There is growing interest in and need for IP valuation (eg, from companies offering insurance and litigation finance). How much consensus are you seeing in how prices should be calculated for intangible assets?
I have become more involved with IP insurance and litigation finance over the past six or seven years. While I would definitely say that valuation approaches in these industries varied greatly when I first became involved with them, there is a growing consensus with regard to how prices should be calculated. This makes sense, given the size and growth of the markets. I know of dozens of insurers who are now writing litigation coverage and I think the litigation funding industry has surpassed US$40 billion. It is rare for me to see litigation these days that is not in some way touched by litigation funding and the sophistication of the market has brought consistency to valuation techniques.
What deal or transaction that you have been involved in are you most proud of and why?
This is a tough question because I have done a lot of work in both licensing and litigation that I am very proud of. On the licensing side, I would say that I am most proud of a series of licences that I executed on behalf of a significant US electronics manufacturer, which was pushed out of business by a number of foreign companies that stole its patented technology and used cheap, unregulated labour to undercut its prices. While the revenue from the licences that I executed in no way compensated the client for the dramatic losses that it incurred, it did provide an infusion that was critical to other business segments that it operated. On the litigation side, I am proud of the defensive patent damages consulting work that I have done for the government. I have helped the military and other agencies develop defensive damages models and approaches that have saved them billions of dollars.
The IP monetisation space is relatively young. How do you manage expectations and maintain close working relationship with clients that might be new to this?
When I first became involved in the IP monetisation business, I was lucky to have a mentor who had a tremendous amount of experience in the space. This is certainly not the business that I imagined I would end up in 30 years ago, so I had to learn a lot on the job. I think my experiences can be valuable lessons for my clients. I have negotiated and/or served as an advisor in more than 200 IP transactions – as an IP owner and on behalf of companies and inventors. I use my personal experience in negotiating IP transactions and licences to help my clients understand the process and set realistic expectations for their desired outcomes.
What common mistakes do parties make when embarking on a licensing negotiation – and how can they avoid them?
Licensing negotiations are two sided, and any agreement must be economically rational to both sides. Licensors and licensees often lose sight of this and lose perspective in the negotiation. The final terms and royalty rate must be more than (or, at the limit, equal to) the assessed economic cost of the licence to the licensor. Conversely, the royalty rate must be less than (or again – at the limit, equal to) the assessed economic value of the technology to the licensee. When I am managing a negotiation, I model, as best as I can, the licensor’s economic cost of the licence and the licensee’s perception of value. I then present that model to the party that I am negotiating for and try to use it to help find common ground. Since I often run into the same licensors and licensees in different transactions, this helps bring a consistency to licence negotiations that can help get deals done.
You have over two decades of experience in intellectual property – what keeps you in the game?
I stay involved in IP transactions. While I have spent more time the last few years testifying in patent litigations, my passion remains in licensing and transactions and I work hard to stay involved in that area. The benefit of this is that the diligence phase of licensing and transactions is typically focused on current events in the IP industry and that enables me to keep my finger on the pulse of the ever-changing IP landscape.
Larry Tedesco is an expert in developing, managing, valuing and licensing intellectual property as an operator and consultant. He has provided multiple levels of damages evaluations for both plaintiffs and defendants in a wide range of IP disputes and is a certified valuation analyst, certified licensing professional and a master analyst in financial forensics.