Case Study: Tier 3 Valuation of 3D Modeling and Digital Fashion Patent Portfolio
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Patent valuation can be a complex and challenging process with numerous variables. Importantly, the valuation should take into account the intended purpose and the intended audience. This case study highlights our commitment to custom tailoring our services to our clients’ needs.
Background
Company
We were contacted by a small, but rapidly growing, company within the digital fashion space. As a result of their expansion, they were interested in listing their patent portfolio as assets within their balance sheet.
Patent Portfolio
The patent portfolio included three issued U.S. patents directed towards various aspects of a 3D virtual fitting solution, covering one of the primary products provided by the company in business-to-business sales. Continuation patents remained open and additional filings were pending in China and Korea at the time of valuation.
Goal
Our objective was to review and determine a value associated with the company’s patent portfolio, specifically, the three issued U.S. patents. Given that the company wanted to list the portfolio as assets on their balance sheet, the valuation needed to be detailed enough to withstand review and scrutiny by government bodies.
Valuation Approach
As per standard practice here at GHB Intellect, our valuations are always preceded by a technical review and evaluation by a highly experienced subject matter expert (“SME”) in the field. In this instance, our SME was a web development expert with a degree in computer engineering and with over 30 years of experience in the industry. We relied on him particularly for his expertise in 3D modeling and integration into web-based applications. Upon review, we decided that the patents were the most relevant to the virtual fitting room market.
Our preferred method for patent valuation is the income approach, wherein future cash flow derived from the patent is projected and discounted back to present value, due to its flexibility in addressing a company’s different stages and practice areas. We typically begin our valuation analyses by reviewing the market. Virtual markets can be tricky due to their rapid flux and various externalities. We reviewed four different global market reports and decided to take the mean market size and compound annual growth rate (“CAGR”) through 2028. After 2028, we made no additional predictions and assumed the market would remain steady.
From the global virtual fitting room market, we apportioned the market for the United States, for software, and by average gross profit margin for the industry. We further took into account the company’s own projected growth based on real-world transactions and developed a growth curve through 2028.
After settling on a royalty rate to apply, we calculated the future value of the patent portfolio. We then applied a discount rate to arrive at a present value for the portfolio, taking into account market and technology risks such as:
- Company stage
- Patent portfolio coverage
- Patent portfolio size
- Patent portfolio scope and litigation risks
- Relevance of patent portfolio to company products
- Implementation of products
- Market success
- Anticipated growth opportunities
Results
Our thorough review of the market and integration of the company’s own financial records and documents resulted in an unbiased and conservative valuation that the company was able to use in justifying inclusion of their patent portfolio into their balance sheet. In addition, the valuation was used as leverage and a tool for negotiating potential divestiture of the company. Although we were available to defend our valuation approach and results in the report, it was never requested by any auditor. We attribute that to the completeness of our analysis and the thoroughness of our approach.
About GHB Intellect
Whether a client is seeking to develop, sell, license, or assert a patent portfolio, GHB Intellect has the right resources to enable business objectives to be met. Our experts comprise active industry leaders who are up-to-date and proficient in the state-of-the-art technologies and practices in order to provide the most useful and actionable consultations to firms and individuals. Our work is highly respected by our clients and their associates for being accurate and thorough. Please contact us to learn more about our IP monetization capabilities, including litigation support.