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Why Europe needs more reliable IP valuations



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A report for the EU has outlined recommendations for improving the system of IP valuation in Europe. Roya Ghafele, one of the report’s authors, explains the options

When BlackBerry announced it would look for "strategic alternatives" in the summer of 2013, a range of corporations immediately placed a value on its 5,000-plus patents and nearly 4,000 pending patent applications

Interestingly, the value that was provided for the portfolio ranged between $2 billion and $5 billion. Unfortunately, the valuation gap in the BlackBerry case is not an exception, but rather a typical illustration of the challenges and uncertainties surrounding the valuation of IP.

To establish the baseline for an IP valuation governance structure, the European Commission invited an international group of experts, of which I was a part, to provide recommendations at the European level on how to improve the state of IP valuation. Our report has now been published. Against this background I would like to list here the most important policy measures to promote active markets for IP by enhancing IP valuation standards.

What makes IP valuation so special?

IP valuation is strongly hampered by illiquid markets for IP. The lack of active trading volumes can turn the process into a hypothetical undertaking that is not underpinned by market reality. Ultimately, the worth of an item is determined by what someone is ready to pay for it, yet this piece of information is hard to obtain in clandestine over-the-counter markets that are characterised by a small number of highly confidential transactions.

Given this, the main contribution from a governance point of view could be to establish databases that allow valuators to gain insights on comparable market information. While technical in nature, it could significantly improve the current uncertainties surrounding the valuation of IP.

Another challenge is the lack of trust in the valuation of IP. Every profession has a way of establishing trust. Academic peer review, for example, takes a lot of time. Yet, the principle of peer review is increasingly finding application in the very fashionable approach of crowd sourcing. These Wikipedia-type of approaches do not place the decision making process over what is accurate or inaccurate in the hands of a single institution, but seek to benefit from the so-called wisdom of crowds. The rationale of opened, crowd-sourced approaches lies in the saying "given enough eye balls, all bugs are shallow".

The other tactic to promote trust in the valuation of IP is to establish a standardised accreditation system and to offer Europe-wide training programmes which aspiring IP valuators need to pass. This would harmonise the valuation of IP across the EU. This approach to establishing a trustworthy profession is not new and I would like to elaborate its advantages and disadvantages using the example of the qualification system for European patent attorneys.

The European qualifying examination (EQE) tests candidates’ knowledge and aptitude to represent applicants in EPO proceedings. In 2012, 2,283 candidates presented themselves, yet only 595 passed the exam. Interestingly, there is a wide gap between candidates from early and later members to the EU. To a certain extent, this may be explained by grandfathering: a regulation that allows for a limited period of time in which existing practitioners in new member states have to obtain the European accreditation without having to pass the exam. Yet, where are the young people?

That Europe can at times operate at two speeds is not a phenomenon restricted to IP, yet it would be most regretful if we see precisely this shortcoming built into the features of a nascent institution, such as a European IP valuation professional organisation. Any type of IP valuation accreditation and training system would thus have to be thoroughly accompanied by adequate institutional measures that establish active markets for IP in these countries.

Where does this leave us?

Universities would lend themselves well as a host of a standardised IP valuation accreditation system. Universities exist throughout the EU; many times they have hundreds of years of experience in teaching and research. An accreditation program for IP could swiftly be fed into the existing executive education training modules of universities throughout the territory. This would be cost effective; it would allow practitioners to tap into the existing infrastructure of a well-established institution and would assure equal training opportunities across the EU. A symbiosis with existing training institutions will reduce significant funding pressure, while at the same time assuring quality of education and guaranteeing that teaching reflects the latest stage of research.

Roya Ghafele is an academic and a director of consultancy firm Oxfirst.

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Article Comments

The EU isn't the only body that should take a harder look at IP valuation. Alpha matters for intellectual property (IP) portfolios. Familiar valuation methods and benchmarks are useful with these assets. IP investment needs more risk management tools. -> http://goo.gl/q2jB3k

Anthony Alfidi Mar 20, 2014

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@KellyIPllp Well done to all at the firm!

Mar 24 2017 02:16 ·  reply ·  retweet ·  favourite
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@SmartBiggar Congratulations!

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@caseychisick @casselsbrock Congratulations to all of you!

Mar 24 2017 02:15 ·  reply ·  retweet ·  favourite

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