IP assets and market valuation

As stated in our previous articles intellectual property rights are assets and therefore their value is reflected in the company accounts. Key intellectual property rights often play a huge role in the company’s valuation.

Intellectual property rights make your company acquisition-attractive:

Intellectual property rights play an important role in acquisitions and mergers. Think of Google’s acquisition of Motorola Mobility. In an article[1] written shortly after the acquisition, Steve Lohr reports that the 17,000 patent portfolio could represent more than half the value of the deal; which amounts to an average of about $400K per patent/application. Similarly, GeekWire[2] speculates that id8 Group R2 Studios’ acquisition by Microsoft had something to do with its patent on home automation (US 8,196,064).  Similar examples include Google’s acquisition of eBook Technologies, Inc., Twitter’s acquisition of Tweetie days after Tweetie filed for a patent application on the pull down to refresh feature and Google’s acquisition of Apture and Katango, two small startups with multiple patent applications relevant to Google’s businesses.

Patent portfolios are very relevant for big companies (for both defensive and offensive business strategies), and the easiest way to build portfolios is by acquiring startups having key strategic intellectual property rights in niche areas.

To summarize, Intellectual property rights help you

  • to raise capital
    • as an indicator of the technological merit
    • by providing the potential investors with a sense of indemnification
    • as a marketable commercial asset
    • as security in acquiring loans or mortgages
  • to protect and improve your product
    • by granting you a monopoly over your idea
    • by granting you market lead time for years
    • by helping you in in-licensing
  • in your exit strategy
    • by improving the net value of your company
    • by making your company acquisition attractive
[1] Steve Lohr, A Bull Market in Tech Patents, The New York Times, 16th August 2011 (available at http://www.nytimes.com/2011/08/17/technology/a-bull-market-in-tech-patents.html?_r=0)

[2] Todd Bishop, Future of Xbox? Microsoft acquisition includes patents for ultimate home remote, GeekWire, 3rd January 2013 (available at http://www.geekwire.com/2013/future-xbox-microsofts-secretive-acquisition-includes-patents-ultimate-home-remote/)

 

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