Intellectual Property: Valuation, Exploitation and Infringement Damages 2013 Cumulative Supplement, 11th Edition

CHAPTER 12A

RISK-ADJUSTED CASH FLOWS (NEW)

  12A.1 REQUIRED RATES OF RETURN

  12A.2 CAPITAL ASSET PRICING MODEL

  12A.3 BUILD-UP METHOD

  12A.4 VENTURE CAPITAL RATES OF RETURN

  12A.5 PROBABILITY OF SUCCESS

(a) Phase I

(b) Phase II

(c) Phase III

(d) Regulatory Approval

  12A.6 CONCLUSION

When using an income approach, an indication of value is reached by discounting to present value a future stream of economic benefits expected from commercialization of the intellectual property being valued. The process involves, among other things, selection of an appropriate rate of return for use as the discount rate. An example of economic benefits is the royalty payments saved by patent owners. Patent owners are able to practice their patented invention and escape the payment of royalties that would otherwise be required if the patents had to be licensed. The present value of the saved royalties provides an indication of the value of the technology. The economic benefits of owning a patented technology might also be captured in a discounted cash flow analysis, by determining the value from incremental sales expected from commercializing the technology. Still another measure of economic benefits might simply be expected per-unit cost savings or price premiums. Regardless of how the economic benefits are estimated, discounting the future expectations is required.

Traditionally, the expected economic benefits are forecast into the future, and the risks of achieving these benefits is reflected ...