Leveraging Patents Financially: A Company Perspective

224 Pages·2012·2.18 MB·English

by  Dominic de Vries (auth.)

Dominic de Vries
Leveraging Patents Financially
GABLER RESEARCH
Dominic de Vries
L everaging Patents
Financially

A Company Perspective
With a foreword by Prof. Dr. Cornelius Herstatt
RESEARCH
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Dissertation Hamburg University of Technology, 2011

1st Edition 2011
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Foreword

Together with other intangible assets, patents constitute essential value and competitive
factors for companies, particularly companies in technology-intensive sectors. Patents’ legal
and economic value is beyond question, while their quantitative valuation remains
challenging due to a lack of efficient and reliable methods. In practice, the valuation of
patents is therefore often limited to qualitative appraisals and “strategic” assessments.

This dissertation’s point of departure is the observation that the value of patents and patent
portfolios are often accounted for indirectly, but not based on qualitative valuations in
corporate financing. In this study, Dominic de Vries investigates whether and to what extent
patents may contribute to corporate financing and which factors may be relevant for it. Thus,
he observes the high importance of patents for innovative companies on the one hand and the
difficult utilization of these valuable assets for corporate financing on the other, placing his
focus on this discrepancy. Based on an empirical study, he addresses his set of research
questions within the German industry. As a result, Dominic de Vries provides descriptive and
partially explanatory findings and translates these into hypotheses. In the process, he chooses
an explorative, survey-based research approach, which he combines with a large-scale
empirical study.

In my view, the overall findings of his research are interesting and enriching for academics as
well as practitioners. The distinction of the findings concerning company size clusters allows
for a differentiated insight into corporate finance practice. Another interesting finding is that,
to date, mostly traditional financing instruments have been used to involve patents as
economic assets.

I consider Dominic de Vries’s dissertation a recommendable contribution in every respect.

Univ. Prof. Dr. Cornelius Herstatt
Hamburg, July 2011
Preface

Intellectual property (IP) is a key factor for the creation of value across industries and its
importance is widely recognized. However, measures of the value of IP assets are mostly
limited to qualitative appraisals, due to difficulties and deficiencies of quantitative valuation
methods. As a result, the value of IP, subsumed as intangible assets in reporting standards, is
not adequately represented in the range of corporate financing. Based on expert interviews
and a large-scale survey across technology-intensive industries in Germany, the objective of
this thesis is to find out how patents might contribute to the external access of companies to
financial sources. Within the class of IP assets, I focus on patents, since these are fungible
rights and form a large part of a company’s technological capital. As one of the first in-depth
empirical studies, this thesis explores the actual relevance of and identifies the main influence
factors for companies to leverage patents financially across industry and company size
clusters, and provides an analytical model with the influence factors to analyze the financial
utilization of patents. I therefore seek to contribute to a better theoretical understanding and to
facilitate the practical applicability of patents to external financing instruments.

I wrote this thesis as a research associate at the Institute for Technology and Innovation
Management at the Hamburg University of Technology. I am grateful to Prof. Dr. Cornelius
Herstatt for his supervision and academic support as well as the valuable and pleasant time at
his Institute. Besides allowing me a broad thesis development scope, he also supported me
throughout in many ways. I thank Prof. Dr. Matthias Meyer for his second advisory role,
interest and kind support. I also thank Prof. Thomas J.C. Matzen for the extremely interesting
and inspiring time as his assistant. This time as doctoral candidate was one of professional
and personal enrichment.

Furthermore, I appreciate the contribution of the experts and interview partners who provided
time, valuable insights, and substantial input for my empirical study. My kind thanks to all my
colleagues at the Institute for the company and their valuable advice and support for my work.

Finally, I thank my family for keeping me grounded and my friends Frank and Florian for the
great time and extraordinary fellowship over the years.

Dominic de Vries
Hamburg, July 2011
Outline

Foreword .................................................................................................................................. V(cid:3)
Preface ................................................................................................................................... VII(cid:3)
Outline ..................................................................................................................................... IX(cid:3)
List of Abbreviations .............................................................................................................. XI(cid:3)
List of Figures ...................................................................................................................... XIII(cid:3)
List of Tables ......................................................................................................................... XV

1(cid:3) Introduction ...................................................................................................................... 1(cid:3)
1.1(cid:3) Purpose and objective ................................................................................................. 1(cid:3)
1.1.1(cid:3) The increasing relevance of intellectual property .............................................. 1(cid:3)
1.1.2(cid:3) Challenges in leveraging intellectual property financially ................................. 3(cid:3)
1.1.3(cid:3) Research objectives ............................................................................................ 6(cid:3)
1.2(cid:3) Introduction of central concepts and thesis focus ...................................................... 9(cid:3)
1.2.1(cid:3) Introduction of key concepts and definitions ..................................................... 9(cid:3)
1.2.2(cid:3) Thesis focus ...................................................................................................... 11(cid:3)
1.2.3(cid:3) Thesis structure ................................................................................................ 14

2(cid:3) The economics of patents ............................................................................................... 16(cid:3)
2.1(cid:3) The concept of patents and patenting trends ............................................................ 16(cid:3)
2.1.1(cid:3) The concept of patents ...................................................................................... 16(cid:3)
2.1.2(cid:3) Patenting trends ................................................................................................ 19(cid:3)
2.2(cid:3) Asset characteristics of patents ................................................................................ 20(cid:3)
2.2.1(cid:3) Motives and barriers to patent .......................................................................... 21(cid:3)
2.2.2(cid:3) Patents as value drivers .................................................................................... 26(cid:3)
2.2.3(cid:3) Patents as value indicators ................................................................................ 29(cid:3)
2.2.4(cid:3) Patents as 'assets per se' .................................................................................... 32(cid:3)
2.2.5(cid:3) Patents compared to tangible assets ................................................................. 33(cid:3)
2.3(cid:3) The value question ................................................................................................... 36(cid:3)
2.3.1(cid:3) The value distribution of patents ...................................................................... 36(cid:3)
2.3.2(cid:3) How to assess the value of patents ................................................................... 38(cid:3)
2.4(cid:3) The liquidity question ............................................................................................... 41(cid:3)
2.4.1(cid:3) The external acquisition and exploitation of patents ........................................ 42(cid:3)
2.4.2(cid:3) The external acquisition of patents ................................................................... 43(cid:3)
2.4.3(cid:3) The external exploitation of patents ................................................................. 47(cid:3)
2.4.4(cid:3) Markets for technology .................................................................................... 52(cid:3)
2.4.5(cid:3) Evolving patent-based business models ........................................................... 58(cid:3)
2.5(cid:3) Synopsis of the economics of patents ...................................................................... 61

3(cid:3) Patents as financial assets .............................................................................................. 63(cid:3)
3.1(cid:3) The perception of patents in financial statements .................................................... 63(cid:3)
3.2(cid:3) How to leverage patents financially ......................................................................... 67(cid:3)
3.2.1(cid:3) The role of patents in equity transactions ......................................................... 69(cid:3)
3.2.2(cid:3) The role of patents in debt financing ................................................................ 72(cid:3)
3.2.3(cid:3) The role of patents in sale/lease-back transactions .......................................... 77(cid:3)
3.2.4(cid:3) The role of patents in patent funds ................................................................... 80(cid:3)
3.3(cid:3) Synopsis of patents as financial assets ..................................................................... 82
X

4(cid:3) Design of the empirical study ........................................................................................ 84(cid:3)
4.1(cid:3) Exploratory interviews ............................................................................................. 85(cid:3)
4.2(cid:3) Large-scale survey .................................................................................................... 87(cid:3)
4.3(cid:3) Statistical measures and methods ............................................................................. 89

5(cid:3) Development of the survey ............................................................................................ 92(cid:3)
5.1(cid:3) Asset characteristics of patents reconsidered ........................................................... 92(cid:3)
5.2(cid:3) Endogeneous financial exploitability of patents ...................................................... 94(cid:3)
5.3(cid:3) Actual extent and potential of leveraging patents financially .................................. 97(cid:3)
5.4(cid:3) Influence factors for companies to leverage patents financially .............................. 98(cid:3)
5.4.1(cid:3) Financial influence factors ............................................................................... 98(cid:3)
5.4.2(cid:3) Asset-related influence factors ....................................................................... 103(cid:3)
5.4.3(cid:3) Managerial influence factors .......................................................................... 105

6(cid:3) Descriptive results of the empirical study .................................................................. 107(cid:3)
6.1(cid:3) Description of the survey sample ........................................................................... 107(cid:3)
6.2(cid:3) Asset characteristics of patents .............................................................................. 111(cid:3)
6.2.1(cid:3) Patent use and patent management trends ...................................................... 111(cid:3)
6.2.2(cid:3) The value and valuation of patents ................................................................. 114(cid:3)
6.3(cid:3) Endogenous financial exploitability of patents ...................................................... 118(cid:3)
6.4(cid:3) Actual extent and potential of the financial utilization of patents .......................... 120(cid:3)
6.5(cid:3) Influence factors for companies to leverage patents financially ............................ 123(cid:3)
6.5.1(cid:3) Financial influence factors ............................................................................. 124(cid:3)
6.5.2(cid:3) Asset-related influence factors ....................................................................... 126(cid:3)
6.5.3(cid:3) Managerial influence factors .......................................................................... 128(cid:3)
6.6(cid:3) Summary of major descriptive findings ................................................................. 129

7(cid:3) Analytical examination of the survey results ............................................................. 133(cid:3)
7.1(cid:3) Conceptual framework ........................................................................................... 133(cid:3)
7.1.1(cid:3) Dependent variable: Financial utilization of patents ...................................... 134(cid:3)
7.1.2(cid:3) Independent variables: Influence factors ........................................................ 135(cid:3)
7.1.3(cid:3) Control variables ............................................................................................ 140(cid:3)
7.1.4(cid:3) Overview of the analytical model .................................................................. 142(cid:3)
7.2(cid:3) Analytical result of the empirical study and generation of hypotheses .................. 143(cid:3)
7.3(cid:3) Synopsis of the analytical survey results ................................................................ 154

8(cid:3) Discussion and implications ......................................................................................... 157

9(cid:3) Conclusion ..................................................................................................................... 171

Appendix 1: General information on the concept of patents ........................................... 173(cid:3)
Appendix 2: Questionnaire .................................................................................................. 178(cid:3)
Appendix 3: Information on descriptive results of the empirical study .......................... 183(cid:3)
Appendix 4: Information on the analytical examination of survey result ...................... 194(cid:3)

List of references .................................................................................................................. 197(cid:3)
List of Abbreviations

BaFin Bundesanstalt für Finanzdienstleistungsaufsicht (Federal Financial Supervisory
Authority)
BCBS Basel Committee on Banking Supervision
BilMoG Bilanzmodernisierungsgesetz (Balance Modernization Act)
BGB Bürgerliches Gesetzbuch (German Code of Civil Law)
CDAX Composite Deutscher Aktien Index (Composite German Stock Index)
CEO chief executive officer
CF cash flow
CFO chief financial officer
DAX Deutscher Aktienindex (German Stock Index)
DCF discounted cash flow
DPMA Deutsches Patent- und Markenamt (German Office for Patents and Registered
Brand Names)
EPC European Patent Convention
EPO European Patent Office
EU European Union
EUR Euro
FASB Financial Accounting Standards Board (US)
FDA Food and Drug Administration (US)
GDP gross domestic product
HGB Handelsgesetzbuch (German Commercial Code)
IAS International Accounting Standards
IASB International Accounting Standards Board
ICT information and communication technology
IFD Initiative Finanzstandort Deutschland
IFRS International Financial Reporting Standards
IP intellectual property
IPO initial public offering
IPR intellectual property rights
JPO Japan Patent Office
JPY Japanese Yen
JV joint venture
M&A merger & acquisition
MNC multinational corporation
N/K not known
XII

OECD Organization for Economic Co-operation and Development
OEM original equipment manufacturer
PatG Patentgesetz (Patent Act)
R&D research and development
RDFO research and development financial organization
RoI return on investment
SME small and medium-sized enterprises
SolvV Solvabilitätsverordnung (Solvability Decree)
S&P Standard & Poor's
SPV special purpose vehicle
SWORD stock warrants of balance-sheet research and development
UK United Kingdom
US United States of America
USD United States Dollar
USGAAP United States Generally Accepted Accounting Principles
USPTO United States Patent and Trademark Office
VC venture capital
WIPO World Intellectual Property Organization