Queen Rania Center for Entrepreneurship (QRCE)Technology Commercialization Program

The 3rd Conference on Technology Commercialization

Why Value Your Intellectual Property?

Dr. Amir H. Khoury

Amman, October, 2007

“There is Gold in the Garden!”

To Value…..a natural need!

Natural tendency of people to want to knowwhat they own; how much they are “worth”:

• Personal curiosity. • Social prestige.

On a deeper level….

• More compelling rationales why valuating IP constitutes crucial component in contemporary commercial dealings.

Summary of Rationales

Utilizing Legal

Protection

Dictations of

Corporate Structure

Business Indicator

Credit Leverage

Tax Benefits:

Amortization of

Depreciating IP

1. Utilizing Legal Protection Effectively

The Law: • Creates “property” concept; provides rules/methods for

protecting it. • Property includes tangible & intangible assets (i.e. IP). • Intervenes when property rights are infringed.• Provides host of remedies for property holder

(compensation; restitution).

In order to utilize legal protection there is a need to:• Determine extent of “harm” inflicted on property owner. • Need clear understanding of IP value.

2. Dictations of Corporate Structure

• Most commercial dealings conducted by corporations.

• Corporations have a broad base of investors (shareholders).

• Shareholders: a versatile group; buys/sells assets; maneuvers between corporations looking to maximize earnings.

…Valuation of Corporation’s IP (placing it on balance sheet):

• Constitutes “Promise” about corporation’s value.

• Shareholders advised re corporation’s value.

• Exposes hidden assets; corporation rendered a more attractive investment.

• IP generated added-value raises share prices

(value); generates earning for corporations/ shareholders.

3. Business (Compass) IndicatorManagement keen to:• Boost financial success.• Improve performance.

IP assets of business provide strong indication ofManagement’s overall performance:

• (e.g. Valuable brand = Goodwill of business). • Business’s brand --- worth more than total tangible

assets. • “pending” patents/copyrighted works ---- promises of

great commercial success.

4. Intellectual Property as a Credit Leverage

• Corporations need wealth/capital to expand.

• Funds not always available: Need to borrow.

• Lenders (i.e. banks/financial institutions) require security against loan (mortgage; floating charge; legal lien on land/assets -- including IP assets.

….Credit Leverage

• Company holding intangible assets of value: More likely to receive loans.

• Loans on more favorable terms: Enabling borrower to expand operations/raise earnings.

5. Tax Benefits: Amortization of Depreciating IP

• Prevalent in IP with limited term (Patents: 20 years patents; Copyrights: 70 years after creator’s death).

• Value of Patent/Copyrighted work falls each year: nears entry to “public domain”.

• From right holder’s perspective --- value nears zero.

…Amortization

• Amortization of estimated useful life of patent/copyrighted work: “business expense”-- not applicable to goodwill (duration not limited in time).

• Declining value of patent/copyrighted work can be used to offset earnings – Constitutes clear tax benefit.

Conclusion• Dominance of IP assets in commerce & industry

prompts recognition for its value.

• IP valuation merely states the obvious: Great value attaches to IP assets.

• Valuating (appraising) IP is taking the world by storm.

• Prediction: “Valuating Intellectual Property” to become “standard procedure” for accountants; business people; lawyers.

So…why value IP?

…Why not?

Thank you!

Amir H. Khoury