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Intellectual property valuation model

(Simple)

By

MyPatent
(www.mypatent.co.za)

Subject to disclaimers
For valuation services using our proprietary comprehensive model, please contact www.zaiplaw.co.za

MyPatent, Intangible Consulting (Pty) Ltd,


2007
Company: XYZ Co Disclaimer: 1
Asset:
Base date:
Trademark
Dec-08
Zero everything
This is a free valuation tool. MyPatent does not confirm the correctness of the inputs or the appropriateness of this valuation methodology
The public is free to use this model at their own risk and no reliance is placed upon MyPatent
Currency Rands The valuation determined using this model is not endorsed by MyPatent
This is a basic valuation model. Various features in the proprietary model developed by Sibanda & Zantwijk attorneys have been de-activated
Base turnover in currency of choice 5,000,000 MyPatent does not guarantee the accuracy of this model or that this model has not been tampered with
Projected growth Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
30.00% 30.00% 25.00% 25.00% 20.00% 20.00% 15.00% 15.00% 15.00% 15.00%
Average PBIT for period (as % of Turnover) 20.00% For years 6 to 10 consider limiting growth to inflation + GDP growth
Notional royalty as a % of PBIT 25%
Apportionment of royalty to asset valued 80%
Royalty rate 4.00% Override royalty?
0 5.00% 4.00%
Income tax rate 29%
Discount rate 25.00% 1
Useful economic life (yrs) 8

Dec-08 Year1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
0
Turnover 5,000,000 6,500,000 8,450,000 10,562,500 13,203,125 15,843,750 19,012,500 21,864,375 25,144,031 28,915,636 33,252,981

Royalty payable 200,000 260,000 338,000 422,500 528,125 633,750 760,500 874,575 1,005,761 1,156,625 1,330,119

Tax 58,000 75,400 98,020 122,525 153,156 183,788 220,545 253,627 291,671 335,421 385,735

Profits after tax (life) 142,000 184,600 239,980 299,975 374,969 449,963 539,955 620,948 714,090 0 0

NPV of royalty stream: 1,147,458 Rands (Value) Click here to read our articles on common valuation mistakes

35,000,000

30,000,000
Turnover

0
25,000,000 0

20,000,000
0
0
15,000,000

10,000,000

5,000,000

0
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18
Years
MyPatent, Intangible Consulting (Pty) Ltd, 2007
Approximate values of hurdle rates

(corresponds to a Treasury Bond of 7%)


Risk Approximate hurdle rate
"Risk free" such as building a duplicate plant to make more of a currently made and
sold product in response to presently high demand Approximates corporate rate of borrowing, 10-18%
"Very low risk", such as incremental improvements with a well-understood technology 15-20%; discernibly above the corporation's goals for return on
into making a product presently made and sold in response to existing demand investment to its shareholders
"Low risk", such as making a product with new features using well-understood
technology into a presently served and understood customer segment with evidence of
demand for such features 20-30%
"Moderate risk", such as making a new product using well-understood technology to a
customer segment presently served by other products made by the corporation and
with evidence of demand for such a new product 25-35%
"High risk", such as making a new product using a not well-understood technology and
marketing it to an existing segment or a well-understood technology to a new market
segment 30-40%
"Very high risk", such as making a new product with new technology to a new segment 35-45%
"Extremely high risk", such as creating a startup company to go into the business of
making a product no presently sold or even known to exist using unproven technologies 50%-70% of even higher

MyPatent, Intangible Consulting (Pty) Ltd, 2007


Ballpark royalty rates

Category Surveys Average Royalty


Accessories 1 8.90%
Aerospace 3 4.00%
Apparel 3 6.80%
Automotive 8 3.30%
Baby Goods 1 6.00%
Baked Goods 1 5.20%
Books - Softcover 1 7.50%
Books - Hardcover 1 10.00%
Building & Construction 1 5.60%
Business Services 1 11.90%
Chemicals 7 4.30%
Child related 1 6.30%
Computers 6 4.60%
Consumer Goods 3 4.80%
Domestics 1 7.30%
Education Related 1 8.30%
Electronics 9 5.10%
Energy & Environment 4 8.00%
Entertainment 1 15.50%
Diagnostics 1 3.50%
Distribution 1 5.20%
Fast Food 1 5.10%
Food 7 4.40%
Footwear 1 10.00%
Franchises 1 5.00%
Furniture / Home Furnishes 1 7.00%
Government / University 2 7.10%
Healthcare Products / Equipment 7 6.40%
Hospitality / Leisure 2 4.50%
Housewares 1 7.00%
Industrial Products 1 6.40%
Internet 2 8.20%
General Manufacturing 2 6.40%
Machine/Tools 5 4.80%
Maintenance Services 1 6.90%
Media & Entertainment 2 6.50%
Music / Video 1 7.00%
Medical Equipment 1 4.00%
Novelties / Gifts 1 8.30%
Personnel Services 1 12.50%
Pharmaceuticals / Drugs 6 7.50%
Pre-Clinical 1 3.00%
Phase I 1 7.50%
Phase II 1 11.50%
Phase II 1 15.00%
Launched 1 20.00%
Research Reagents (e.g. expression vector,
cell culture, media supplements) 1 3.00%
Diagnostic Products (e.g. monoclonal
antibodies, DNA probes) 1 3.00%
Therapeutic Products (e.g. monoclonal
antibodies, cloned factors) 1 7.50%
Vaccines 1 7.50%
Animal Health Products 1 4.50%
Plant/Agriculture Products 1 4.00%
Printing 1 5.40%
Publishing 1 10.60%
Biotechnology 1 7.00%
Pharma & Biotech 3 5.00%
Real Estate 1 7.40%
Restaurants 1 4.60%
Retail 1 6.10%
Semiconductors 4 3.70%
Services 2 5.90%
Software 6 9.60%
Sporting Goods 2 7.70%
Stationery / Paper 1 10.00%
Telecom / Communications 3 5.80%
Toys & Games 3 9.70%
Travel 1 5.60%
Trademarks and Copyright 1 10.60%
Greeting Cards & Giftwrap 1 3.50%
Household Items (cups, sheets, towels) 1 5.50%
Fabrics & Apparel 1 6.00%
Posters & Prints 1 10.00%
Toys & Dolls 1 5.50%

Compiled using our database of 42 royalty surveys.

Please note that royalties may be spread over a range from 0% to three times the "average royalty" and that the above average roy
rates should only be used to support royalty rates determined using first principles. (see www.zaiplaw.co.za)

MyPatent, Intangible Consulting (Pty) Ltd, 2007


Royalty rate factors

Main factors:
1 Strength of IP arsenal
2 Monopoly granted by IP
3 Degree to which IP drives sales / profits

Other factors:
1 the royalties received by the proprietor for the licensing of the IP in suit, proving or tending to prove an established royalty;
2 the rates paid by the licensee for the use of other IP comparable to the IP in suit;
the nature and scope of the licence, as exclusive or non-exclusive; or as restricted or non-restricted in terms of territory or with respect to whom the
3 manufactured product may be sold;
the licensor's established policy and marketing program to maintain his IP monopoly by not licensing others to use the IP or by granting licences under
4 special conditions designed to preserve that monopoly;
the commercial relationship between the licensor and licensee, such as, whether they are competitors in the same territory in the same line of
5 business; or whether they are inventor and promoter;
the effect of selling the protected specialty in promoting sales of other products of the licensee; the existing value of the IP to the licensor as a
6 generator of sales of his non-protected items; and the extent of such derivative or convoyed sales;
7 the duration of the IP and the term of the licence;
8 the established profitability of the product made under the IP; its commercial success; and its current popularity;
9 the utility and advantages of the IP over the old modes or devices, if any, that had been used for working out similar results;
the nature of the protected IP; the character of the commercial embodiment of it as owned and produced by the licensor; and the benefits to those
10 who have used the IP;
11 the extent to which the infringer has made use of the IP; and any evidence probative of the value of that use;
the portion of the profit or of the selling price that may be customary in the particular business or in comparable businesses to allow for the use of the
12 IP or analogous IP;
the portion of the realisable profit that should be credited to the IP as distinguished from non-protected elements, the manufacturing process, business
13 risks, or significant features or improvements added by the infringer;
14 the opinion testimony of qualified experts; and
the amount that a licensor and a licensee would have agreed upon if both had been reasonably and voluntarily trying to reach an agreement; that is,
the amount which a prudent licensee - who desired, as a business proposition, to obtain a licence to manufacture and sell a particular article
embodying the protected IP - would have been willing to pay as a royalty and yet be able to make a reasonable profit and which amount would have
15 been acceptable by a prudent proprietor who was willing to grant a licence.
Georgia-Pacific Corp v United States Plywood Corp

MyPatent, Intangible Consulting (Pty) Ltd, 2007