Approaches to and methods for evaluating new technologies in Technology Transfer Offices : how long is a piece of string?
Date: 2017-07-24
Institutions: Joint Research Centre
Subjects: advanced technology industry, innovation, intellectual property, new technology, research and development, research report, technology transfer

Approaches to and methods for 
evaluating new technologies in 
Technology Transfer Offices: How 
long is a piece of string?  

Suma Athreye, rapporteur 

Edited by:  

Annarita Ferreri 

Sergio Grande 

2016 

EUR 28684 EN 

This publication is a Conference and Workshop report by the Joint Research Centre (JRC), the European 
Commission’s science and knowledge service. It aims to provide evidence-based scientific support to the 
European policymaking process. The scientific output expressed does not imply a policy position of the 
European Commission. Neither the European Commission nor any person acting on behalf of the Commission is 
responsible for the use that might be made of this publication. 

JRC Science Hub 
https://ec.europa.eu/jrc 

JRC107304 

EUR 28684 EN 

PDF 

ISBN 978-92-79-70522-9 

ISSN 1831-9424 

doi:10.2760/67528 

Luxembourg: Publications Office of the European Union, 2016 

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How to cite this report: Athreye, S., Ferreri, A., Grande, S., Approaches to and methods for evaluating new 
technologies in Technology Transfer Offices: How long is a piece of string?, EUR 28684 EN, Publications Office 
of the European union, Luxembourg, 2016, ISBN 978-92-79-70522-9, doi:10.2760/67528, JRC107304. 

All images © European Union 2016 

Contents 

Acknowledgements ................................................................................................ 1 

Executive summary ............................................................................................... 2 

1 Introduction ....................................................................................................... 3 

2  Working with the innovator and working with the investor: approach to valuation ...... 5 

3  From research to market: Experience of an IP valuation among European TTOs ......... 8 

4  Summary and implications ................................................................................ 11 

List of tables ....................................................................................................... 12 

List of abbreviations ............................................................................................. 13 

Annexes ............................................................................................................. 14 

  Annex 1. Review of the academic literature on the value of patents for firms ............ 14 

  Annex 2. Technology valuation methods commonly used in Technology Transfer Offices
  22 

References ......................................................................................................... 25 

i 

 
Acknowledgements 

On  22  November,  the  third  edition  of  the  annual  best  practices  workshops  of  the 
European TTO Circle was held in Brussels. The focus of this workshop was the evaluation 
of  intangibles  and  novel  technologies.  The  author  is  very  grateful  to  Giancarlo  Caratti, 
Annarita  Ferreri  who  organised  the  workshop,  all  the  participants  listed  below  whose 
presentations  form  the  basis  of  this  report,  to  Talita  Soares,  (EARTO)  for  her  notes  on 
the  second  session  of  the  workshop  and  lastly  to  Sergio  Grande  and  Pauline  Nguru  for 
the smooth running of the workshop.   

List of speakers 

Massimiliano Granieri (MITO) 

Ian Brewer, Valuation Consulting 

Ian Tracey, The Knowledge Transfer Network 

Ludo Pyis, AREOPA 

Zane Smilga, VERHAERT Innovations 

Victor Paulissen, TNO 

Tony Prézeau, CEA 

Aude De Clercq, ESA 

Eva Maria Vaquero, CIEMAT 

Kathleen De Belder & Katrien Meuwis, IMEC 

The workshop presentations can be directly accessed by clicking on the hyperlinks at the 
following website: 

https://ec.europa.eu/jrc/communities/community/tto-circle-
community/event/evaluation-intangibles-and-novel-technologies-art-or-science 

1 

 
 
Executive summary 

The  lack  of  a  practical  method  to  value  Intellectual  Property  Rights  (IPRs)  is  the  main 
challenge  faced  by  Technology  Transfer  Offices  (TTOs)  in  the  commercialization  of 
inventions generated by university scientists.  This report reports the discussions of a day 
long workshop organised by the JRC on two issues of interest to TTOs, viz. methods for 
valuation  that  can  close  the  gap  in  investor  and  inventor  perceptions  and  how  best  to 
value early stage technologies.   

Trying to value a novel technology is akin to asking how long is a piece of string? There 
can  be  no  definitive  valuation  of  a  novel  technology;  its  value  to  users  will  vary 
depending  on  the  use  to  which  the  technology  will  be  put  and  the  size  of  that  product 
market, whether buyer or seller is conducting the valuation, and whether the valuation is 
subjective or objective.  However, TTOs that grapple with this problem need to select the 
technologies that need valuation as well as identify those that need nurturing before they 
can  be  transferred  to  a  private  firm  for  further  development.    The  report  presents  the 
different options for both that were shared at the workshop held on 22 November 2016. 

The  first  part  of  the  report  contains  the  approaches  to  valuation  used  by  private  sector 
technology  brokers  who  typically  manage  a  portfolio  of  technologies  in  different 
technology domains.  These approaches and methods may prove useful for TTOs that are 
organised  centrally  at  the  university  level.  The  main  problem  highlighted  is  deciding 
which technologies to pursue and what assets  the university should count as capable of 
generating intellectual property income streams.  

The  second  part  of  the  report  focuses  on  the  approaches  used  to  value  of  RTOs  early 
stage  technologies  by  TTO  circle  members  -  most  of  the  presentations  were  by  TTOs 
organised  around  specific  technology  area.    The  depth  of  knowledge  about  the  area 
meant  that  these  organisations  typically  had  the  resources  to  evaluate  the  potential  of 
technologies and markets much better and implemented a form of real options valuations 
in preferring to develop and spin out the technology before selling it.  Patents were used 
a means to pin the technology to the company.   

The  valuation  needs  of  the  two  types  of  TTO  organisations  are  different  but  they  share 
some  common  obstacles.  The  uncertainties  faced  by  the  TTO  in  valuation  could  be 
partially mitigated by maintaining a register of technology valuations by technology class 
which other TTO members could use in their negotiations with private firms.  These data 
may  also  allow  more  sophisticated  real  options  analysis  about  the  sorts  of  investment 
and  time  horizons  that  may  be  required  to  make  incubation  pay-off  for  the  TTO.    A 
second concern shared  by all TTOs is the tension between  exploitation of technology by 
society  and  the  often  implicit  requirement  of  generating  a  profit  for  the  university.  
Clarity about the objective of technology transfer activities should be part of the mandate 
of TTOs. 

Quick guide 

Sections  2  and  3  summarize  the  discussions  on  valuing  novel  technologies  that  took 
place during the workshop. Section 2 outlines the approaches presented by private sector 
technology  brokers  to  address  the  gap  between  the  expectations  of  the  inventor  and 
investor  while  Section  3  discusses  European  TTO  practices  related  to  dealing  with  early 
stage technologies. Section 4 concludes with some implications for policy and practice. In 
addition, the report  also contains two brief reviews of the  academic literature  on  patent 
and  technology  valuation  in  the  annexes  for  the  benefit  of  TTO  managers.    Annex  1 
reviews  the  academic  literature  on  the  value  of  patents  held  by  firms  which  uses  three 
methodologies:  market  value  approaches;  patent  renewal  methodologies;  and  survey 
based inventor valuations.  Annex 2 reviews three standard approaches to valuation used 
by  TTOs  viz.  Cost-based  methods,  market  based  and  income  based  approaches 
(including real option approaches).   

2 

1  Introduction 

Trying to value a novel technology is akin to asking how long is a piece of string? There 
can  be  no  definitive  valuation  of  a  novel  technology;  its  value  to  users  will  vary 
depending  on  the  use  to  which  the  technology  will  be  put  and  the  size  of  that  product 
market, whether buyer or seller is conducting the valuation, and whether the valuation is 
subjective or objective. 

However, the lack of a practical method to value Intellectual Property is a main challenge 
faced  by  Technology  Transfer  Offices  (TTOs)  in  the  commercialization  of  inventions 
generated  by  university  scientists.  A  survey  conducted  jointly  by  the  Joint  Research 
Council/World  Intellectual  Property  Organization  (JRC/WIPO)  in  2011,  found  that 
valuation  was  a  problem  encountered  mostly 
in  the  commercialization  phase. 
Disagreements about valuations often result in investors being reluctant to commit funds 
for further exploitation. In contrast to firms performing research and development (R&D) 
which  conduct  valuations  as  part  of  the  process  of  protecting  their  Intellectual  Property 
(IP)  and  applying  for  patents,  the  JRC/WIPO  survey  found  that  only  around  a  third  of 
TTOs carry out valuation exercises in relation to IP protection. When valuing early stage 
technology, TTOs use a combination of qualitative and quantitative approaches and more 
than half rely on internal expertise. The survey found that 53% of TTOs use only internal 
expertise,  33%  combine  internal  with  external  experts  and  13%  outsource  this  task  to 
external  bodies.  TTOs  use  several  commercial  search  tools/databases  (e.g.,  EPO-
PATSTAT,  QPAT-Orbit,  Thomson  Delphion,  used  to  assess  freedom  of  operation)1.  To 
estimate  potential  market  values,  websites  such  as  marketsearch.com  and 
reportlinker.command  databases  such  as  Thomson  Innovation,  Dianeconsulting, 
Avention/onesource and business-insight.com can be used. When technology licensing is 
the  preferred  option  for  commercialization  sources  such  as  the  International  Public 
Relations Association (IPRA), Edgar (upwork.com), royaltysource.com, etc., can be used 
to define royalty rates.2 

It  is  unquestionable  that  the  practice  of  valuation  is  likely  to  be  more  difficult  for  TTOs 
compared  to  firms  for  at  least  two  reasons  that  are  at  the  heart  of  what  is  involved  in 
technology  exchanges.  First,  TTOs  must  manage  the  different  expectations  of  the 
inventor  and  investor  (which  arise  from  asymmetric  knowledge  and  information  about 
the  technology),  mediating  which  can  be  difficult.  The  TTO  must  keep  the  industrial 
partner  on  board  for  further  development  and  commercialisation  of  technology  but  as  a 
member  of  the  university  body  they  are  also  somehow  speaking  on  behalf  of  the 
inventor.  Second,  the  focal  invention  may  be  at  an  early  stage  and  commercialization 
possibilities and the value of the technology in particular uses will likely not become clear 
until  there  has  been  more  investment  and  development.  Early  stage  novel  technologies 
are 
investment  before  transfer  or 
commercialization  is  possible  and  funds  for  these  are  usually  available  in  very  limited 
quantities to the TTO. 

likely  to  need  more  nurturing  and  more 

The organisation of the TTO may also need to be considered in the extent to which these 
two issues apply. When TTOs are organised as a centralised department, commercialising 
technologies  from  several  different  technology  departments  it  is  likely  that  they  will 
behave similarly to technology brokers who manage a portfolio of technologies with more 
general  competences  for  managing  technology.    However,  when  TTOs  are  organised 
around one broad technology area, then more in-depth knowledge is available about both 
the  technology  and  its  possible  uses.    In  this  situation,  a  real  options  analysis  where  a 
TTO  evaluates  the  cost  of  incubation,  the  time  horizon  of  returns  and  returns  from 
eventual sale against an outright sale of technology can be very useful.   

Sections 2 and 3 of the report  summarize the discussions on valuing novel technologies 
that  took  place  during  the  workshop  organised  by  the  JRC.  Section  2  summarizes  the 

1 EPO-PATSTAT is the European Patent Office Patent Statistical Database; QPAT is a patent search system run 

by Questel-Orbit; Thomson Delphion provides access to full text patent specifications. 

2  WIPO/JRC presentation – Grenoble 19-20 October 2011. 

3 

                                           
(private  sector)  approaches  presented  to  address  the  gap  between  the  expectations  of 
the  inventor  and  investor  and  Section  3  discusses  European  TTO  practices  related  to 
dealing with early stage technologies that were presented at the JRC workshop. Section 4 
concludes with some implications for policy and practice. 

The report also contains two brief reviews of the academic literature on patent value and 
technology  valuation.    Annex  1  outlines  the  three  methodologies  used  to  identify  the 
value  of  patents  to  firms  viz.  market  value  approaches,  patent  renewal  methodologies 
and survey based inventor valuations.   Although they can provide useful benchmarks of 
value  in  particular  technology  classes,  patent  value  approaches  are  ex  post  in  nature, 
whereas  TTOs  generally  have  to  manage  a  portfolio  of  technologies  and  need  ex  ante 
assessments  of  valuation,  which  are  more  difficult  to  establish.  Annex  2  reviews  the 
standard approaches to valuation used by TTOs viz, the cost, market and income based 
approaches. It is hoped that individual TTOs will find these annexes useful to identify the 
most appropriate approach for their purpose.   

4 

2  Working with the innovator and working with the investor: 

approach to valuation 

How should TTOs and other innovation brokers select which, among the many inventions 
in  their  portfolios,  they  should  evaluate?  There  are  two  aspects  to  this  question.  First, 
TTOs need more information from researchers about the technology business case rather 
than  myriad  details  about  its  novelty  and  the  prior  art.  Second,  and  relatedly,  novel 
technologies  are  often  early  stage  technologies  so  the  real  commercialization  prospects 
may be unknown. Therefore, it is not surprising that, despite representing the inventors’ 
interests, TTOs are often swayed by the buyer, who often makes the best case for actual 
use of the technology. This underlines that it is possible to rigorously value a technology 
only in the context of specific uses. 

The  problem  of  asymmetric  information  between  buyer  and  seller  on  the  true  nature  of 
the technology and, especially, its value seems to be among the most frequent problems 
encountered by TTOs, who are organised organized as technology brokers, and when the 
final  use  of  the  technology  is  still  unknown.    Massimiliano  Granieri,(MITO,  Italy) 
emphasized  that  assessment  of  a  patent  portfolio  in  terms  of  its  exploitation  is  quite 
different from evaluating a patent to define its value or price in an imminent transaction. 
In  particular,  for  TTOs  with  a  large  portfolio  of  inventions,  selection  of  inventions  for 
rigorous  valuation  is  very  important,  a  point  confirmed  by  Zane  Smilga  (Verhaerrt, 
Netherlands).  However,  MITO  and  Verhaert  outlined  slightly  different  approaches  to 
tackling this issue. 

Verhaert  recognized  that  there  is  an  inherent  conflict  between  what  the  technology’s 
owners  can  demonstrate  and  prove  versus  what  the  technology  buyers  require  for  their 
business and are prepared to pay for. As technology brokers, they use a number of tools 
to  envisage,  validate  and  prove  potential  value/technology.  In  particular,  they  explore 
the value potential of the same technology in relation to different applications, solutions 
and  business  scenarios,  using  a  proprietary  Quick  to  Evaluate  Business  Opportunity 
software  program.  They  undertake  this  value  potential  analysis  at  a  “high  level”  for 
multiple applications of a technology and select the cases with the highest potential value 
for further exploration. 

MITO  uses  a  slightly  different  method  based  on  a  proprietary  software  algorithm.3  This 
algorithm  proceeds  in  three  steps.  First,  it  calculates  the  available  IP  portfolio  for 
valorization  by  deducting  the  IP  already  committed;  IP  that  is  co-owned,  IP  that  is  a 
national  priority  and  IP  that  is  near  to  expiry.  Second,  it  identifies  potential  portfolio 
“slices”  where  value  can  be  achieved  based  on  multiple  technology  uses,  geographical 
coverage  and  the  patent’s  residual  life.  Third,  it  ranks  the  portfolio  according  to 
achievable revenue. In this purely empirical exercise, which does not establish a market 
value, as little as 15% of the portfolio can be judged to have value potential. 

Ludo Pyis (AREOPA) presented a very sophisticated approach to valuing IP assets based 
on a detailed inventory of the firm’s intellectual capital assets that could be protected and 
used to deliver value and an income stream. AREOPA’s method regards both patents and 
human  capital  and  other  intangibles  as  capable  of  creating  value  and  multiple  revenue 
streams  (e.g.,  based  on  income  derived  from  patents  and  value  derived  from  human 
capital  based  consultancy).  These  revenue  streams  are  estimated  using  the  latest 
accounting standards such as IAS38. AREOPA has developed and placed trade secrets on 
77  econometric  formulas  that  enable,  based  on  the  collection  of  evidence,  identification 
of present and future value for TTOs. 

Even in cases where the end use of the technology is clear, as in the case of merger and 
acquisition (M&A) transactions, Ian Brewer (Valuation Consulting), noted many caveats 

3 Please see details of the algorithm in the presentation downloadable from: 

https://ec.europa.eu/jrc/communities/sites/jrccties/files/2._granieri_brussels_2016.pdf  

5 

 
                                           
 
to  valuation  using  the  income  method  (see  Annexe  2  for  a  description  of  the  method). 
First, he pointed out that 80% of the corporate worth  is invisible in the actual valuation 
because its inclusion is not permitted in many countries.  Table 1, which is based on his 
presentation,  shows  some  of  the  categories  of  corporate  intangible  assets  that  do  not 
translate  easily  into  IP  valuations.  Second,  he  highlighted  several  caveats  related  to 
valuations.  For  example,  many  revenue  forecasts  are  based  on  projections  from  tax 
records,  which  may  not  always  be  accurate  since  firms  may  understate  this  revenue. 
Another issue is the definition of the useful lifetime of a technology is problematic - does 
it  refer  to  its  physical  life,  functional  life,  technological  life,  economic  life  or  legal  life? 
Lastly,  there  are  many  sector  specific  issues,  such  as  less  than  20%  of  seed  inventions 
not reaching the market, related to identifying appropriate discount rates in Pharma. Pre-
clinical  discount  rates  range  between  55%  and  80%  depending  upon  the  phase  of  the 
clinical trial and making such sector-specific adjustments requires very fine judgement. 

Table 1: 80% of corporate worth is in intangible assets  

Category  

Examples  

Market-related  

Trademarks,  trade  names,  service  marks,  trade 
internet  domain 
dress,  newspaper  mastheads, 
names.  

Customer-related  

Customer 
relationships, customer agreements.  

lists,  customer  contracts,  customer 

Artistic-related  

Contract-based  

Technology-based  

Ballets,  books,  plays,  articles,  other  literary  works, 
musical  words,  opera,  pictures,  photographs,  video 
and audio-visual material.  

Licensing  agreements,  advertising  or  service 
contracts,  lease  agreements,  construction  permits, 
operating  and  broadcast 
rights,  employment 
contracts.  

technology, 

Patented 
software, 
unpatented  technology,  databases,  trade  secrets, 
secret formulae.  

computer 

Source:  Presentation  by  Ian  Brewer  at  JRC  workshop,  November  2016  downloadable 
from 

https://ec.europa.eu/jrc/communities/sites/jrccties/files/3._european_commission_-
_ian_brewer.pdf  

While  many  of  the  approaches  presented  in  this  session  are  customized  applications  of 
income-based valuation methods, it was recognized that the future use of the technology 
and the resulting income stream may not always be known in such great detail. The data 
on which to base sophisticated revenue streams may not exist and may be known only in 
hindsight.  Thus,  often  times,  rule  of  thumb  methods  may  need  to  be  used;  one  such, 
proposed by Ian Tracey (Knowledge Transfer Network), is presented in Table 2.  

In  the  ensuing  discussion,  many  TTOs  have  recognized  that  there  is  always  an  implicit 
reservation  acceptable  minimum  price  and  rate  of  return  acceptable  to  the  TTO, 
irrespective  of  the  valuations.  After  that,  much  of  the  valuation  results  from  bargaining 
with  the  potential  investor  and  what  is  possible  for  a  commercialization  opportunity. 
However,  most  often  the  problem  of  valuation  tends  to  be  passed  on  to  investors 

6 

 
 
because they have the best information on the particular use to which the technology will 
be put. 

Table 2: A simple rules approach to stage valuation 

Stage of Development  

Estimated Company Value (£)  

An  exciting  business 
business plan  

idea  or 

250,000 - 500,000  

A  strong  management  team  to 
implement the plan  

500,000 - 1 million  

Can  demonstrate  final  product  or 
technology  prototype,  and 
the 
supply chain in place  

A  range  of  strategic  partners  in 
place,  or  signs  of  a  relevant 
customer base  

Making  repeat  sales,  clear  signs  of 
revenue  growth  and  obvious 
pathway to profitability  

1 million – 2 million  

2 million – 5 million  

5 million and up  

Source: Presentation by Ian Tracey at JRC workshop, November 2016 

https://ec.europa.eu/jrc/communities/sites/jrccties/files/4._ttocircle_valuationsdraftttrac
ey.pdf 

Can  TTOs  use  the  returns  from  valuable  patents  to  offset  the  costs  of  creating  and 
maintaining  the  patent  portfolio,  in  a  manner  similar  to  what  drugs  firms  do?    This 
question produced a lively debate.  First, it was noted that since TTO research is funded 
by  full  cost  research  funding,  there  is  no  pressure  to  behave  in  this way,  although  new 
accounting  standards  based  on  accruals  rather  than  costs  (proposed  for  2020)  may 
change  this  situation.  Second,  despite  corporatization,  TTOs  do  not  behave  like  firms 
because their mission is still seen in terms of public science objectives. This means that 
opportunities for co-creation of value will always be preferred to non-use of technology. 
However,  the  valuation  of  TTO  patents,  if  part  of  a  co-creation  process  involving  the 
start-up’s own patents, seems to be a grey area where many participants would welcome 
some clearer guidelines. 

7 

 
 
3  From research to market: Experience of an IP valuation 

among European TTOs 

It  is  worth  noting  that  even  in  market-based  economies  such  as  the  UK,  where 
technology  transfer  via  university  licensing  is  quite  well  developed,  patentable 
technologies  are  a  small  part  of  the  technology  transfer  activities  of  universities,  and 
universities produce many technologies that are not amenable to patenting (Athreye and 
Rossi  2017).  Siegel  et  al.  (2007)  argue  that  alternative  non-patent  modes  of 
commercialization,  such  as  establishing  and  incubating  spin-offs,  are  becoming  more 
attractive  as  modes  for  technology  commercialization  and  technology  transfer.  Not  all 
intellectual  capital  is  patentable  and  sometimes  spin-offs  are  the  best  way  to 
commercialize a technology. In terms of the frameworks for valuation presented in Annex 
2,  the  choice  between  incubating  a  technology  rather  than  trying  to  license  it 
immediately is an example of real options theory applied to the valuation of early stage 
technologies. 

TTOs  who  are  focussed  on  a  particular  technology  area,  often  face  the  choice  between 
sale  of  early  stage  technology  now  or  incubate  the  technology  now  and  for  a  better 
priced sale later.  Five examples of best practice related to very early stage technologies 
were presented in the second session of the workshop. Each provided interesting insights 
into the types of dilemmas experienced by TTOs, and the prevailing managerial mind sets 
in  TTOs  that  influenced  them  to  adopt  particular  commercialization  strategies.  These 
examples were presented as case studies. 

Victor  Paulisen  (TNO)  discussed  the  case  of  a  multiple  use  optomechatronics 
technology  with  potential  for  application  in  various  fields.  This  technology  is  now  the 
subject of 11 patents and involves a great deal of knowhow. TNO needed to establish an 
infrastructure 
the  organization’s 
independence  to  perform  research  and  engage  in  innovation  activities  using  the 
technology  and  investigating  relevant  markets.  TNO  looked  at  various  different  sectors 
where  the  technology  might  be  used  and  identified  five  main  markets  and  a  number  of 
subsectors before defining the fields of use. A separate company, Nearfield, was set up to 
commercialize the non–integrated circuit uses of the technology. 

further,  retaining 

to  develop 

technology 

this 

TNO entered into two agreements with Nearfield. At the research stage, it entered an IP 
non-assert and a license agreement, which gave market access to the technology without 
a royalty charge, and a cooperation agreement with Nearfield to develop the technology 
further.  It  was  agreed  that,  in  the  production  phase,  a  royalty  payment  and  a  license 
agreement  would  be  applied  with  an  exclusive  license  for  patent  and  non-exclusive 
agreement for knowhow. Payment related to the cooperation agreement was in the form 
of shares in Nearfield. This reflected the TTO’s perception that this agreement needed to 
favour the investor as, otherwise, the product development would not continue.  

Tony  Prezeau  (CEA)  referred  to  two  ways  that  CEA  commercialized  its  technology: 
Technology  push  and  market  pull.  The  technology  push  model  implies  the  existence  of 
promising  technologies,  a  motivated  entrepreneur,  but  no  identification  of  potential 
industry partners. Thus, technology push is greater than market pull. In the market pull 
model,  an  experienced  entrepreneur  with  good  market  vision  sees  a  diversified  and 
state-of-the-art  technology  portfolio  to  support  his  ideas.  An  industry  partnership  was 
established  with  CEA.  Although  CEA  is  involved  in  eight  or  nine  start-ups  a  year,  the 
industry partnership model is more popular due mainly to faster return on investment. 

CEA  engages  in  decision  modelling  to  provide  start-up  support  and  predict  whether  a 
technology portfolio is better transferred through a partnership or the creation of a  new 
business  based  on  the  techno/market  fit.  However,  the  presenter  warned  that 
simulations  present  only  a  partial  picture;  not  everything  can  be  rationalized  and, 
especially, human factors. He presented two examples  – one, Movea, a company set up 
in  2007  that  owns  over  500  patents  involving  motion  caption  sensors  and  intelligence.  
Movea  went  through  a  long  incubation  period  because  of  the  difficulty  of  identifying  a 
good  business  model.  Finally,  Movea  was  sold  to  InvenSense  in  2014  for  $50million. 

8 

Overall, the investment was profitable, but for several years CEA was unsure of the value 
of  its  patent  portfolio  related  to  motion  capture  sensors  and  intelligence  despite  market 
studies  suggesting  their  potential  as  consumer  goods.  Another  CEA  start-up,  Wavelens, 
was championed by an entrepreneur who believed strongly in the technology but found it 
difficult  to  obtain  venture  capital  funding  or  other  types  of  funding.  CEA  invested  in the 
development  of  a  proof  of  concept  for  the  technology,  which  resulted  in  interest  being 
shown  by  many  firms,  one  of  which  eventually  bought  the  company  and  the  IP  and 
launched a partnership project with Leti, (CEA Tech’s parent company). 

In  CEA’s  experience,  large  US  and  EU  companies  are  interested  in  packaged  IP,  an 
already existing business model and proof of concept rather than the actual technology. 
It  is  more  difficult  to  attract  investors  based  on  only  the  technology.  The  existence  of 
concrete  IP  is  fundamental  to  a  successful  start-up.  The  financial  aspects  of  technology 
transfer are complex because pay-offs require industry partnerships, which may not exist 
at  the  time  that  the  public  investment  in  the  technology  is  being  made  and  costs  are 
being  incurred.  It  is  impossible  to  reduce  everything  to  an  equation  without  subjective 
elements, such as intuition, intruding into the decision regarding commercialization. 

Aude de Clercq (ESA) noted that the aim of the ESA technology transfer programme for 
non-space application is to promote competitiveness in the space industry and to develop 
the  technology.  Its  approach  to  commercialization  is  based  on  the  dissemination  of 
knowledge. It supports start-up companies and has a portfolio of 400 patents, in various 
fields.  ESA  faced  some  difficulties  in  2014  when  changes  were  introduced  to  portfolio 
management which was accompanied by budgetary issues. ESA used consultants to help 
manage these problems. 

They proposed  a methodology to create a score-card based on four criteria:  Technology 
(maturity, technology royalty and licensing, industrial feasibility, complete or incomplete 
technology);  IP  (patent  strength,  competitive  patents,  relevance  of  protection);  level  of 
competitiveness  (technology  in  the  market,  competition,  control  of  different  assets); 
market  (sectors  of  application,  market  needs,  value  added,  time  to  market).  Based  on 
these criteria the consultants suggested a dissemination strategy, but did not spend time 
on valuation for licensing since the main objective aim was to diffuse the technology and 
cover the costs of the research. ESA values the fact that its technology portfolio is being 
used.  It  tries  to  support  start-up  companies.  Since  2014,  ESA  has  been  conducting  a 
process  of  capitalizing  its  patents,  but  this  effort  is  still  in  its  early  stages.  They  have 
encountered problems such as lack of recording of patent invoices before 2014, the need 
to  separate  out  the  costs  of  patents  in  development,  the  costs  of  patents  granted,  and 
the costs of patent applications. 

Kathleen  De  Belder  and  Katrien  Meuwis  (IMEC)  presented  an  example  of  a  TTO  in 
the electronics sector. IMEC has a variety of programmes. The electronics sector involves 
a  significant level  of in-licensing  which, in  turn,  involves  technology  transfer  and  patent 
valuation  as  both  the  buyer  and  seller  of  technologies.  As  buyers  of  patents  for  in-
licensing  within  spin-off  companies,  IMEC  evaluates  patents  based  on  several  criteria 
such as status, countries and scope. IMEC discovered that the price it was willing to pay 
was often lower than what firms were asking. However, its experience of being a buyer 
helped  in  the  selling  of  patents.  IMEC  believes  that  selling  patents  without  knowhow  is 
difficult  since  it  is  important  to  look  at  all  the  risks  involved  (history,  buyer’s  image, 
usage,  age,  value,  etc.).  Much  effort  is  needed  to  conduct  due  diligence  and  detect 
infringements  (call-back  research  and  consultants  are  expensive).  In  the  context  of 
pricing,  IMEC  consults  industry  standards,  foreign  markets  and  citations.  IMEC  also 
related the case of a patent sale, something the other TTOs did not mention. 

Eva  Vaquero  (CIEMAT)  represented  a  different  type  of  TTO.  CIEMAT  is  the  second 
largest  research  body  in  Spain  and  operates  in  12  thematic  areas  and  47  different 
research lines. Currently, it manages 439 research projects.  Its challenge is to organize 
knowhow  encompassed  by  the  organization  in  order  to  make  it  available  to  industry 
partners.  Spanish  law  recognizes  three  types  of  intangible  resources:  IPR,  industrial 
property  (patents)  and  other  property  types  (technical  services,  capabilities).  It  is  not 

9 

possible to provide strong protection for all these intangibles so CIEMAT has developed a 
proprietary  software  system  to  manage  these  intangible  resources,  and  a  database 
containing  information  on  them.  The  database  is  external-facing  and  allows  firms  to 
search  for  and  generate  technology  transfer  contracts.  Development  of  similar  systems 
might be useful for other large multi-technology TTOs. 

An  outstanding  feature  of  the  presentations  was  the  universally  shared  belief  that 
commercialization  of  university  knowledge  requires  support  from  industrial  partners. 
However,  the  mode  of  commercialization  chosen  would  seem  to  depend  on  the  time 
horizon within which returns are expected. Short times to commercialization could favour 
patents  and  licensing,  but  longer  time  horizons  and  the  availability  of  capital  (often 
involving TTO investments) may favour incubation of start-ups to realize the full potential 
of  the  technology.    In  general  start-ups  were  considered  a  superior  route  to  the 
commercialization of university technology. 

It was apparent, also, that TTOs’ core missions and objectives differ. Some TTOs, such as 
ESA,  saw  their  core  mission  as  being  to  diffuse  the  technology  as  widely  as  possible, 
consistent  with  a  public  science  mission.  Others  were  under  pressure  from  universities 
and  government  to  generate  revenue  to  support  their  research  activities.  Almost  all  of 
the  TTOs  represented  felt  the  need  for  greater  clarity  about  the  public  science  role  of 
TTOs, which was frequently seen as inconsistent with the objective of generating revenue 
from research. 

10 

4  Summary and implications 

Asking about the value of novel and early stage technology is akin to asking how long is 
a piece of string? The value of technology differs depending on how it is commercialized 
and for how long it can be developed. The benefits of technology to society and industry 
flow  from  the  commercialization  effort,  to  which  valuation  contributes.  This  report  has 
reviewed  several  current  practices  in  valuing  patentable  technologies.  It  has  also 
highlighted  the  fact  that  the  nature  of  problems  faced  are  likely  to  be  related  to  the 
overall  organisation  of  university/RTO  TTOs,  with  large  centralised  TTOs  being  more 
similar  in  their  organisation  and  management  to  technology  broker  firms  while 
decentralised  technology  area  specific  TTOs  may  not  face  the  same  kinds  of  issues. 
Indeed,  the  presentations  suggested  the  problem  confronting  technology  area  focussed 
TTOs is on the best mode of commercialisation while the problem confronting technology 
brokers typically is the choice of which technology to select for commercialisation.  

The methods used by private firms to  value their technology are  of limited use to TTOs 
because,  in  their  role  of  broker  between  the  inventor  and  the  industry,  they  need  to 
evaluate  the  technology  before  it  can  be  offered  for  sale.  However,  the  range  of  value 
methods  presented  could  act  as  useful  benchmarks  for  such  TTOs.  We  also  reviewed 
existing  methods  of  valuation  available  to  TTOs,  but  more  detailed  analysis  which  can 
highlight the match between technology and the method of valuation might be something 
that the JRC could consider commissioning in the future. More  analysis would shed light 
on  the  appropriateness  of  certain  methods  of  valuation  for  particular  technology 
compared  with  others,  and  provide  suitable  benchmarks  for  early  stage  valuation  of 
different technologies. 

The  uncertainty  related  to  valuation  for  both  types  of  TTOs  could  be  mitigated  by  such 
methods  as  compiling  a  database  of  valuations  by  technology  class,  to  which  TTO 
members  could refer in their negotiations with industry partners. These data might  also 
allow  more  sophisticated  real  options  analysis  to  identify  the  best  means  of 
commercialization through spin-off activity with incubation or patenting and outright sale 
of  the  technology.  Currently,  this  choice  depends  crucially  on  whether  or  not  a 
technology is patentable but a serious use of real options could demonstrate more viable 
options. 

Lastly,  policy  bodies  need  to  take  account  of  the  discomfort  felt  by  TTOs  at  the 
compromising  of  their  public  science  role,  which  has  long  term  social  benefits  that  far 
exceed  the  profits  made  by  universities.  There  also  needs  to  be  more  debate  about  the 
funding of public R&D and TTOs might find it useful to try to measure not only the private 
returns  from  technology  but  also  the  social  returns  on  their  technology  investments. 
Private rates of return include the costs borne by the TTO (or university) and the benefits 
that flow to the  TTO. Social rates  of  return would  also include the costs and benefits to 
the  rest  of  the  economy  (particularly  taxpayers  and  industry  partners  that  co-invest  in 
the technology). 

All  these  suggestions  will  strengthen  the  evidence  base  of  policy  and  managerial  action 
directed to the commercialisation of publicly funded research. 

11 

 
 
List of tables 

Table 1: 80% of corporate worth is in intangible assets ............................................. 6 

Table 2: A simple rules approach to stage valuation .................................................. 7 

Table 3: Estimated patent values from patent renewal studies ..................................18 

12 

 
 
 
List of abbreviations 

DCF  discounted cash flow 

IP 

Intellectual Property  

IPRs 

Intellectual Property Rights 

IPRA 

International Public Relations Association 

JRC 

Joint Research Council 

M&A  Merger and Acquisition  

TTO 

Technology Transfer Office 

R&D  Research and Development  

rNPV  risk adjusted net present value 

WIPO  World Intellectual Property Organization  

13 

 
 
Annexes 

Annex 1.  Review of the academic literature on the value of patents for firms 

In  a  wide-ranging  review  of  the  literature  on  patent  value,  Arora,  Athreye  and  Huang 
(2009) identify three main approaches used by firms to estimate the value of patents to 
firms:  The  market  value  approach;  the  patent  renewal  approach;  and,  the  inventor 
survey  approach.4  The  market  value  approach  uses  stock  market  values  and  the 
investor’s  implied  evaluation  of  the  firm’s  tangible  and  intangible  capital  stock  (which 
includes  patent  stock).  The  patent  renewal  approach  analyses  patent  renewal  records 
and  the  costs  of  patenting  and  renewing,  in  order  to  assess  the  distribution  of  patent 
revenue from the perspective of the patent holder. Although what is measured using this 
method  is  different  from  the  market  value  approach,  we  expect  the  measures  to  be 
related.  A  valuable  patent  enhances  a  firm’s  profitability  which,  in  turn,  means  that  a 
stock market investor will value the patent-holding firm higher than some other firm. In 
a  perfectly  competitive  market  it  should  be  possible  to  derive  one  measure  of  patent 
value from another. 

Unlike, the market value and patent renewal approaches, which are objective evaluations 
in the sense that they use stock market and patent renewal data to infer the returns to 
the  firm  from  patenting,  the  inventor  survey  approach  is  very  different:  It  proposes  a 
subjective  evaluation  (by  the  inventor)  of  the  value  of  his/her  invention.  The  subjective 
approach is prone to biases and over-estimation; Arora, Athreye and Huang (2009) found 
that  inventor  survey  approaches  produced  the  highest  patent  value  estimates.  In  what 
follows, we examine each of these three approaches in turn. 

The market value approach 

In  the  long  run,  in  a  competitive  market,  a  firm’s  market  value  should  be  directly 
proportional to the costs of replacement of its assets. In practice, tangible assets are the 
easiest to measure. Patents add to the firm’s intellectual capital and have the capacity to 
generate  future  income.  Firms  in  position  of  such  intellectual  capital  are  able  to  earn 
higher  rates  of  return  for  the  same  physical  capital  and,  therefore,  will  be  preferred  by 
stock  market  investors.  Such  firms  will  exhibit  stock  market  values  that  are 
systematically ‘in excess’  of the  replacement/book value  of their tangible assets.  This is 
the  reasoning  that  informs  the  market  value  approach.  Estimates  of  patent  values  are 
obtained by regressing the firm’s market value per unit of capital (as observed by stock 
market investors) on its patent stock and adding this to the stock of physical capital, to 
obtain the elasticity of market value with respect to patent stock. 

Griliches (1981) first applied this approach to  an analysis of the data  related to 157 US 
listed  companies  during  the  period  1968–1974,  arguing  that  a  successful  patent  was 
worth around $200,000 ($382,960 in 2005 values). Pakes (1985), analysing data on 120 
US  public  firms  for  the  period  1968-1975,  find  that  a  1%  increase  in  the  number  of 
patents, on average, represents only a 0.044% increase in the firm’s market value, while 
each  additional  patent  is  associated  with  an  increase  in  the  firm's  market  value  of 
$810,000  (equivalent  to  $3,041,148  in  2017).  Cockburn  and  Griliches  (1988)  analyse 
cross-sectional  data  for  772  US  manufacturing  firms  and  report  the  average  value  of  a 
patent in  1980  at  around  $400,000  (equivalent  to  $837,703 in  2017)  and  that  this  was 
significantly  higher  for  industries  where  the  effectiveness  of  patents  (a  variable  to 
measure  appropriability  conditions)  was  two  standard  deviations  higher  than  the 
average. 

Methodologically, most studies in this tradition follow Griliches (1981) and use Tobin’s Q 
as the dependent variable. Tobin’s Q is defined as the firm’s current market value divided 
by the replacement cost of its physical (tangible) assets. The explanatory variables used 
usually include R&D investment stock divided by tangible assets, patent stock divided by 
tangible assets and R&D investment stock. Most findings are reported as the percentage 
increase  in  market  value  associated  with  one  additional  patent  application  or  one 

4 This section draws heavily on Arora, Athreye and Huang’s (2009) unpublished review. 

14 

                                           
additional patent citation. A few studies provide estimates of monetary values based, in 
most cases, on average industry parameters. 

Although  market  value  studies  controlled  traditionally  for  R&D  stock,  an  important 
improvement during the 1990s was the introduction of measures to control for innovation 
quality,  which  can  be  an  important  omitted  variable  giving  rise  to  large  estimates  for 
patent  value.  Trajtenberg  (1990)  and  Hall  et  al.  (2005)  pioneered  the  use  of  patent 
citations  as  an  instrument  to  measure  the  quality  of  innovation.  Trajtenberg  (1990) 
collected data on the value of and total gains from innovation in the case of tomography 
scanners, and the associated patents and citations to these technology patents. He found 
that  patent  counts  weighted  by  citation  rather  than  simple  patent  counts  were 
significantly correlated with the value of innovation in that case. Hall et al. (2005), based 
on 1976-1995 data for US public firms, argue that, on average, one additional citation to 
patent  increased  the  firm's  market  value  by  3%.  However,  the  returns  to  additional 
citations are skewed. Hall et al.’s analysis shows that receiving twice the median number 
of citations can increase Tobin’s Q by about 35%, while receiving three times the median 
number of citations can increase the market value premium to 50%.   

Market value studies show that the value of patents varies by technology sector. Lanjouw 
and Schankerman (2004), in the context of the US, use claims, citations and family size 
as indicators to construct a patent quality index for 1975-1993 patents. They found that, 
for a US public firm, an increase in the patent quality index distribution from the 50th to 
75th percentile was associated with increased market value of 9.4% for drugs, 7.7% for 
health products, 2.5% for electronics and 1.3% for mechanical. The study also found that 
the  16%  increase  in  citations  in  Hall  et  al.’s  (2005)  study  was  due  to  changes  in 
innovation quality and that the remaining 84% reflected an increase in the "propensity to 
cite",  which  might  be  caused  by  computerization  in  patent  offices.  Measurement  errors 
such  as  this  will  typically  impose  a  downward  bias  on  the  estimated  returns  from 
patenting. 

In  sum,  not  all  studies  that  adopt  market  value  approach  report  monetary  values  for 
patents, but based on the estimates in those that do, the maximal estimate of the value 
(in 2005) of an additional patent is $13,244,914 (Connolly and Hirschey, 1988) and the 
minimal is $382,960 (Griliches, 1981).   

The patent renewal approach 

Another approach to estimating the value of patents assumes that patent owners aim to 
maximize the private value of their patents, which accrues over a number of years. The 
patent owner’s objective is to maximize the discounted value of the returns from a patent 
minus the cost of the patenting process. If the discounted value of the return is greater 
than  the  cost  of  the  renewal  fee,  the  patent  owner  will  choose  to  renew  the  patent. 
Based on these micro foundations, several studies use the proportion of patents renewed 
every year and the cost of renewal, to estimate the distribution of the initial returns and 
the decay rate of the returns.  

Patent  renewal  studies  vary  in  what  they  include  in  their  models  as  constraints  to  the 
patent  renewal  decision.  Shankerman  and  Pakes  (1986),  Pakes  (1986),  Pakes  and 
Simpson (1989), Lanjouw (1998), Baudry and Dumont (2006) and Bessen (2008) model 
only  the  renewal  decision.  Putnam  (1996)  and  Deng  (2007)  include  the  patent 
application  and  the  renewal  decision  together.  However,  their  models  do  not  differ 
fundamentally  from  the  earlier  model  proposed  by  Shankerman  and  Pakes  (1986). 
Putnam  and  Dent  include  the  cost  of  application  as  a  constant  variable  in  their 
application-renewal  model,  while  adopting  the  rule  and  mechanism  of  the  renewal 
decision  in  Shankerman  and  Pakes  (1986).  The  rule  is  that  the  patent  will  be  renewed 
only  if  the  discounted  present  value  of  the  return  from  the  renewed  patent  is  greater 
than  the  renewal  fee.  The  mechanism  in  Putnam  (1996)  and  Deng  (2007)  is  that  the 
value of patent right is allowed to decay deterministically. 

15 

 
The  studies  by  Pakes  (1986),  Pakes  and  Simpson  (1989)  Lanjouw  (1998)  and  Baudry 
and  Dumont  (2006)  relax  the  assumption  that  the  returns  to  patent  rights  decay 
deterministically.  They  allow  for  a  stochastic  return,  uncertainty  and  learning  in  the 
renewal  decision;  additionally,  Lanjouw  (1998)  allows  for  litigation.  The  patent  value  is 
split between the value of the current year’s return from patent protection and the value 
of  the  option  to  renew  the  following  year  should  the  patentee  desire  to  do  this.  If  the 
value of the current year’s return is less than the renewal fee, but the value of the option 
to  renew  the  next  year  is  sufficient  to  allow  the  patentee  to  recover  the  loss,  the 
patentee  will  renew  the  patent.  In  a  patent  renewal  model  with  a  deterministic  decay 
rate, the patentee will choose not to renew.  

Pakes  (1986),  Pakes  and  Simpson  (1989)  and  Lanjouw  (1998)  also  use  dynamic 
programming to estimate the length of time required to learn about patent value, finding 
that  the  learning  process  is  not  overly  lengthy.  In  a  period  of  some  5–6  years,  most 
patentees  discover  the  value  of  the  patent  rights.  The  major  contribution  made  by 
stochastic return models of decay is the finding that, because learning is concentrated in 
the  early  period  of  patent  rights,  the  uncertainty  surrounding  patent  value  usually 
disappears after a period of 5–6 years. With the exception of Bessen (2008), none of the 
studies  link  patent  data  and  firm-level  data.  Baudry  and  Dumont  (2006)  use  a  method 
similar to that proposed in Pakes (1986), but apply a more generalized stochastic process 
(binomial  tree)  that  is  standard  in  the  finance  literature,  to  evaluate  the  value  of  the 
option to renew the patent in the next year. 

Table  3  summarizes  the  findings  from  a  number  of  studies  of  patent  value.  The  higher 
values of means relative to medians suggest a high level of positive skew in the data. In 
Table 3, the maximal estimate of the mean value of a patent is $116,527 (Barney, 2002) 
and the minimal estimate is $2,390 (Baudry and Dumont, 2006). There are differences, 
also,  in  the  returns  to  patenting  across  broad  technology  sectors  with  pharmaceuticals 
earning the highest returns. 

The  means  and  medians  of  the  estimates  reported  in  Table  3  are  thousands  or  tens  of 
thousands of dollars, which is considerably lower than estimates using either the market 
value approach or the inventor survey approach (see Section 2.3). This is in line with our 
earlier discussion that the value of patent rights (which is what renewal studies measure) 
is likely to be lower than the value of patent protection.  

Table  3  shows,  also,  that  patent  renewal  studies  (similar  to  the  market  value  studies 
discussed  earlier)  demonstrate  that  patent  returns  vary  by  sector  although  this  may  be 
conditioned by national technological specializations. Thus, Lanjouw (1998), in a study of 
West  German  patents,  finds  that  pharmaceutical  patents  earn  the  highest  returns 
(median value $19,632), while Schankerman (1998) in a study of French patents and in 
a  similar  time  frame  to  the  Lanjouw  study,  finds  pharmaceutical  patents  to  have  the 
lowest value (median value $3416).   

Another  significant  contribution  to  this  stream  of  literature  is  Bessen  (2008)  who,  using 
patents  matched  to  firm  level  variables,  adds  to  the  model  controls  for  patent  quality 
(e.g.,  forward  citation  and  litigation),  R&D  expenditure  and  the  assignee’s  number  of 
employees.  On  this  basis,  Bessen  (2008)  is  able  to  show  that  large  firms  have  higher 
value  patent  than  small  firms,  and  that  the  number  of  lawsuits  involving  a  patent  is  a 
better proxy for patent quality than forward citations to the patent. 

The patent renewal approach is powerful because it uses observed behaviour. However, 
there  are  two  principal  methodological  issues  related  to  using  this  approach.  First,  in 
assessing  the  returns  to  patent  protection,  knowing  the  value  of  the  median  patent  is 
insufficient or even misleading; the mean value is arguably more important.5 Estimating 
mean  values  requires  assumption  about  the  nature  of  the  distribution  and  renewal 
studies  typically  assume  log-normality.  This  assumption  of  log  normality  has  not  been 

5 Ultimately, patent renewal studies focus on the most valuable patents since these are always likely to be 

renewed to their full term. Therefore, this approach can provide only a lower bound to the value of the firm’s 
patent portfolio. 

16 

                                           
adequately  tested  in  patent  renewal  studies.  Silverberg  and  Verspagen  (2007)  apply 
extreme  value  statistics  to  citation  and  value  measures  of  patent  significance  and  find 
that while, overall, the distributions appeared to resemble a lognormal, they tend to have 
fat tails. 

Second, and related to the first issue, the approach assumes that each renewal decision 
for  each  patent  is  taken  independently  of  renewal  decisions  related  to  other  patents. 
However, we know that a commercial product or process, typically, is covered by several 
patents  and,  at  the  time  of  filing,  the  firm  does  not  know  which  will  be  more  valuable. 
Over  time,  the  more  useful  (valuable)  patents  become  known  to  the  firm  and  are 
renewed,  while  those  that  are  less  valuable  are  not  renewed.  In  other  words,  a 
substantial  fraction  of  patents  are  filed  as  options.  As  information  is  revealed,  the 
worthless  options  are  discarded  and  the  worthwhile  options  are  preserved.  Moreover,  it 
could  be  that,  in  the  case  of  very  valuable  inventions,  many  patents  are  filed,  most  of 
which eventually are discarded. By not considering this interdependence explicitly, patent 
renewal studies may present misleadingly low values for patent protection. 

Finally, this approach ignores other sources of returns from patent protection such as the 
ability to deter rivals. 

The inventor survey approach 

In  contrast  to  the  first  two  objective  approaches,  estimations  of  the  market  value  of 
patents  can  be  based  on  the  subjective  estimates  of  inventors  at  the  date  of  invention. 
For example, in the PatVal-EU survey of EPO patent inventors in France, Germany, Italy, 
Netherlands,  Spain  and  the  UK  (Giuri  et  al.,  2007),  inventors  were  asked  to  give  their 
best estimates of the minimum price that the patent owner - whether a firm, some other 
organization  or  the  inventor  would  have  put  on  the  patent  rights  on  the  day  that  the 
patent  was  granted.  The  estimated  mean  of  the  resulting  patent  value  distribution  is 
greater  than  €3  million  ($3,831,611)  and  the  median  is  around  13%  of  the  mean 
($510,882 ) (Gambardella et al., 2008). 

Harhoff et al. (2003) analyse the 10,780 German patent applications filed in 1977, using 
a model similar to an ordered probit. The upper bound of the value of patent rights not 
renewed  to  full  term  is  estimated  at  $50,807.  This  value  is  higher  than  the  sum  of  the 
patent  renewal  fees  and  the  cost  of  patent  attorneys,  estimated  by  the  authors  to  be 
about  $33,763.6  Reitzig  (2004a)  analyses  the  data  from  an  EPO  survey  conducted  in 
1994,  on  612  patents  from  five  different  industries.  He  finds  that  patent  protected 
inventions,  on  average,  are  worth  $2.37  million  to  their  owners.7  Giummo  (2010) 
analyses the records of private corporations on the compensation paid to employees for 
their  inventions,  which  is  a  requirement  of  the  German  Employee  Invention  Act.  The 
mean cumulative value of the sample patents is approximately $287,094.8 

6 Original estimates were in DM and the value of the upper bound was estimated to be DM45,144 while the sum 

of patent renewal fees and cost of attorneys was estimated to be DM 30,000. 

7 Original estimates were in Euros and patented protected inventions were estimated to be worth €2.04m. 
8   The original estimates were reported as DM283,268 (1977 value). 

17 

                                           
Table 3 Estimated patent values from patent renewal studies 

Authors, year 

Coverage of data 

Estimate of patent value 

Country 

Sector 

Years 

Original value* 

Value in 2005 USD 

Mean 

Median 

Mean 

Median 

Pakes, 1986 

France 

Germany 

UK 

Schankerman  

France 

and Pakes, 1986 

Germany 

UK 

All 

All 

All 

All 

All 

All 

1950-1979  5,631 

534 

11,793 

1,118 

1950-1979  16,169 

6,253 

33,862 

13,095 

1950-1979  37,826 

1,517 

79,217 

3,177 

1950-1979  6,656 

897 

13,939 

1,879 

1950-1979  19,124 

5,710 

40,451 

11,958 

1950-1979  6,962 

1,861 

14,580 

3,897 

Schankerman, 1998 

France 

Pharmaceuticals 

1969-1982  4,313 

1,631 

9,033 

3,416 

France 

Chemicals 

1969-1982  4,969 

1,594 

10,406 

3,338 

France 

Mechanical 

1969-1982  15,120 

2,930 

31,665 

6,136 

France 

Electronics 

1969-1982  68,502 

7,933 

143,461 

16,614 

Lanjouw, 1998 

W.Ger-many  Computers 

1955-1988  23,4951 

13,0501 

35,345 

19,632 

18 

 
 
 
Authors, year 

Coverage of data 

Estimate of patent value 

Country 

Sector 

Years 

Original value* 

Value in 2005 USD 

Mean 

Median 

Mean 

Median 

Lanjouw, 1998 

W.Germany 

Textiles 

1955-1988  17,4861 

W.Germany 

Engines 

1955-1988  49,7281 

W.Germany 

Pharma-ceuticals 

1955-1988  81,6431 

8,5141 

33,1691 

50,4341 

26,305 

12,808 

74,809 

49,898 

122,821 

75,871 

45,133 

6,9302 

116,527 

11,011 

2,390 

1986 

2002 

30,0001 

73,3402 

2,0815 

1978-1996 

69,4003 

29,0003 

78,288 

32,714 

1991 

78,0004 

7,0004 

101,918 

9,146 

1971-1990  7,5505 

8,673 

W.Germany 

All 

Barney, 2002 

USA 

Baudry  and  Dumont, 
2006 

France 

All 

All 

Deng, 2007 

Germany  via 
EPO 

All 

Bessen, 2008 

USA 

Gronqvist, 2009 

Finland 

All 

All 

* All original values are expressed in 1980 USD unless otherwise stated.  

1  1975 DM; 2 1986 USD; 3 2000 USD; 4 1992 USD; 5 Euro 

19 

 
 
 
 
 
 
 
The  maximal  estimate  of  the  mean  value  of  a  patent  in  the  studies  cited  above  is 
$3,831,611 (Gambardella et al., 2008) and the minimal estimate is $50,807 (Harhoff et 
al.,  2003).  An  important  contribution  of  the  PatVal  and  other  inventor  surveys  is  that 
they focus on patents applied for rather than patents granted. Thus, the PatVal approach 
eliminates  biases  that  can  creep  into  patent  value  estimates  obtained  using  older 
approaches,  which  examine  patents  already  granted.  Another  important  contribution 
(alluded  to  earlier)  is  that  PatVal  documents  the  extent  to  which  patents  are  used  for 
blocking  (social  welfare  decreasing)  and  licensing  (social  welfare  enhancing).  However, 
this comes at a cost. In being subjective, PatVal leaves room for other kinds of biases in 
the  valuation  estimation,  for  example,  inventors  are  likely  to  overestimate  the 
importance  of  their  work,  and  an  inventor’s  valuation  of  his  or  her  patent  may  diverge 
significantly from the firm’s valuation.  

Bessen (2009) offers some explanations for the discrepancies (in the range of hundreds 
of  thousands  of  dollars)  among  estimates  based  on  the  market  value  approach  and  the 
higher  estimates  in  the  inventor  survey  approaches,  particularly  PatVal.  He  argues  as 
follows.  First,  EPO  patents  are  likely  to  be  several  times  more  valuable  than  the 
corresponding  US  patents  because  the  EPO  imposes  stricter  standards  and  inventors 
obtain fewer EPO patents per invention. Second, inventors’ estimates relate to the value 
of the invention rather than the value of patent rents, which are estimated by the market 
value  approach.  The  value  of  the  invention,  according  to  Bessen,  includes  the  value  of 
the patent rents plus the rents the firm earns from its lead time advantage, learning-by-
doing, etc. Thus, the value that the firm puts on the invention is likely to be greater than 
the  value  of  patent  rents.  Third,  Bessen  argues  that  the  survey  responses  might  be 
inflated in the case that there are multiple patents on a single invention. Selling just one 
of these patents to a competitor may prevent  the original firm  from using the invention 
and,  thus,  the  reservation  value  might  reflect  the  value  of  all  the  patents  covering  the 
invention.  

21 

 
 
Annex 2. Technology valuation methods commonly used in Technology Transfer 
Offices 

The  methods  used  to  value  the  patents  held  by  a  firm  are  of  limited  use  to  TTOs. 
Although the values of patents for particular technologies can be useful benchmarks, the 
TTO  office  needs  an  ex  ante  valuation  of  the  technology.  Approaches  to  assessing  the 
value of patents, such as those outlined in Section 2, consider patents and technologies 
in use in particular goods markets. However, a TTO may not always be able to assess in 
which  market  the  technology  will  be  used  most  profitably.  Indeed,  the  purpose  of 
technology transfer arrangements is often to allow firms to determine the best use of the 
technology.  Patents,  by  conferring  an  ownership  right  to  a  piece  of  technology  enable 
such transfer. 

Once  a  technology  is  deemed  patentable,  the  task  facing  a  TTO  is  to  determine  a 
monetary  valuation  of  the  future  licensing  incomes  that  may  be  derived  from  the 
product.  As  Pitkethly  (1997)  points  out,  in  effect,  this  is  an  estimate  of  future  licensing 
incomes  based  on  different  economic  scenarios.  However,  as  Siegel  et  al.  (2007) 
suggest, since TTOs are an intermediary safeguarding university IP, there is also a desire 
to maximize the returns from the IP portfolio for the university. Scientists’ evaluations of 
their technology may not be accurate and may not match potential buyers’ evaluations of 
that  technology;  TTOs  can  be  caught  in  situations  of  asymmetric  information,  which 
complicate the process of assessing value. 

There  are  several  methods  for  valuing  IP,  but  scholars  of  patent  valuation  emphasize 
three main technology valuation approaches, proposed by Parr and Smith (1994). These 
are the cost-based, market-based and income-based approaches. Below, we review each 
of these in turn. 

Cost based approach to technology valuation 

Cost  based  approaches  seek  to  value  the  technology  based  on  the  costs  incurred  in 
production  (Carte,  2005).  Costs  refer  to  all  direct  costs  incurred  in  generating  the 
technology, obtaining a patent and commercialization. The objective of this method is to 
fully recover the total investment from the sales value of the patent. Monitoring costs is 
straightforward and is a relatively simple method if the future uses of the technology are 
unknown  or  if  the  invented  technology  is  a  radical  innovation,  allowing  no  market 
comparisons. 

Smith and Parr (1994, 2000) identify two variants of the cost method - reproduction cost 
and  replacement  cost.  The  reproduction  cost  method  assesses  the  costs  from  the 
university’s  perspective  and  asks  what  the  buyer  should  pay  to  exactly  replicate  the 
product.  The  replacement  cost  method  assesses  the  cost  from  the  point  of  view  of  the 
buyer  (usually  a  firm)  and  asks  what  the  firm  would  have  to  pay  in  order  to  produce  a 
technology with comparable functionality. This is akin to an opportunity cost measure for 
the firm buying the technology. 

The  reproduction  and  replacement  estimates  may  not  coincide,  which  can  be  a  problem 
for  TTOs  since  cost  based  approaches  may  reflect  the  presence  of  asymmetric 
information between scientist and buyer, rather than being an objective method to settle 
any differences. Furthermore, the cost based approach takes no account of future income 
streams that might be attributed to the technology. This may be acceptable in the case 
of  radical  and  early  stage  technologies,  but  not  for  mature  technologies  or  technologies 
that have substitutes. 

Market based approaches 

Market  based  approaches,  pioneered  by  Stewart  (2001),  adopt  an  intellectual  capital 
model, which posits that the market value of a TTO reflects the total value of its tangible 
and  intangible  assets.  Thus,  using  this  methodology,  the  difference  between  the  book 
value  and  market  value  represents  the  value  of  the  patent.  In  this  respect,  the  market 
based approach is quite similar to the market value approaches reviewed in Section 2.1. 
However, in the absence of projected/actual earnings, TTOs often asses the market value 

22 

of  the  technology  based  on  comparative  valuation  of  the  focal  technology  and  other 
similar technologies being used by buyers.  

Wu  and  Tseng  (2006)  show  that  using  a  market  based  approach  usually  results  in  two 
values  for  the  patent:  A  minimum  value  which  is  based  on  the  cost  of  developing  the 
patent,  and  a  sale  value  which  is  based  on  demand  (number  of  buyers).  In  terms  of 
practicalities,  Damodaran  (2007)  and  Flignor  and  Orozco  (2006)  recommend  that 
comparative  valuation  should  be  conducted  in  two  steps.  First,  screening  commercial 
transactions  to  identify  similar  businesses  or  assets  being  traded  in  the  market;  and, 
second,  conducting  an  adjustment  in  which  the  valuation  parameters  are  defined  by 
estimates based on market data. In the screening stage, business analysts typically use 
companies in the same industry or transactions of similar (technology) patents. Copeland 
et al. (2005) suggest using an earnings-multiple approach to apportion the assets, while 
Damodaran (2007) suggests adjusting for such factors as market growth. 

The market based approach is data intensive and suitable for use in contexts where huge 
amounts  of  data  are  available.  It  has  been  used  to  determine  royalty  rates  based  on 
industry  standards  reflected  in  databases  such  as  the  Licensing  Economics  Review. 
However, as Shane and Elgar (2004) note, in the case of research that generates radical 
innovations, it is often  very difficult to find similar technologies and variables to use for 
comparison.  Similarly,  in  the  case  of  multipurpose  technologies,  the  method  can  break 
down or become computationally expensive. 

Income based approaches 

Income  based  approaches  are  more  complex  computationally,  but  share  the  common 
premise  that  the  value  of  the  patented  technologies  should  reflect  their  income  earning 
potential.  There  are  four  main  methods:  The  discounted  cash  flow  (DCF),  risk  adjusted 
net present value (rNPV), NPV with Monte Carlo simulation, and real options.  

Brearly  and  Myers  (1998)  note  that  DCF  methods  are  used  by  managers  to  calculate 
internal rates of  return  and payback times or life of asset such as bonds, securities and 
buildings. The main difficulty related to DCF is finding an adequate rate of discount since 
future  income  streams  depend  on  many  factors  such  as  the  overall  functioning  of  the 
economy. In practice, these problems can be overcome by the use of capital asset pricing 
models and the cash flows of other companies with equivalent risks. Once a discount rate 
is established, the investor compares the discounted rate of return with the internal rate 
of  return  and  funds  those  projects  with  a  higher  internal  rate  of  return  or  one  equal  to 
the discounted rate of return.  

DCF methods underlie the calculation of NPV, which is defined by: 

𝑁𝑃𝑉 =   −𝐼 ±  

𝑛
𝑡=1

∑
𝐹𝐶𝑡
(1 + 𝑘)𝑡

where I refers is the value of investment, FCt is present cash flow value, k is the discount 
rate  and  t  is  the  payback  life  of  the  technology.  A  positive  NPV  indicates  a  technology 
that  is  economically  viable,  while  a  negative  NPV  indicates  a  technology  that  is  not 
economically  viable.  If  NPV=0,  I  indicates  that  the  investment  in  the  technology  is 
recovered  and  the  NPV  method  yields  similar  results  to  the  cost  method  discussed 
earlier.  The  payback  life  of  the  project  t  is  an  interesting  variable  since  it  is  generally 
based on the number of periods that a TTO manager considers reasonable to recover the 
investment  in  the  technology.  It  is  likely  that  firms  may  have  a  shorter  implicit  t  than 
TTOs. 

Technologies  developed  by  universities  are  embryonic  or  in  the  early  or  intermediate 
stage  of  development.  Razgaitis  (2009)  identifies  four  types  of  risk  that  need  to  be 
evaluated  when  valuing  technologies.  First,  there  are  risks  specific  to  the  technology, 
such  as  the  stage  of  development,  and  risks  associated  to  R&D  activities,  product 
development  and  design  for  manufacture  (prototyping)  and  the  (rising)  costs  of  raw 
materials.  Second,  there  are  risks  associated  to  the  market  such  as  forecasting  market 
demand, acceptance of the technology product, product lifecycle and purchasing power of 

23 

 
the  target  market.  Third,  there  are  IP  related  risks  such  as  the  scope  of  the  protection 
and  the  protection  of  trade  secrets.  Fourth,  government  policy  and  societal  values  can 
make certain types of technologies infeasible. In recent years many applications of stem 
cell technologies, such as cloning, or use of genetically modified seed, have encountered 
ethical objections in Europe. 

The  rNPV  takes  a  static  view  of  these  risks  and  assigns  both  a  risk  rate  and  a  discount 
rate to NPV calculations. These two rates can vary according to the stage of development 
of  the  technology;  the  pharmaceutical  industry  tends  to  favour  this  valuation  method 
since prior research shows that the probable success of a drug differs at different stages 
in  the  drug’s  technological  development  (e.g.,  discovery  stages  have  the  highest  risk, 
while the risks can be  considerably reduced at the clinical trials stage).   In general, the 
rNPV  method  involves  five  stages  of  calculation.  First,  the  cash  flow  in  the  technology 
development  phase  is  calculated;  second,  the  cash  flow  for  the  market  phase  is 
calculated; third, the discount rate is applied to the cash flow to obtain the DCF; fourth, 
there is an adjustment made for the risk (probability of success) involved in each stage; 
five, the risk adjusted DCF are summed. In terms of the NPV equation, the rNPV can be 
written as (note that p(t) refers to the probability of success at any stage): 

𝑟𝑁𝑃𝑉 =   −𝐼 ±  

𝑛

∑ 𝑝(𝑡)𝐹𝐶(𝑡)

𝑡=1
(1 + 𝑘)𝑡

rNPV  methods  can  be  made  more  sophisticated  by  the  incorporation  of  probability 
distributions instead of point probabilities. Thus, one could use a binomial distribution of 
p(t) modelling the probability of success or failure at every stage, or employ Monte Carlo 
methods which allow the inclusion of any probability distribution to model the risk profile. 

Given  the  irreversibility  of  technological  investments,  uncertainties  inherent  in  the 
development  and  commercialization  of  early  stage  and  novel  technologies,  and  the 
possibility of postponement of these investments, a more promising development is real 
options  theory  for  evaluation.  When  DCFs  are  modest  or  minimal,  TTOs  often  have  to 
rely on  some form of subjective judgement in order to decide whether or not to pursue 
commercialization.  Van  Putten  and  Macmillan  (2004)  explain  that  options  provide  the 
right, but not the obligation to invest in a project. Therefore, their value is driven by the 
possibility of achieving a large upside gain combined with the fact that TTOs  can usually 
abandon  a  project  before  the  investment  becomes  too  high,  which  limits  the  downside. 
Therefore,  the  value  of  an  option  must  increase  as  the  uncertainty  (and,  thus,  the 
potential  upside)  surrounding  the  underlying  asset  increases,  whether  the  asset  is 
financial or “real.” 

There  are  several  examples  of  real  options  valuations  from  the  pharmaceutical  sector, 
where  agents  keen  to  acquire  a  technology  have  a  number  of  options.  They  can  decide 
on  investment  in  an  early  stage  technology  in  the  expectation  of  a  large  gain  in  the 
future but, at a lower premium, they may choose to acquire a more developed version of 
the technology, at a higher price but with lower risk. Similarly, university TTOs can use 
real  options  to  decide  whether  it  is  better  to  choose  commercialization  now  or  to 
postpone licensing in order to develop the technology further  for particular applications. 
Section 5 shows that in several TTOs, this form of thinking implicitly underlies the choice 
between commercialization through patenting or incubation. 

24 

 
 
 
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27 

GETTING IN TOUCH WITH THE EU 

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