David Kennedy

What led you to a career in IP valuation – especially given that you began as a certified public accountant (CPA)?

As a certified public accountant, I focused on auditing asset values and advising clients on acquisition prices. I rarely dealt with IP assets until 1995, when a client asked me to help design a licensing programme for his company’s patent portfolio, despite my admitted lack of IP experience at the time. I applied my financial analysis skills as a CPA to learn IP valuation and how to negotiate the financial aspects of patent licensing on the ground, fortunately with the help of experienced patent lawyers and patent litigators. Since then, I have focused my career on valuing and licensing intellectual property.

What common mistakes do parties make when embarking on a licensing negotiation – and how can they avoid them?

I think a common mistake is attempting to negotiate licence agreements without a thorough technical analysis that focuses on the technical benefits of the invention, and then tying that directly to a credible measure of financial value. Another mistake is to underestimate the amount of time and resources necessary to see results in a licensing programme. Fortunately for patent owners, the now developed litigation funding industry enables companies to finance expensive litigation when agreements cannot be reached out of court.

What changes have you seen in the IP valuation ecosystem over the course of your career?

I have seen IP valuation develop from rules of thumb and standard industry royalty rates to very specific technical and financial valuations of specific claims in individual patents, due in large part to developing case law. This has been a very positive development over the last few decades. The level of sophisticated financial analysis most licensees require before agreeing to a licence for any significant amount has increased dramatically over the course of my career, leading to a more efficient marketplace for intellectual property.

How do you build trust and understanding with clients to ensure that they make the most informed decisions?

Trust from a client is best built through helping them not only understand the true (and rational) value of their technology and the (not always equal) potential licensing opportunities, but to also assist them in understanding the risks and delays associated with unrealistic demands and unreasonable positions in licensing negotiations. The same is true for clients who are potential licensees. A licensee adopting an unreasonable position often creates missed market opportunities and potentially expensive and unsuccessful litigation.

What trends do you see emerging in FRAND licensing and how can companies best prepare themselves to take advantage of these?

One of the most significant trends is that the historically perceived caps and early views by many implementors that FRAND commitments were primarily a limitation on licensors, has developed into the current reality that FRAND requirements also create a responsibility for licensees in negotiations to take fair, reasonable and non-discriminatory positions. In my opinion, the best way to prepare for reasonable outcomes in FRAND licensing situations is for both licensees and licensors to study available current data and information about the value of particular standard-essential technology (while deducting any value related to standardisation itself) in specific products. This is as opposed to relying on dated information related to perceived royalty stacks and commitments made by other companies about what the appropriate royalty stack (and at times self-serving statements) is for broad groups of SEPs. Also, in licensing negotiations, more and more licensees and licensors realise that, within sub-sets of SEPs, there are very valuable patents, patents of average value and worthless patents. The value must be based on the merits of the individual patent itself and the value the marketplace sees in a particular technology and the portion of SEPs related to that technology. That valuation process and negotiating FRAND rates is now a very complex endeavour – and has become a very interesting part of my career.

The views and opinions expressed in this questionnaire are those of the author and do not necessarily reflect the opinions, position or policy of Berkeley Research Group, LLC or its other employees and affiliates.

David Kennedy

Managing Directorbr
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David Kennedy is a certified public accountant and expert in IP licensing, valuation, analysing claims of economic damages related to IP infringement damages and patent sales and licensing agreements. For over 30 years he has served as the lead negotiator in more than 200 IP-related transactions and performed patent portfolio. Mr Kennedy has also served in International Chamber of Commerce international arbitration and litigation matters as an expert in determining FRAND royalty rates.

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