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Seminar: IP Commercialization

posted by Richard Cahoon at 2010-06-01 14:57:00


Notes from Dr. Richard S. Cahoon, Santiago, June 1, 2010, OTRI Chile

Session 1: The Technology Transfer and Commercialization Process

Technology Characterization and Assessment Defining the technology and the value proposition IP possibilities

Commercialization Strategy Development: In-house, External : sale or license, License strategy

IP strategy design and implementation

Technology Marketing: finding commercialization partners: Tech Briefs, Data and related information, prototypes, conferences, websites.

The Steps of Partnering /Licensing

- Initial contact
- Non-disclosure (confidentiality) agreements
- Exchange of information from simple to complex
- Exploration of mutual interests face-to-face is ideal
- Detailed discussions
- Letter of Intent (LOI) or Memorandum of Understanding (MOU)
- Term Sheet
- Draft of Agreements: option, license, sale
- Negotiation
- Finalization + signing
- Ongoing management
- Technology validation

Partnering/Licensing

- Various agreements structure the relationship
- Confidentiality
- Letter of Intent or Memorandum of Understanding
- Option
- License: exclusive, non-exclusive
- Technology development
- Consulting
- Material Transfer Agreement
- Technology sharing
- Post–signing management is critical

Session 2: IP Valuation

Valuing IP is speculative. Especially with un-commercialized patents no sales, no markets, no data.

There are numerous valuation methods, but...

There is no universally accepted standard

In practice, IP valuation requires a combination of methods, tailored to the facts and is negotiated

Some common valuation methods: Cost (replication, reproduction), Cost + premium for risk and IP, Comparables or active market, Income

Total Value Extraction (TVE): Constructed by willing licensor and licensee, Combines present value with flexible future, Multifaceted value capture mechanisms

Cost: Direct and documentable, In-kind, All personnel and overhead

Cost and premium method: Risk premium and IP premium = cost x (1.5-3.0), Total of all costs

Active market comparables: Difficult to find similar deals

Income: Projection and risk factor calculation (risks: IP, business, technical, marketplace). Projected income x risk factor adjustment x net present value (NPV) of income stream.

Total Value Extraction (TVE): Combines reasonable present value calculation with... Flexible, future value capture mechanism (royalty, for example) and... Discounts and credits for investments in technology development/commercialization, as a basis for...

Dynamic, good faith negotiation between motivated “seller” and “buyer” (or licensor, licensee) to create...

A “living” structure that compensates all parties for opportunity cost, investment risk and...

Fair sharing of all future “upside” potential.

In practice, in any case, the technology must be characterized and assessed. This characterization and assessment is the basis for appropriate valuation.

Technology Characterization and Assessment

What is the invention exactly?

What does it do that is remarkable?

Is that problem/opportunity of economic importance?

How does it compare with existing alternatives?

Does it have potential for significant improvements over alternatives?

What are the market applications? Are they enough to justify the investment?

Is the market difficult to enter (e.g. size, competitors, regulatory hurdles, etc.)

- Technology characterization and assessment
- Define the value proposition(s)
- Factor-in the scope and strength of the IP
- Quantify the value proposition for market applications
- Consider the market size and characteristics
- Consider alternative/competing technologies
- Market hurdles? (regulatory, competition)
- Profit margins in market(s)
- Stage of development; cost to develop 1st product or service
- Stand-alone product or component
- What will be sold? Who will buy it? Why and how much will they pay?

Defining the Value Proposition

- Define and quantify product of service performance
- Characterize and quantify whenever possible
- Project market capture, profit margins, revenue generation
- Characterize the “enabling value” of the IP for product
- Consider cost of development

Creating a Value–Capture Envelope

Establish valuation assumptions and justify them Create multiple value-capture mechanisms

Upfront fees, milestone payments, exclusivity payments: Royalty on sales, Profit sharing, In kind

Consider alternative benefits (e.g. research support) philanthropic/ humanitarian issues?

“front-loaded” vs. “back loaded” value capture

Determining (and justifying) up fronts and milestones Based on eventual revenue generation (market size, sales, etc.)
- Risk factors
- Cost-to-develop
- Are there others who want it?
- Negotiation between buyer and seller

Determining royalty rates:
- Cost-of –goods sold
- Sales price
- Gross profits
- Industry standards
- The “Goldschieder Rule”

Other factors...

Negotiation is the key

Reaching a deal... creativity, flexibility, practicality

Open innovation and the life sciences

What is “Open Innovation”?

“Closed innovation”: strictly internal research , technology discovery, development, and commercialization; no collaboration; all outside work is “work for hire”

“Open Innovation”: Research, technology discovery/invention, development, commercialization that involves others (individuals, companies and/or public research institutions) as sovereign entities.

Why is Open Innovation important?

The Basic Premise: No individual (regardless of how smart) and no institution (no matter how large and well-funded) has all the solutions , especially in this world of complex problems and opportunities.

Maximizing the use of creative talent and resources requires partnering with outside individuals and institutions.

It can be highly cost-effective, Creating , developing, and commercializing modern technology is simply too expensive to do alone.

It’s a proven means to success.

Open Innovation: what role does it play?

For large companies:
- Adds fresh thinking, creativity and entrepreneurial energy to significant resources
- Allows exploration and quick moves into new technology and business areas
- Outsources non-critical R&D functions
- Brings new ideas into company
- Taps into superior expertise
- Infuses staid R&D bureaucracies with entrepreneurial energy
- Provides access to new talent for hire (students, post-docs)

For small companies and start-ups:
- Adds resources and capability
- Allows implementation of otherwise out-of-reach projects
- Brings expertise into company
- Access to expensive equipment and facilities
- Access to experienced personnel
- Potential for license income (patent , other IP)

For public research institutions:
- Provides access to non-government funding
- Interaction with technical colleagues with a different perspective
- Exposure to new, interesting problems; often interdisciplinary; can provide new research directions
- Access to specialized equipment and facilities

Advantages:
- Provides resources otherwise unavailable
- Expands capability of company or institution
- Accelerates R&D process

Disadvantages:
- More difficult to control processes and outcomes
- Potential for shared ownership of IP and tangible property (complicates management and benefits allocation)
- Potential for disputes (even litigation)
- Loss of in-house expertise and knowhow
- May dilute core competencies
- Loss of personnel by “jumping ship”
- May increase management burdens, timelines and inefficiencies

Avoiding disadvantages, enhancing advantages

Clearly define the respective roles

Define expectations

Develop a team mentality:
- Shared vision
- Leadership
- Differentiation of labor
- Mutual understanding and respect

Use carefully crafted, precisely worded work plans:
- Scope, objectives, tasks, deliverables, timelines
- Assignments/responsible parties
- budgets

Communication!!!
- Methods (use various)
- Frequency

Appoint “relationship champions” for each party

Transparency

Contracts as guides
- Simple letters to complex documents

Clear delineation of IP and tangible property rights
- Ownership and benefit sharing

Strategic IP Management

The Basic Steps:

Knowing the types of property control for technology assets

Conducting a property inventory

Assessing feasibility of property mechanisms

Integrating property mechanisms with business strategy

Types of technology property control

INTANGIBLE

Patents:
- Stops others from making, selling, using, importing
- 20 year lifetime, national in scope, expensive, protects ideas

Plant Breeder’s Rights:
- similar to patents, protects plant cultivars

Copyrights:
- protects the media-representation of the idea (not the idea), inexpensive

Trademarks:
- protects goods, requires market development, inexpensive

Trade secrets:
- requires management practices; doesn’t prohibit others from independent discovery

TANGIBLE

Personal property:
- biological materials, custom equipment, devices, notebooks, unique tools, etc.

Tangible Property:
- Bailment law (possession = ownership , unless bailed) example: Material Transfer Agreements

Technical control:
- software “locks” on copying “terminator” gene hybrid varieties

Conducting a property inventory for a technology

List all the types of property that currently exist, or which are possible

Define precisely the individual properties within each type

Take immediate steps to preserve the option to establish property control (e.g., don’t send out any materials without a signed bailment contract)

Assessing feasibility of property mechanisms

Determine cost of each property:
- patents = strong, expensive
- copyrights = inexpensive, often ineffective
- trade secrets = depends on implementation
- trademarks = inexpensive to register;
- proprietary materials = moderate cost, management burden

Integrate cost-effectiveness of property with business model and strategy

Integrate property mechanisms with business model and strategy

Types of property possible

Geographical scope of business strategy

Property feasibility and cost-effectiveness

Property and business models (e.g. license vs. sale)

Phased property strategy:
- Start-up, medium and long term
- Keep options open as long as possible

posted at: 2010-06-01 14:57:00, last updated: 2015-07-09 15:56:52

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