual Property Valuation Institute and currently serves as its director. He is the author of R&D Cooperation among Marketplace Competitors. Murphy earned a JD degree from Pennsylvania State University's Dickinson School of Law, and he holds master and doctorate degrees from Harvard Business School. JOHN L. ORCUTT is the Associate Dean for Faculty Research and a Professor of Law at the University of New Hampshire School of Law. Orcutt cofounded UNH Law's Intellectual Property Valuation Institute and its International Technology Transfer Institute. Orcutt is the author of Shaping China's Innovation Future: University Technology Transfer in Transition. Before coming to UNH Law, Orcutt worked as a Silicon Valley investment banker and a capi-tal markets attorney. Orcutt earned a JD degree from the University of California, Berkeley. PAUL C. REMUS is a shareholder of the law firm of Devine, Millimet & Branch, P.A., in Manchester, New Hampshire. Remus concentrates his intellectual property practice in prosecuting patent applications, drafting noninfringement opinions, and licensing technology. He also mediates disputes involving intellectual property and is on the U.S. District Court Mediation Panel List. Remus also represents both companies and venture capitalists in private placements and other financing involving intellectual property. Remus earned a JD degree from the University of Michigan.

• Preface ixAcknowledgments xiiiPart One Foundations for Patent Valuation and Decision Making 1Chapter 1 Valuation Basics 3What Is Value? 5The Valuation Process 7Identifying the Subject Matter of the Valuation 9Valuation Misconceptions 12The Three Basic Valuation Methodologies 16Limitations on Rationality in Valuation and Decision-Making Exercises 20References 20Notes 21Chapter 2 Patent Basics 23What Is a Patent? 26Anatomy of a Patent 32Criteria for a Patent 33Transferring Patent Rights 36Nationality of a Patent 39References 40Notes 40Chapter 3 Using Valuation Analysis to Improve Patent Decision Making 43Patent Decisions 45Maximizing, Optimizing, and Satisficing: How Much to Invest in Valuation Analysis 52Preliminary Portfolio Valuation Audit: A Practical Valuation Technique 58References 65Notes 65Chapter 4 Disassembly 67Disassembly and Decision Trees 69Using Disassembly to Develop Higher-Quality Data 75Using Disassembly to Understand Data Better 84References 86Notes 87Part Two Patent Valuation Techniques 89Chapter 5 Preparing for the Valuation 91Understanding the Bundle of Legal Rights 91Ownership Interest in the Patent 93Description of the Patent Rights 99Encumbrances on the Patent Rights 100Understanding the Patent Rights’ Neighborhood 102Exploiting the Patent Rights 103References 117Notes 119Chapter 6 Income Methods: Discounted Future Economic Benefits Analysis 121Basic Arithmetic of the Discounted Future Economic Benefits Analysis 124Garbage In, Garbage Out: The Challenges Lay in the Inputs, Not the Math 131Projecting Future Net Economic Benefits 133Developing Projections from Analytical Analyses 143Estimating the Discount Rate 151References 159Notes 160Chapter 7 Advanced Income Methods: Incorporating the Value of Future Decision Opportunities 161Option Contracts and Their Value 164Real Options 168Valuing Patents Using Option-Pricing Insights 170Using Decision Trees to Incorporate the Value of a Patent’s Future Decision Opportunities 174References 185Notes 186Chapter 8 Market Methods 189Markets and Patent Rights 191Competitive Exchange 198Comparable Transactions 205Alternatives to the Core Market Methods 207References 214Notes 216Chapter 9 Cost Methods 219A Few Accounting Principles 220Cost of Development: Questionable Valuation Tool 224Cost of Reasonable Alternatives: Establishing a Maximum Price 227References 230Notes 231Part 3 Patent Valuation in Practice 233Chapter 10 Pricing Patent Licenses 235Payment Structures 236Determining the Price for a License 246Less Formal Valuation Techniques for Setting Royalty Rates 248References 264Notes 265Chapter 11 Patent Infringement Damages 269U.S. Legal Framework for Calculating Damages in Patent Infringement Cases 271Lost Profits 275Reasonable Royalty 285Additional Patent Damages Matters 297Answering the Sue or Settle Question 299References 306Notes 307Chapter 12 Unlocking the Potential Value within Patents 313Keeping Pace with Economic Changes 316Patents as Collateral for Secured Loans 317Securitizing Patents 325References 333Notes 334Chapter 13 Valuation in Patent-Based Tax-Planning Strategies 337Examples of Patent-Based Tax-Reduction Strategies 339Transfer Pricing 344Determining Transfer Prices for Patent Rights 348References 358Notes 359About the Authors 363Index 365