Intellectual Property – Georgia-Pacific Factors

By Abhi Mathews CBV, CFA
December 2017

 

There is no one specific or required methodology for determining a reasonable royalty.  However, most analyses, at least, consider the 15 factors outlined in the Georgia-Pacific Corp. v. United States Plywood Corp. case, known as the “Georgia-Pacific Factors.” The 15 factors are listed below:

1. The Royalties a Patentee receives for Licensing the Patent

It is necessary to collect the receipts when a Patentee receive the Licensing fee from the Licensee. Sometimes the benefits are not always monetary, but can be measured in monetary terms – contact us, at Minerva Valuations, for more information.

2. The rates a Licensee pay for use of other Comparable Patents, as applicable

In order to set up the rate of Royalty Income, fairly, the Patentee should research to establish the appropriate rate at which the Licensee received payment for similar Patents. At Minerva Valuations, we have experience determining appropriate Royalty Income, using best in class resources available in the Intellectual Property Valuation and/or Intellectual Property Law field such royalty rate databases, private IP transactions and publicly available information.

3. Nature and Scope of License in term of Exclusivity and Territory / Customer Restrictions

The Patentee should define License’s nature and scope, including but not limited to the Exclusivity, Territory and Customer Restriction; To be more specific, the owner of the Patent should clarify the ownership of the Patent.

4. Licensor’s Established policy and marketing program to maintain Patent Monopoly by not Licensing others to use the invention.

To protect the Patent, the Licensor may hire a Professional (e.g. an IP Lawyer, IP Legal Team) to set up the rules around the Patent that the Licensor owns. In addition, the owner of the Patent may introduce the Patent in the Public by doing some advertisement. It helps to let everyone knows Patent’s ownership and the potential competitors may give up the idea of infringement. These kind of Action helps to Value of Patent maintain stable, so does the Royalty Income.

5. The commercial relationship between the Licensor and Licensee, such as whether they are competitors, partners, promoters, or inventors.

It is necessary to know the relationship, when the Licensor agree the Licensee to use their Patent. If the commercial relationship between the Licensor and Licensee are promoters, inventors, partners or competitors, the Patentee should consider the various risks that Patentee may suffer, when the Licensor allow the Licensee to use the Patent.

6. The effect of selling the patented specialty in promoting sales of other products of the Licensee, the existing value of the invention to the Licensor as a generator of sales of non-patented items, and the extent of such derivative or convoyed sales.

When the Licensee sells the Patented specialty, the Licensor should consider whether they received any help from the Licensee to promote their product.

7. The duration of the patent and the term of the license

The Licensor should clearly know their 4Ps (Product life Cycle, Price, Place,Promotion and Strategy). This allows the Licensor to set up the term of License (e.g 3 years, 5 years 10 years), which allows it to maximize the Patent’s utility and benefit of the Patentee.

8. The established profitability of the product made under the patent; its commercial success; and its current popularity

As the Licensor, it should think about why the customers choose the product. If the customers choose the product only because the Brand Name or Patent, it means the customers approve, indirectly, the Patent (” increased patent value”).

9. The utility and advantages of the Patented Property over the old modes or devices

The Patentee derives a competitive advantages of the Patented Property, compared with the old modes or devices. If the Patented Property brings the value which the other devices can not provide, it means the Patented Property is irreplaceable in the market (such as Google’s superior search engine, Facebook’s algorithm on user generated data, or Apple’s superior attention to detail in design and utility along with its ecosystem).

10. The nature of the patented invention, the character of the commercial embodiment of it as owned and produced by the licensor, and the benefits to those who have used the invention

The Licensor should clearly know the nature of patent and the value of the Patent would bring to the Licensee, or any potential Licensee. In other words, how does this Patent help the Licensee make more money, all things equal, for their business(es). Alternatively, we, at Minerva Valuations use a secondary approach when evaluating this scenario as we look if a potential competitor would find similar value in the patent as the Licensee.

11. The extent to which the infringer has made use of the invention and the value of that use

How valuable is the Patented Product to a Licensee, as this is a good way to predict the Value of the Patent Created.

12. The portion of the profit or selling price customarily allow for the use of the invention

If the Licensee agree to pay a fee to the Licensor, based on the share of profit of Patented Product, it means that the Licensee is sure that the Patent does make a certain level of profit, in other words, that is Royalty Income of the Patent.

13. The portion of the realizable profit attributable to the invention as distinguished from non-patented elements, Patented elements feature improvements added by the infringer.

It helps to predict, forecast or evaluate the Patent Value precisely, avoiding the risk of overestimating or underestimating. Of course, it assists to know how to set up the rate of Royalty, which depends on the comparables available. At Minerva Valuations, we have experience determining appropriate rates, using publicly available information or private royalty rate databases.

14. The opinion testimony of qualified experts

As qualified Experts, Business Valuators (i.e. CBV / ASA) must have enough experience, technical and practical knowledge to value the Patent Value.

15. Outcome from a hypothetical arm’s length negotiation at the time that an infringement began

If the Licensor agrees to compensation from Licensee, after negotiation, this means that both, the Licensor and the Licensee, accept the Market Value of Patent since an infringement.

 

At Minerva Valuation Advisors, we are trained, as business valuators and financial analysts, in a variety of settings including in tax planning valuations, family law valuations, shareholder disputes valuations and merger & acquisitions valuations and advisory.

As it relates to Technology Companies, Minerva Valuations has a breath of experience financing and investing in American and Canadian technology companies, including TSX and TSXV listed companies. We also have experience developing and owning proprietary North American technology assets. Our mentors include the first venture capitalists to invest in Blackberry and one of the first venture capitalists to invest in Facebook.


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