How can patents be valued?

What are your own patents worth?

VDI nachrichten, Düsseldorf, 20. 6. 08, sta - 30 years ago it was mainly real estate and machines that determined the value of a company. Today, intangible assets are the main determinants. Industrial property rights play the main role among them. But what are patents and the like worth? How can a specific amount be determined in a comprehensible manner? A recent study has examined common methods and shows their advantages and disadvantages.

Many business leaders consider patents to be the most important success drivers. That is the result of a study by the consulting firm PricewaterhouseCoopers (PWC). 142 of the 500 largest patent applicants before the European Patent Office were questioned. The response rate was 43%. The majority of the participants came from the industrial goods (32%) and chemicals / pharmaceuticals (22%) sectors.

The appreciation of patents can be seen as an indication of the transition from the production to the knowledge society. However, German accounting law has not been able to keep up with this rapid change: For most companies, there is no obligation to assess the patent portfolio in the balance sheet. According to the German accounting tradition in accordance with the German Commercial Code (HGB), there is even a ban on capitalization for self-created patents. Only acquired patents are to be accounted for and depreciated in the amount of the acquisition costs.

An exception applies to capital market-oriented companies. Since the 2005 financial year, you have had to report in accordance with International Financial Reporting Standards (IFRS). As a result, they are obliged to regularly evaluate their intangible assets, for example in the case of company mergers.

However, as of January 1, 2009, the exception could become the rule. Then namely, the Accounting Law Modernization Act (BilMoG) should come into force. It provides for an alignment of the HGB with the IFRS principles. Accordingly, without exception, all companies in Germany would have to account for their intangible assets.

What at first sounds like an additional bureaucratic effort has its advantages. According to the PWC study, only a fraction of the existing patents are actually used in companies with strong patents. This still applies even if blocking patents are included in the calculation. Now, not using a patent can be an economically sensible decision. This applies in particular if the company does not generate sufficient value added as a result, i.e. if the additional income that would be expected from the use of the patent is not in a reasonable proportion to the additional expenses incurred. If the patent has not been evaluated, however, a rational decision regarding use or non-use is simply impossible.

The question now is how can companies evaluate their patents? PWC differentiates between monetary and non-monetary procedures. In the non-monetary process, the influence of the respective patent on important criteria (e.g. sales development, image gain or degree of innovation) is weighted with a value figure. This should then express the value of the patent for the company. The problem with these procedures: They are not suitable for capital market-oriented or accounting purposes.

The monetary procedures explained below are different. The easiest to handle are those that focus solely on the cost of a patent. The cost of reproduction method, for example, shows the costs that the company would incur if it had to produce an exact duplicate of the asset or a variant with equivalent benefits. Disadvantage: Current and future income are not taken into account.

The market price-oriented valuation methods include future income at least indirectly. They determine the current value of a comparable asset on the market. The difficulty: no two patents are alike. In addition, the market is opaque and illiquid.

Methods based on the net present value are more meaningful. They assume that the value of a patent is primarily determined from its future profit contributions. The sum sought therefore corresponds to the present values ​​of the cash flows that can be achieved in the future. A risk-adjusted interest rate is used for discounting. However, the prerequisite for use is that cash flows can be directly allocated to the individual patent. That should rarely be the case.

The residual value method solves this problem. It is taken into account here that individual assets only generate cash flows in combination with other assets. The contribution of the individual patent results from the difference between the total cash flow and the costs for all other assets.

With the surplus profit method, all future cash flows are compared with the cash flows of a fictitious company that does not own or use this asset.

The license price analogy is also one of the capital value-oriented processes. This determines which license payments the company would have to pay fictitiously if the asset in question were owned by a third party. According to PWC, this is the most commonly used method. Background: It is easy to use. This is mainly due to the fact that the required data - such as license sets - can be found quickly in relevant databases.

64% of the companies surveyed for the study consider the monetary innovation evaluation to be (very) helpful in the internal management of technologies and patents. When assessing whether the monetary valuation can usefully complement external reporting, opinions were more divided. 47% voted for it, 24% were undecided and 35% were negative.

Heiner Flocke, chairman of the board of the Patentverein e.V., speaks out clearly against a far-reaching patent valuation for accounting purposes. “That opens the door to fraud against all stakeholders. The companies can count themselves as poor or rich depending on their objectives. ”The works as a self-help organization of the industry and wants to support the patent system in meeting its quality standards. The Bodenheimers are mainly fighting against the growing flood of trivial patents. S. ASH

A contribution by:

  • Stefan Asche

    Editor VDI news
    Subjects: 3-D printing / additive manufacturing, construction / engineering, logistics, machine tools, lasers