Rozek, Richard P.; Korenko, George G. --- "What is an Idea Worth?" [2006] ELECD 325; in Pugatch, Perez Meir (ed), "The Intellectual Property Debate" (Edward Elgar Publishing, 2006)

Book Title: The Intellectual Property Debate

Editor(s): Pugatch, Perez Meir

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781845420383

Section: Chapter 5

Section Title: What is an Idea Worth?

Author(s): Rozek, Richard P.; Korenko, George G.

Number of pages: 22

Extract:

5. What is an idea worth?
Richard P. Rozek and George G. Korenko

I. INTRODUCTION

People assign values to ideas every day in the marketplace for intellectual
property (IP). This marketplace is thriving. There were more than 625
transactions involving some form of IP rights in the pharmaceutical
industry alone between July 2003 and June 2004.1 IP does not have value
unless it contributes to products or services that fill previously unmet
needs, represent an improvement over existing products or services, or
allow cost savings. For example, while a patent provides exclusive rights to
an innovation, it does not ensure that consumers will purchase the product
or service embodying the innovation. Emmett J. Murtha, former Director
of Licensing at IBM, estimated that only about 5 per cent of the patents
in a large portfolio have substantial value.2 Many patents cover technol-
ogies that are not commercially viable or cannot be practiced without
access to other technologies. Determining the value of IP requires an
understanding of the characteristics of the research and development
(R&D) process and the downstream markets for the associated products
or services.
IP may be valued for internal business decisions, venture capital financing,
financial reporting such as for Statement of Accounting Standards (SFAS)
141 and SFAS 142, licensing transactions, taxes, litigation or bankruptcy.
Some of these forums have codified standards that an analyst must follow
when valuing IP. There are three approaches frequently applied: the cost
approach, the market approach, and the income approach. Not ...