A credible patent valuation requires attention to all relevant factors and a multi-disciplined team of experts to execute it. GHB Intellect has hundreds of experts in high-tech, science, finance, and IP fields. By deploying the best and most appropriate team of experts (including technical, financial, legal, and business) for every project, and by utilizing best practices in IP evaluation and fair market valuation, GHB Intellect is able to provide accurate, reliable, and unbiased valuation reports.
In this case study, we explain our process in determining the fair market value of a patent directed to a custom vehicular device especially designed for fleet operation and activities.
Note that the most accurate and credible patent valuations typically benefit from a two-step approach: 1) a Technical Evaluation, which will be used as input to 2) a Fair Market Valuation. Although the technical evaluation is an optional report, it is highly encouraged.
The Fair Market Valuation report depends heavily on the findings of the Technical Evaluation Report. In the absence of this report, we would have to rely on the inventors’ input and assessment of the technical merits of the patents involved. Although the inventors will be in a great position to provide such input, the bias (whether real or perceived) associated with the inventors’ relationship with the Client will no doubt bring the objectiveness of the Fair Market Valuation report into question. As such, if the valuation report is intended to be used for audiences outside of the Client’s organization (target companies), the credibility of the report’s conclusions may be substantially diminished, even though the valuation report will have been created by an impartial third party.
This case study is a great example of the usefulness of this two-step approach. Aside from the above advantage of performing the technical evaluation, it provided a much better development plan to the client, allowing them to improve their business plans substantially.
We were approached by a private company specializing in developing specialized devices for use in fleet vehicles. We were tasked to evaluate and valuate the company’s patent portfolio.
The patent portfolio consisted of just one issued U.S. patent. While a continuation application and international PCT application was filed, both had been abandoned at the time of the valuation.
The patented devices included electronic as well as electro-mechanical components. The company had an initial design of the device that required substantial modifications to vehicles and, as such, was only considered to be of potential interest to OEM manufacturers of the vehicles.
Moreover, the client showed intent in potentially providing services associated with the patented device. These services included cloud-based storage and retrieval services that complemented the use of the devices.
The client was interested in fair market valuation of the patent. After initial consultation with the client, it was decided that they could also benefit from our services to assess the technical merits and the technical value for the patent including: (1) the practicality of the invention, (2) the cost of implementation, and (3) the potential for workarounds. A technical evaluation and business feasibility analysis for potential associated services of the patented product was also requested. The technical analyses would then feed into the fair market valuation for the patent and for the potential associated services for use in product development or patent divestiture.
GHB Intellect has a wide range of top-notch experts who are tailor-suited to each project. Here, given the breath of the project, 4 experts were utilized to conduct these evaluations: two technical experts, one IP strategist, and one business valuation expert.
The first technical expert has a PhD in Mechanical, Civil, and Structural Engineering. He has over 30 years of experience in mechanical, structural, thermal, fluid, finite element, and computational fluid dynamics analyses for major government, corporate, and education institutions.
The second technical expert has a Masters in Electrical Engineering, specializing in telecom networks. He has over 20 years of experience in Internet and optical networks and is an Inventor on over 80 patents.
Our IP strategist has an extensive background in evaluating patents and identifying potential issues that may open a patent up for litigation.
Our business valuation expert has over 10 years of experience in performing IP valuations across multiple fields.
Our two technical analysts and our IP strategist evaluated the patent across various parameters, including patent strength, the prosecution history, detectability, probability of use, practicality, costs of implementation, ease of work-arounds, etc. Not only did they analyze the patent, they also further designed and rendered an optimized device that was more efficient than the one contemplated by the inventor, while still falling within the scope of the patent claims. This redesign allowed the device to be far less costly, easier to operate, easier to integrate with an existing vehicle fleet, and circumvented regulatory vehicle safety roadblocks. In fact, this redesign was so much more efficient and effective that the client adopted it to create a far more attractive business plan.
In addition, the developmental and production costs of the patent and its potential associated services were determined by the technical analysts, a necessary input into the fair market valuation.
Our complete fair market valuation services assess a patent portfolio from all three valuation methodologies: the Cost Approach, the Market Approach, and the Income Approach. Given the uniqueness of the patent in this case, the lack of viable competing alternatives as determined by our technical experts, and the absence of guideline transactions for a patent/product of this type, we considered both the Cost Approach and the Market Approach to be not probative. Accordingly, we evaluated the patent and its potential associated services through the Income Approach.
Determining Uses and Market
Part of our technical analysis of the patent included determining the best uses for the patented technology, which involved a set of specialized fleet vehicles. Moreover, as a single U.S. patent, the device would only be appropriate for a U.S. fleet.
While other potential uses were contemplated by our technical experts, we determined those uses to be inapplicable as they require additional modification and/or depend on future technologies.
Using publicly available sources, we were able to determine the ratio of fleet vehicles to relevant vehicle users in 2003. We used those same multipliers to determine the total number of vehicle applications in present day. We also considered the turnover rate of vehicles, but found that to not be relevant due to the ease in which the device redesigned by GHB Intellect may be removed and reattached to a vehicle.
Production Timeline and Costs
Our technical experts, in the technical evaluation, estimated development and production costs for the device as described by the patent claims and designed by GHB Intellect. Our experts further determined a timeline for implementation. Our model assumed a reasonable production, deployment, and replacement schedule for the device and the projected potential unit sales to patent expiration.
Comparables and Royalty Rate
To determine the operating profit from the sale of each unit of the device, we looked towards firms that operate within the vehicular fleet devices and services space. We identified multiple potential comparable firms and calculated their operating profit for both products and services over a 5-year span. Based on to differences in business models, we determined the firms that were the most reasonable comparables and calculated a 5-year average operating profit for products and services to our evaluated products and services.
We further searched for Comparable Uncontrolled Transactions (“CUTs”) to determine an accurate royalty rate associated with the patent. Our search for similar transactions within the technology and operating space yielded over 50 results, of which we identified 10 to be most appropriate for further review. Taking into account various factors of relevancy, including the technology being licensed, the date of the transaction, and the territory, we identified the transactions that were the most comparable, which informed our selection of a reasonable royalty rate range to the evaluated patent.
Based on the market, timeline, costs, comparables, and CUTs identified above, we were able to project royalty-based profit through the patent’s expiration. Additional factors, such as risk and discount rate were also taken into account. A similar analysis was also performed for any potential services that may be bundled with the sale of the device, including identifying and applying as comparable similar services.
Obtaining a thorough and unbiased valuation is important in facilitating divestiture of IP assets. Notably, a proper valuation could improve the understanding of the underlying assets and provide leverage in negotiations.
The technical and financial reports so generated as part of this project was not only well-received by the client, they also opened a new avenue for the client to pursue its business aspirations. The technical evaluations led to a clear understanding of the best approaches to developing the devices and associated services. The thoroughly researched and well supported fair market valuation report gave the client an unbiased, credible, and substantial valuation that could be used in discussions and negotiations with investors/partners.
This case study shows that, with its large cadre of highly qualified experts and its decades of experience and adherence to the highest levels of service quality, GHB Intellect is able to quickly and effectively provide high-caliber technical and financial evaluation analyses and reports. As such, we stand by our reports and are able to defend it in any discussion, negotiation, or dispute with third parties.