Valuation is tricky enough when the economy is humming along, but calculating risk in times of unprecedented economic crisis is particularly challenging. With the stock market down roughly 40%, many experts predict correlating dips in IP valuations. However, that is definitely not true in every case. And while it is tempting to back off on deal-making at least until the economy settles down, some TTOs see a heightened opportunity to license out IP that may offer companies financial relief in the form of enhanced efficiency or competitive advantage. The key to licensing in a gloom-and-doom environment is thoroughly thinking through the value proposition that you are presenting to potential licensees, emphasizes Christopher Harris, PhD, senior licensing manager at the University of Virginia Patent Foundation (UVPF) in Charlottesville, VA. “If you are offering cost-savings to companies, that could be more attractive now than it would be in other times,” he explains. While Harris indicates that he has not yet seen values on IP diminish as a result of the economic crisis, he acknowledges that the structure of recent licensing deals more often pushes value further off into the future. “We roughly try to apply the 25% rule, which says that we are trying to share in a quarter of the profits that a company is likely to make. But ultimately what goes into the deal depends a lot on the company’s sensitivities and interests,” he says. For example, if a company would prefer to forgo any up-front licensing fees, UVPF can structure the deal so that there are added milestone payments or an elevated royalty rate later on. “We can usually balance things out once we have come to an [agreement] on what we think is fair” in terms of total value, adds Harris.

While markets are clearly tightening in many areas, it is “really dangerous” to make generalizations about innovation in either a recession or a booming economy, stresses Thomas Blailock, who heads Blailock & Associates, a Boston, MA-based consulting firm. For example, he points out that while many biotech start-ups are desperate to sell their IP because they need cash, the situation is entirely different for innovators involved with stem cell research. “If you have a patent portfolio or technology portfolio in the U.S. in stem cell technology, your valuations might be going up given that the regulatory environment is changing favorably,” says Blailock. “In a recession, what you would be led to believe is that values are down like cars, houses, and real estate. But that is not necessarily the case because each technology area is different.” A detailed article on how the economic crisis is impacting IP valuations appears in the March issue of Technology Transfer Tactics. For subscription information, CLICK HERE.

Posted March 11th, 2009 under Tech Transfer

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